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India's Big Step in Mobile Banking: Framework for Delivery of Banking Services Via Mobile Approved
The framework aims at bringing basic financial services to millions of Indian with no access to banks. It envisages creation of Mobile linked No-Frills Accounts by the banks, which can be operated using mobile phones. It will also facilitate transfer of funds of various government schemes to these accounts.
Published on 4/16/2010 11:14:14 AM

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The government has approved the framework for delivery of basic financial services through mobile phones suggested by an Inter Ministerial Group (IMG) set up in 2009. The 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 mobilelinked 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: i. Through a mobile based PIN system using Mobile Banking POS ii. Through a Biometric (fingerprint) based system using UID numbers issued by UIDAI 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. 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 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 IMG 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. With the acceptance of the report by the government, 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 July 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 micropayment platform for transfer of benefits under various government schemes, micro-payment services and financial inclusion for the target groups of social sector programmes. 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.

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