New Technology for Poverty Alleviation: Rural Phones Service Is Profitable In Poor Countries

In poor countries, most people, in all about half the world's population-still live in rural areas. Village phone service is rare, Internet service non-existent and poverty widespread. In Bangladesh, for example, 90 percent of the country's 68,000 villages have no phone service of any kind and average annual income is less than $ 200 per person. It might not sound like a promising commercial telecom market, but appearances can be deceiving.

Since 1997, Grameen Phone has provided commercial cellular services in Bangladesh, operating primarily in urban areas. A subsidiary, working with the micro-finance organization Grameen Bank, now provides cellular phone service in rural areas via local entrepreneurs, usually women. Each local entrepreneur owns and operates a cell phone that typically serves an entire village. Villagers pay for phone calls in cash, by the minute. Grameen Bank helps by lending the entrepreneur money to buy the phone and collecting payments from them for phone usage on behalf of Grameen Phone.

These shared access village phones are very profitable, generating revenues that now average $1,200 per year per phone, more than three times as much as the company's urban phones. Each phone serves an average of nearly 70 customers - in effect, tapping the buying power of a whole village. Per phone revenues have more that doubled in two years of service. A study by the Canadian International Development Agency shows that the village phones also have a big social impact. For villages, access to phones often substitutes for a trip to Bangladesh's capital Dhaka, that could take days and cost many times as much as the call. Villagers also use phones to find out current market prices for their crops, arrange remittances from family members working abroad, and obtain urgent medical help.

If it works in Bangladesh, how about in rural areas elsewhere? If phone and perhaps Internet services can be provided profitably to rural communities through shared access, then opening up such regions to commercial telecom competition may be an effective way of stimulating rural development and providing significant social and economic benefits to impoverished areas. The business opportunity also seems large enough to stimulate private investments, becoming the phone company and the Internet service provider for nearly half of humanity.

Expanding Micro finance -With Digital Technologies

Micro loans in their modern form were pioneered by the Grameen Bank to provide a source of credit for poor people in Bangladesh. Today more than 1,000 micro finance institutions offer micro loans between $150 and $ 500 to five million clients in poor rural communities or urban slums spread across Africa, Asia and Latin America. Yet relatively few poor people have access to micro loans, only about five percent of an estimated 500 million potential borrowers worldwide. Major reasons are inefficient practices and the resulting high costs of processing loans and keeping records. Few if any micro finance institutions are profitable, so they cannot tap banks or capital.

What may change this picture is the advent of digital tools to automate transactions and increase efficiencies. Imagine a loan officer travelling from village to village equipped with mobile data entry device similar to that used by FedEx delivery personnel transmitting loan data over wireless and a central computer. Micro finance institution operating in Mexico are now testing the palm pilots equipped with simple accounting software for their loan office and many such groups are introducing computerized accounting systems.

PRIDE AFRICA operates in six East African countries where half the population subsists on less than $1 a day. PRIDE link a base of 100,000 clients to financial services information, and markets. It has developed its own banking software to manage micro loans and small savings accounts and to automate administrative tasks. The group is now experimenting with magnetic cards and information kiosks that allow even illiterate clients to access their accounts and check loan balances while cutting costs. PRIDE software will enable it to bundle together loans from tens of thousand of its clients and resell them to commercial banks, opening up capital markets to finance expansion.

PRIDE Founder Jonathan Campaign points out that micro finance can benefit from the same emerging Internet based technologies that are forcing retail bankers everywhere to rethink their business model. These include tools like data mining, customer service and support software, and customer relationship management applications. PRIDE, for example, hopes to work with partners to build an Internet based virtual "back-office" and provide tools that are easier for poor clients to use, all with the intent of making access to financial services as widespread as the traditional African drum.

Extracted from:The Business Week, December 18, 2000.