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Indian born techie to improve banking for poor
By siliconindia
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Thursday, 17 September 2009, 22:34 IST |
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Bangalore: An Indian born techie has been appointed by World Bank to solve the micro finance problems of the country. Sandeep Chatterjee, a Masters and PhD from the Massachusetts Institute of Technology (MIT) is appointed by World Bank to analyze the state of technology and processes in India's rural banking sector, and recommend appropriate technologies and operational processes to help the task of financial inclusion in the country which aims at giving hundreds of millions of its deprived citizens access to banking facilities.
The recently formed UPA (United Progressive Alliance) government in India has put financial inclusion high on the agenda. In fact, on September 18, Union Finance Minister Pranab Mukherjee has convened a high-level meeting of academicians, technology vendors, senior bankers and government officials to take stock of the situation and explore ways of taking the existing pilot projects to a national level. Chatterjee, as a technology vendor and Managing Director of SourceTrace Systems India, will be part of that meeting.
His report on how to scale up financial inclusion in India, which will be ready by the end of 2009, will be presented to National Bank for Agriculture and Rural Development (NABARD), the Reserve Bank of India (RBI) and Finance Ministry.
Chatterjee says, "Currently in India, there are many small projects (including his own) using technology and running in conjunction with banks to provide micro-finance facilities to hundreds of villages across 14 states." New Delhi based Ekgaon Technologies has developed a system for tracking transactions made by self-help groups. It has partnered with the likes of CARE, WorldVision and the World Bank to conduct a pilot which it plans to extend to 14 Indian states.
Bharti Airtel, too, has tied-up with two banks to extend its mobile remittance services to rural areas. It has already partnered with the Indian Farmers' Fertilizer Cooperative (IFFCO) to set up IFFCO Kisan Sanchar in Rajasthan. Under this initiative, the cooperative department will provide mobile handsets to farmers at marginal price through its outlets in the rural areas. These handsets would be loaded with green SIM cards, which will flash daily updates on agricultural practices and weather forecast free of cost.
Reliance Communications allows ICICI Bank account holders with Reliance handsets (even the low-end Rs 1,000 ones - with or without Internet connectivity) to make intra-bank (to ICICI account holders) money transfers. It has already tied up with HDFC to offer Reliance mPay - a virtual credit card.
"The list is not exhaustive. Unfortunately, these projects are spread all over the place and their solutions cannot be used across the country. We need to scale up these projects, and make their solutions interoperable, to make financial inclusion meaningful in the country," said Chatterjee.
Chatterjee's SourceTrace Systems, on its part, has a 32KB smartcard called 'India inclusion card' which uses biometrics for recognition, but also has a magnetic stripe which can enable users swipe the card at ATMs or points of sale (POS). "The problem with most other solutions is that when villagers migrate to cities or other villages, they have to trash the smart cards. Thus, the villagers lose interest in such schemes. My analysis reveals the need for a technology platform which gives us a card that can be used all across India," explains Chatterjee.
The analysis of Chatterjee has raised many concerns. Many banks are deploying - usually unwittingly - technologies and processes that are risky. A common risk is banks transmitting customer and transaction data over e-mail or other means, without encryption, thereby compromising a customer's information. Another common issue is that banks like to compensate their intermediary on a per-transaction basis. Although this may initially be good for the banks, it encourages fraud and coercive behavior. "Consider, for example, that a customer wants to deposit 
150. The intermediary may mislead the customer and state saying that a maximum of 100 can be deposited at one time. Then, the intermediary may proceed to perform two transactions; one for 100 and one for 50 for a total of 150 or conversely, the intermediary may mislead the customer by informing him/her that the minimum deposit amount is 500, when in fact there is no minimum. These actions may be beneficial for the intermediary who is able to collect a larger commission, but, nonetheless, result in confusion and distrust in the marketplace, which ultimately may be damaging to the bank's entire effort and reputation."
Accordingly, the selection of the intermediary is critical, as they are the bank's customer touch-point. However, many banks in India are opting for simplicity by outsourcing the intermediary function to third-parties. "For a solution to work, three things have to come together - technology, operational processes and education," concludes Chatterjee.
150. The intermediary may mislead the customer and state saying that a maximum of 100 can be deposited at one time. Then, the intermediary may proceed to perform two transactions; one for 100 and one for 50 for a total of 150 or conversely, the intermediary may mislead the customer by informing him/her that the minimum deposit amount is 500, when in fact there is no minimum. These actions may be beneficial for the intermediary who is able to collect a larger commission, but, nonetheless, result in confusion and distrust in the marketplace, which ultimately may be damaging to the bank's entire effort and reputation."
Accordingly, the selection of the intermediary is critical, as they are the bank's customer touch-point. However, many banks in India are opting for simplicity by outsourcing the intermediary function to third-parties. "For a solution to work, three things have to come together - technology, operational processes and education," concludes Chatterjee.
