State of Telecom Industry in Pakistan

Technology Review magazine has published an interesting article on mobile phones and banking in developing countries. It presents a good summary of mobile banking opportunities and challenges in emerging telecom markets. Its about providing financial slack to the vast population (base of the pyramid) through micro-credit schemes, delivered digitally through cell phones. The target population is estimated to be 4-6 billion people, mostly illiterate or with low literacy levels, who are currently out of the traditional banking channels.

This article on mobile banking outlines the tough issues: how to handle deposit of cash, how to enable cost-effective security, how to regulate mobile banking, how to diffuse tension between banks and m-commerce companies and how to convince first time users (mostly illiterate) to adopt a new solution. The article is written with rural India as the background and refers to the mobile commerce companies (mChek, obopay) which believe that the “right software can make cheap phones a financial lifeline to hundreds of millions.”

Of course Pakistan has its own local talent – companies like innov8 and amaana are working on the same idea and have made some inroads. The regulatory bodies in the government have also issued some directives and policy guidelines. But the user base is estimated to be low and obstacles remain.

Here are a few excerpts from the Tech Review piece.

In Bangalore, JiGrahak Mobility Solutions has developed a popular bill-paying and banking platform, but it’s sticking to the upper end of the market; its service requires the Internet connections available on higher-end phones. In Delhi, Eko India Financial Services is partnering with a local bank to bring no-frills bank accounts to the rural poor in a pilot project limited to 5,000 people. And Obopay India–the Indian branch of a U.S. firm–is working on developing a mobile microfinance platform in partnership with Grameen Solutions, one of the organizations created by the Bangladeshi microfinancier Muhammad Yunus, winner of the 2006 Nobel Peace Prize. (It is not connected with Grameen Koota in Bangalore: grameen means “rural” or “of the village.”) Obopay’s initiative, called “Bank a Billion,” was scheduled for a rollout in Mumbai and Bangladesh by early November, says Vijay ­Balakrishnan, chief marketing officer for Obopay India, which hopes to enroll a million people in those two regions within 18 months. In Obopay’s scheme, the purchase price of a cell phone would be built into a Grameen microloan; bill-paying software would be incorporated into the SIM card; and the borrower would open a no-frills bank account.

Cash and Cows
The difficulty with such efforts is that it’s not clear how hundreds of millions of poor rural people doing mobile banking would actually deposit and withdraw cash, even if they used their phones for transfers. No nation has yet convinced its citizens to forsake cash-stuffed wallets and convenient ATMs. Sabira Khanam, for example, sells her saris for cash. And she makes cash deposits in a conventional bank account (though from there, she will be able to receive and repay microloans electronically under the Grameen Koota/mChek project). “Today, cell-phone companies by themselves cannot provide the things that banks provide,” says Harvard’s Chu. “At the end of the day, if this is to be an effective platform, you have to have physical delivery or access to the funds.”

Towards the end the article talks about the infrastructure challenges.

Given that many areas of India have no banking infrastructure at all, he argues, it makes no sense to try to build kiosks and machines. “Those are nonscalable models and very labor-intensive models,” Swamy says. “If he can do it in his village, he can do it in his pocket [with his cell phone]. That is our perspective.” Still, most experts say a wholesale changeover to electronic transactions is unrealistic, and that mobile banking will require some connection to the cash economy.

Either way, the technology is there; the issue now is creating the environment necessary to cultivate it. “First, it will take changes in regulation,” says CGAP’s Ignacio Mas. “Second, it will take a mind shift by the banks to see opportunities where they haven’t before. And it will take partnerships: how will the [telecom companies] and banks come together with companies like mChek and other vendors who can bring together the [retail] agents?”