Microfinance Focus, Jan 4, 2010: India’s mobile phones will reach more than the targeted half billion people by the end of 2010 or 60 per cent of the tele-density, going by the country’s telecom ministry estimates. On the contrary, despite six decades of banking nationalization, denationalization and technological upgradation, India has failed to reach at least half the number telecom has reached in terms of providing financial access to the unbanked millions.

It points out a glaring mismatch between the nation’s goal and its reach. The drive to open millions of bank accounts for the rural people recently too failed to reverse the situation. A recent report by Skotch Development Foundation said though 25 million no-frill accounts were opened between April 2007 and May 2009, only 11% of them are operational. Most of them were driven by the government’s decision to release payments to the rural poor under employment guarantee program but failed to move further in opening access to bank credits for them.

The major task ahead for India is to bridge the gap by integrating mobile phone services with banking facilities. Essentially, the choice for the government is two-fold: either allowing banks to forge tie-ups with mobile service providers or giving licence to mobile operators to switch into banking mode as well. Since majority of banks in India are reluctant to open and operate rural branches due to cost escalation, it will be prudent for the government to encourage the telecom giants to enter the field. This will help half the country’s population get access to banking facilities which can be fine-tuned at a rapid pace to help integrate the rural people.

The choice is not quite simple though. The challenge ahead is that of huge network connectivity with security that requires cost-effective technology upgradation by the telecom sector. Once connected, they should have freedom to enlist the support of microfinance institutions which have been actively operating in rural segments. If the country can reach at least half of its target in 2010, it would be a great change to welcome.