Government Approves Framework for provision of Basic Financial Services through Mobile Phones

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The Vision

The vision of empowering the poor, wherever they may be, has been central to the developmental agenda of the Government. One sure way of empowering them is through financial inclusiveness – that is, make them able, in a real sense, to own and operate bank accounts. This has acquired a sense of urgency since it is critical to our ability to reach cash benefits to the poor under various Government welfare schemes. In recent times, we have seen how mobile handsets in millions have penetrated the ranks of the poor, both urban and rural. On the one hand this shows how viable and scaleable delivery models can be built on the strong edifice of micro-payments made by the poor. On the other, this holds great promise in taking connectivity-driven branchless banking models to habitations that have as yet no access to even basic financial services.

Constitution of IMG

To take the vision a step closer to reality, an Inter Ministerial Group (IMG) was constituted by the Government on DIT’s initiative on 19-11-09, to enable finalization of a framework for delivery of basic financial services using mobile phones. The IMG was chaired by the Secretary, DIT and included, among others, representatives from Department of Financial Services, Department of Posts, Ministry of Rural Development, Planning Commission, UID Authority of India, TRAI, RBI, Department of Telecom and the Home Ministry. After extensive discussions among members and other stakeholders involving the Banks, Telecom providers, security agencies, and the public, and holding three meetings of the full Group and several meetings of the sub-group constituted by it, the IMG finalized its report in March 2010.  A Committee of Secretaries constituted under the Chairmanship of the Cabinet Secretary to consider the recommendations of the IMG met on 1st April 2010 and accepted the Report of the IMG and approved the IMG framework as the basis of delivering financial services using mobile technology.

Significance of IMG Framework

Significance of IMG FrameworkThe report of the IMG assumes significance considering the growing number of mobile subscribers among the rural population and the disadvantaged sections. With mobile subscribers in rural areas far outstripping bank account holders, a large section of rural population now has access to mobile telephony but not to financial services. A system based on the IMG framework that enables provision of basic financial services through the individual’s mobile could be a major step in the direction of reaching out to the unbanked sections of the country. It will also play a key role in the Government’s ability to reach cash benefits to the poor under various Government welfare schemes.

The IMG Framework Approved by the Government

The IMG framework envisages creation of “Mobile linked No-Frills Accounts” by the Banks, which can be operated using mobile phones. The basic transactions permissible over these accounts will include Cash Deposit, Cash Withdrawal, Balance Enquiry, Transfer of money from one mobile-linked account to another and Transfer of money to a mobile-linked account from a regular bank account. It will also facilitate transfer of funds of various Government schemes like NREGS, etc to a “Mobile linked No-Frills Account”. In order to enable immediate operationalization of the framework while ensuring interoperability and interfacing with the Unique ID numbers system in the country as and when it becomes operational, the following two ways of service access have been proposed:

  • Through a mobile based PIN system using “Mobile Banking POS”
  • Through a Biometric (fingerprint) based system using UID numbers issued by UIDAI

Basic Transactions

Basic Transactions
Biometric based system using UID numbers

The framework accommodates other means of access as and when technology evolves or when needed.

The model enables persons with mobile phones to deposit and draw cash instantly into or from their “mobile-linked no-frills” bank accounts through a Business Correspondent (BC) having a mobile phone in the village. Also, the model enables any two mobile users, to transfer money to each others’ “no-frills” accounts specifying only their mobile numbers without the necessity of any intermediary including BCs. When fully implemented, the model would enable the same BC in the village to be shared by all the banks for supporting basic deposit and withdrawal transactions. two mobile users, to transfer money to each others’

To ensure interoperability among service providers including both Banks and MSPs and to reduce costs, the framework stipulates a simplified common template for the KYC requirements. The framework also proposes interoperable repositories at the national level for hosting and managing mobile linked no-frills accounts thereby substantially reducing transaction costs. These are the essential features that make the framework viable for large volume micro transactions.

A significant feature of the proposed framework is that funds remain within the banking system throughout and the intermediary does not have custody of the funds even momentarily. Keeping this in view as also the imperative of rapid scaling at a national level to reach out financial services, the IMG has recommended that RBI permit “for profit” corporate entities to function as BCs. The IMG also recommends that the RBI relax its stipulation that the BC or his sub-agent should be within 30 Km distance of a branch of the sponsoring Bank  in cases where there is no branch of any Bank within a 30 km distance.

The IMG report provides indicative monetary compensation levels for each player involved in the implementation, which would serve as the basis for getting the system started and be later fine-tuned in the light of actual experience.  The Report has recommended setting up of various committees by RBI and TRAI for setting of standards, supervising operations and ensuring transparency and fair play in the operations under this framework.

The Future

With the acceptance of the report by the Committee of Secretaries, Banks are being advised to implement the IMG framework on priority to extend basic financial services to the “unbanked” population of the country. Individual banks may start implementation by 31.7.2010 and banks may complete the rollout by December 2011.

The IMG framework based on mobile phones and biometric-based authentication will form the core micro-payment platform for transfer of benefits under various Government schemes, micro-payment services and financial inclusion for the target groups of social sector programmes.
Payment under Govt. scheme like NREGA to mobile linked No-Frills Accounts can

Besides delivery of basic financial services to the poor and disadvantaged, both urban and rural, the mobile-based delivery model will cut delay and reduce the costs and hardships incurred by the beneficiaries in availing the cash benefits under various welfare and poverty alleviation schemes.

Click here for the full text of the Report of the Inter-Ministerial Group (1.53 MB)PDF file that opens in a new window

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