India: Can mobile phones take the place of banks?

Getting poor people into the banking system -- which will allow them not only to save money, but also borrow funds to increase their earning power -- has been one of India's biggest challenges. But as a new article from Forbes India points out, an outfit called FINO, which was started by ICICI Bank in 2006, has been quietly making serious progress.

When I wrote about mobile banking for Newsweek back in 2007, it was little more than a good idea, though a host of firms were already setting up "banking correspondents" in India's towns and villages. But since then, FINO has flown under the radar to make some pretty big strides, writes Forbes.

The quintessential "branchless bank," FINO uses so-called ‘pod machines’, hand-held biometric devices that recorded customer fingerprints, and local agents to keep serve its customers, says Forbes. The biometric readers reduce the risk of fraud, and its machines function both online and offline, so money still got transferred in areas without any network.

This is one instance where technology seems to be living up to the hype.

"By January 2010, it had 10 million customers (across 15 banks). It added another 15 million in the next year and doubled the base to 50 million by August 2012, two-thirds of the clientele base in the sector," the magazine reports. What's more? Having posted its first profits in 2011, "It’s eyeing 100 million by 2015," Forbes says.

The challenge is to wean people away from their familiar and largely informal ways of saving (buying gold and silver) and get them to open bank accounts. These are people who earn between $2,000 and $4,000 a year--just a bit above the government’s poverty line. “They are too far down the value chain [for banks],” Forbes quoted Manish Khera, the CEO of FINO, as saying.

And where banks don’t see any viable customers, Khera sees as many as 90 million people who will not only be looking to open savings accounts, but also to take loans, buy insurance, and invest in mutual funds.

“Don’t assume for a moment that poor people can’t save,” says Rajeev Arora, director, Financial Inclusion Networking and Operations (FINO) Paytech.