Since we’ve been talking Indian banking lately, a friend forwarded me this old-ish blogpost at MIT’s Technology Review magazine outlining one way that tech is helping roll out rural banking in India -

An ATM for the next Billion?

Kasaghatta, India: It’s a 90-minute walk from this southern Indian village—one of 730,000 in India—to Doddabenavengala, the nearest town with a bank branch. Until a few months ago, Karehanumaiah, a 55-year-old agricultural laborer, had no bank account, which also meant he had no access to formal credit. (He would have to pay 10 percent monthly interest to informal lenders to, say, borrow $45 to buy a goat.) But that all changed in recent months.

Karehanumaiah uses a desktop terminal to deposit 150 rupees (about $3.50) into his new account at Corporation Bank, with help from Muniyamma Ramanjanappa, a village resident who conducts these transactions in her concrete house as a bank representative. First, a smart card and a thumbprint scan prove his identity. Next, Ramanjanappa updates the bank balance information on his smart card by connecting the terminal to the bank database with a cell phone. Finally, Karehanumaiah hands Ramanjanappa the cash and gets a receipt for his deposit (which brings his balance up to 160 rupees)….now that Karehanumaiah has a bank account, he can borrow money from the bank at rates of between 8.5 and 13 percent annually—far less than in the informal system—and gain a toehold into the formal economy.

Ninety percent of India’s rural residents lack bank accounts, and a variety of technologies are being applied to the problem. Other efforts include using cell phones to make payments and execute bank transactions in a nation that is enrolling a staggering eight million new cell-phone accounts monthly, many of them in rural areas.

For me, the article really highlights what real, “bottoms up” econ & tech development is supposed to look like…

When many folks think about the ways developed countries do/should help the 3rd world, they usually focus on things like how much different national governments “give” in direct foreign aid. The problem however, is that those sorts of stats completely overlook the more decentralized, global market-based growth described in this article.

My PIN is my Thumbprint

The first model is easier to measure because it’s a “stated Intention” (to quote Thomas Sowell) of politically driven reallocation of tax dollars. Somewhere, some politician signed a bill to give $X to country Y and made some political hay of it.

The latter type of “aid” however, is the Consequence of massive & ongoing 1st world consumer indulgement in things like cell phones, consumer electronics, flat screen TV’s, credit card infra, and the like. All of this simultaneous consumption eventually led to the cost reductions and the ruggedness necessary for the tech to be economically sustainable in the 3rd world. Put simply, Western consumers exercising credit to buy iPhones and laptops produced in Chinese factories are far more responsible for enabling this particular Desi innovation than any Washington aid or charity package.

More importantly, this type of innovation ensures that the Desis involved aren’t merely waiting on wealthy nations’ hand out whims (or worse, demanding handouts) but are instead, actively building on technologies found in the open market to develop their own local solutions. This particular innovation also likely has high spillover potential into other 3rd world markets.

So maybe, just maybe, if you really want to help India, rather than giving politicians license to tax&spend your $$ and spit out press releases, you should try to hold on to more of it and treat yourself to a day of retail therapy at the mall instead.

UPDATE - FWIW, if you’re interested, theories for why we politically gravitate towards the “direct albeit less helpful vs. indirect but more helpful” strategy are also hit in this older SM post on the Moral Instinct.