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Satellite’s Role in Extending Banking Services to Developing Areas

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Banking services are fundamental to economic development and combatting poverty. Studies by the World Bank and other organizations have shown that access to basic banking services like savings accounts, credit, and bill paying helps people pursue education, live healthier, finance homes and start businesses. Banking services are especially important in developing regions with large agricultural economies, where credit and secure savings accounts help farmers prepare for the coming season and ride out bad weather and soft markets.

Satellite communications are playing an increasingly important role in extending banking services to developing areas of Asia, the Middle East, and North Africa. Many individuals and small businesses use cellular phones to make payments and access bank accounts, with satellite providers carrying much of the cellular backhaul traffic.

In other African and Asian countries, most notably India, governments are partnering with the banking industry to build out and connect rural banking networks through satellite networks.

Over the last few years, India has enacted a national program to connect the 40% of its population that, until recently, lacked access to basic financial services, such as banking and checking accounts. The overwhelming majority of this under-banked population – about 60% – lived in rural India and was predominately agrarian. Local economies needed steady cash infusions and access to money and credit.

The government was sensitive to the under-banked populace’s needs and the challenges it faced. Rural bank branches were few and far between. The ATM infrastructure barely existed at all. Opening a bank account was a long, tedious process. It required documentation that could be hard to obtain.

These and other factors conspired to discourage most rural residents from using traditional banks. A parallel banking system of local money lenders arose to fill the gap. The local lenders charged exorbitant interest rates. Many rural residents were exploited by the system, but had little or no recourse for challenging unfair lending practices. In addition to supporting the agricultural economy, bank accounts can help protect people receiving government benefits from local lenders. Ready access to funds deposited directly into a bank account through Direct Benefit Transfer reduces or eliminates the need to borrow from a local lender. It also curbs pilfering and duplication.

The government launched a series of aggressive programs to bring a bigger percentage of the rural population under the ambit of India’s mainstream banking system. They were based on the principle of financial inclusion for all citizens, using technology where possible to bridge the banking divide. The latest financial inclusion program is the “Prime Minister’s Jandhan Yojna” (PMJDY), a campaign whose objective is to provide a bank account to every citizen in the country, which would especially benefit rural residents.

To use bank accounts to their best advantage, however, rural residents needed local service channels to access them. The most cost-effective options for India’s banks were to develop ATM infrastructures and micro/small branches throughout rural regions. Satellite networks were the obvious choice for linking these channels to India’s core banking network.