Cell phone a major factor in success story of Grameen Bank

July 16 - 22, 2007

"Many people thought we were making a mockery of technology. They could not envision the poor getting good use out of a cell phone," says Mohammed Yunus, founder and managing director of Grameen Bank. The idea of providing mobile connectivity to the rural masses was initially conceived by Iqbal Quadir, who was then an investment banker in the United States. He was inspired by Grameen Bank's micro-credit program, and envisioned a way in which cell phones could act as a source of income. He was successful in convincing Grameen Bank to form Grameen Phone along with Telenor in 1997. Grameen Phone is a GSM based cellular operator with more than 63% of the market share. It now boasts of revenues close to $1 billion.

A major factor in Grameen Phone's success is its Village Phone program, in which "phone ladies" provide cell phone access to members of their community and in the process earn a good profit. Through this program it has been possible to provide access to the 68,000 rural villages in Bangladesh, most of which had never had phones before. The success of Village Phone program in Bangladesh has been replicated in Uganda and Rwanda by MTN and in the Philippines by Smart Phone. Roshan Telecom in Afghanistan also has a Women's Public Call office program which is a microfinance initiative allowing women to operate and eventually own these PCOs.

It is undeniable that access to telephonic technology has helped improve lives significantly. Besides the obvious advantages of connectivity, cell phones are being used as an entry point into the market and banking sector. Fishermen in India use cell phones to meet demand in different localities and prevent wastage. Farmers in Bangladesh use it to find fair value of their rice and vegetables, effectively cutting out middlemen who exploited them. For many people access to cell phones enables them to move into the banking system. Mobile phone banking can extend financial services through virtual accounts to millions of poor people. It is possible to check bank accounts by phone and to make loan payments directly to the bank via text messages, saving both travel time and money. There are numerous applications available such as remittances, deposits, withdrawals, bill payment, cash in/out, text-a-payment, and even buying stocks.

Remittances, both domestic and international, offer a large market given the relative low cost of SMS-based mobile phone banking applications. Remittances from overseas relatives are in the range of $300 billion a year and contribute to economic growth and livelihood of needy people. In many countries remittances are double the amount of international aid. Mobile banking is making the flow of remittances easy: by sending money directly to the phones of relatives in poor countries, people are cutting out the use of conventional agents such as Western Union, MoneyGram, etc. Nicholas P. Sullivan, the author of 'You Can Hear Me Now' says: "Look for this money flow to explode over the next decade. The GSM Association, along with 19 mobile cell phone operators and MasterCard International, has embarked on a pilot to engage local banks as payment centers. GSM expects that this could increase the flow of remittances from $300 billion to $1 trillion over the next decade." Remittances also form a vital source of income during disasters or emergencies for people whose livelihood may have been destroyed by natural disaster or conflict. The Village Phone acts as a powerful instrument to reduce the risk involved in remittance transfers, and to assist villagers in obtaining accurate information about foreign currency exchange rates.

Mobile commerce or m-commerce has also gained a lot of popularity in developing countries. It is the buying and selling of goods using 'electronic currency'. Countries such as the Philippines, where mobile phone connectivity has preceded wide spread internet usage, have 'leap frogged' into m-commerce bypassing advances made by more industrialized nations. The two major m-commerce service providers in the Philippines are Globe Telecom and Smart Communications with over 3.5 million users altogether. In 2004, Globe Telecom launched G-Cash; an SMS based technology that turns a cell phone into an electronic wallet. Subscribers can easily send and receive cash through SMS. Smart Communications offers an extra feature to its subscribers: "Smart send" which enables more than 1 million overseas Filipino workers to transfer money to their relatives in the Philippines.

Most of the advances in m-commerce are seen in Asia and Europe, with India and China targeted as 'hot-spots' for m-commerce. Various Latin American countries like Mexico and Venezuela have also seen a budding of m-commerce due to rapid technological advancement and limited internet infrastructure, characteristics which they have in common with developing Asian countries. Even in Pakistan, UBL has launched an SMS based payment solution called Orion. Each transaction is protected by a secret PIN which offers basic security. The United States has also begun to take advantage of m-commerce. Companies such as MBlox use premium text messages that enable m-commerce transactions to be billed through mobile telecom service providers. By some estimates global m-commerce revenues are expected to exceed $88 billion by 2009 since the number of mobile phone subscribers is expected to increase by 2 billion.

In Afghanistan, improvements in the Telecom sector with the help of Roshan Telecom have brought a more direct improvement to people's lives. On June 20th 2007, Roshan Telecom launched a Telemedicine solution with Cisco, Agha Khan University Hospital in Karachi, and French Medical Institute for Children in Kabul. Using Broadband technology, wireless video consultation, and digital image transfer, hospitals in Afghanistan are able to receive real-time specialist diagnosis from Karachi.

Pakistan's Telecom sector has made a lot of advances in recent years with nearly 61 million subscribers and 30% penetration. The preliminary results of a study by Deloitte estimates that the mobile industry has created 220,000 high paying jobs in Pakistan and accounts for 5% of GDP. Pakistan has the potential of being a leader in mobile phone usage in South Asia if it implements an "inclusive growth" policy to not only include the poor, but also women in particular. As Iqbal Quadir says: "connectivity is productivity," Pakistan's society and economy stands to benefit a lot from increased mobile phone usage.