By Aditya K S and Arun Viswanathan,

Microfinance Focus, January 18, 2012: India is a country with well over 1.2 billion people and growing. While the population growth is still a problem over the last few decades, there is a change in point of view now. The increasing percentage of the working population has tilted the population problem in a manner the developed countries look at India with envy. The demographic dividend is paying off with the GDP growth remaining in high single digits, even during the phase when the developed world is fighting a hard battle to stay in positive territory. There has been huge wealth creation in the urban areas where productivity has enhanced people’s earning power. With increasing prosperity in bigger cities and large towns, the influx of people from rural habitations seeking a better life is ever growing. This clearly is creating a perceptible difference in prosperity between the rural and urban habitations. This digital divide is a problem that modern India’s administrators and economists face the most.

Out of the 600,000 habitations in the country roughly 5 per cent only have accessibility to a bank. Only around 40 per cent of the population has a bank account. This ratio is much lower in the country’s north-east. People with debit cards and credit cards comprise 13 per cent and 2 per cent respectively. This means that there is effectively no means of an organized financial sector to half of the population in our country.

Even now, nearly 70% of India lives in the rural areas.  But the better earning opportunities in cities are attracting new inhabitants each day, at a rate that has not been witnessed in India before. The Finance Ministry and RBI have been trying to bring the idea of financial inclusion in the operations of public and private enterprises. This is a slow process, whose success depends on a number of factors; some diametrically opposite to the normal profit-making intentions of the financial service providers. The banks are still very comfortable with the opportunities that are available as part of the growing urban population. This is creating a lack of incentive for the banks to innovate services and products for the rural population.

This means that the rural population at large will have to manage their needs with the current set of financial resources and facilities until, promised ones reach them eventually. The waiting time arguably is going to be years. Of all the important facilities and services, the one to transfer money is the basic. With ever growing migration into urban areas, the ability to transfer money safely using an inexpensive and simple tool is valuable.

Following are some of the critical situations where such a money transfer tool is invaluable

• When someone comes to a city to look for job, from a place with lesser opportunities; there is always part of his/her family who has to be supported by the earnings of the person in the city and hence needs to transfer money back home quickly with minimum cost

• The lack of banking facilities in smaller habitations combined by the ability/mobility of the family back home to reach and use such facilities

• Dependence on informal human channels, to transfer money in cases just described above.

Scope for Growth in telecom sector

The urban teledensity in India is well above 1 person. At least from the number of subscribers per person, the urban areas seem saturated. That brings us to a question where will the next phase of growth come from and why are so many mobile players vying for a business in India?

Rural markets are the answer to this question. The table below shows the teledensity in urban and rural areas over the last 5 years. It shows a clear discrepancy in the penetration levels in urban and rural areas.