MobileActive.org

Grameen Foundation's Village Phone program has long been touted as the poster child for using mobiles in the economic empowerment of poor women. The program gives villagers in Bangladesh-- and now in several other countries -- access to microcredit to buy a mobile phone that can then be rented to other villagers who do not have a mobile of their own.

Much has been written about Village Phones in the media and in research reports, often describing in glowing terms the economic impact and gain in social status that the women in the program have achieved. Yet, most of these studies are fairly old at this point, predating the exponential growth of mobiles around the world.

Now questions are being raised in some mainstream media about whether renting out minutes on mobile phones is economically beneficial to the so-called village phone operators -- at a time when mobiles have become so much more ubiquitous, even in remote rural areas.

In an article in Fast Company this month, Richard Shaffer asserts that the "Grameen organization continues to boast that its Village Phone program has been incredibly successful... establishing a clear path out of the poverty cycle... But it turns out, the legend is far out of date. The proliferation and democratization of technology has bested the economics of microenterprise. In Bangladesh today, the only one making real money on GrameenPhone's wireless service is Grameen Phone."

GrameenPhone is a for-profit venture between Norways' Telenor and Grameen Telecom, the telecommunications affiliate of Grameen Bank. GrameenPhone, with the help of lenders such as Asian Development Bank (ADB) and others, has invested more than 1.2 billion USD in cell infrastructure, laying the groundwork for the enormous growth in the mobile market in Bangladesh.

The Village Phone program itself is supported by the Grameen Foundation, an independent US-based NGO. Nobel Peace price winner Muhammad Yunus, the founder of Grameen Bank, sits on its board.

According to Tim Wood, technical program manager at the Grameen Technology Center of the Grameen Foundation, the Village Phone program started in 2001 to show how technology could be applied to microfinance and create new business opportunities for borrowers that use technology. Loans to local entrepreneurs come from the Grameen Bank, Grameen Telecom provided the technology, and the Grameen Foundation and the Village Phone Program provided research and technical assistance. The Foundation is now replicating the program in Rwanda, Uganda, and Indonesia.

The idea was good: Bangladesh is flat, poor, and densely populated. Mobile phone signals reach far and require, in comparison to landlines, much less infrastructure. For village phone operators and the various organizations involved, the economics seem persuasive: The telecom generated profit, the microfinance institution made money on its repaid loans, the village operators generated an income, and villagers in the community could make calls at discounted rates when they could not before.

Fast Company’s Shaffer, however, takes a different view. He writes:

"Grameen's Village Phone Program has mirrored [mobile phone] growth [in Bangladesh], expanding ten-thousand-fold in 10 years to include about 280,000 operators, mostly women known as "phone ladies." It has won fame because of its reputed earning power. "The typical village phone lady has an average income three times the national average," according to a 2005 United Nations manual explaining how to duplicate the program elsewhere. In the most recent book about the program, You Can Hear Me Now, published in February of this year, author Nicholas P. Sullivan writes, "It is widely accepted that village phone ladies can make anywhere from $750 to $1,200 a year."

The current reality, however, is somewhat different. According to Grameen Telecom, the GrameenPhone affiliate that manages the program, profits per operator have been declining for years and in 2006 averaged less than $70. "The program is not dead," says its manager, Mazharul Hannan, chief of technical services at Grameen Telecom, "but it is no longer a way out of poverty." The reason is simple: Technology and GrameenPhone itself have made the village phone obsolete. Access to cell phones has expanded rapidly across Bangladesh, as in other developing nations."

And indeed, Bangladesh has seen an enormous growth in mobile penetration. According to data from TeleGeograpgy and the ITU, the number of mobile subscribers in Bangladesh reached 10.8 the end of January 2006, up from 3.8 million at the end of 2004.

In a report released in May of 2007, the ADB reported that it expects the total number of mobile phone users in Bangladesh to double in the next two years as competition heats up in the fast growing sector. "The number of subscribers doubled in one year up from 11 million in 2006 to about 22 million in March 2007, and is forecast to increase to 44 million by 2009," the ADB said in its report.

It notes that "mobile telecommunications had become one of the most vibrant service sectors in Bangladesh with its growing network coverage, which reaches about 97 percent of the country's population and 82 per cent of the land area." Furthermore, competition among the currently six mobile carriers has significantly reduced rates, according to the report.

Although nearly half of Bangladesh's more than 140 million people still live on less than a dollar a day, the country has been one of Asia's fastest growing cellular markets, with a mobile penetration rate of around 16 percent. Interestingly, the ADB report also stated that "availability of phones in rural areas has created new opportunities for income generation through self-employment by providing villagers with access to modern information and communication technologies."

However, if the earning power of Laily Begum, the first village phone operator, is any indication, the economics of the program are changing rapidly in Bangladesh. Shaeffer describes her situation:

"Ten years ago, Begum provided the sole telephone in Patira and the surrounding area, the only connection for nearly 10,000 people. Today, she must vie with 284 other Village Phone operators nearby, plus all the cell phones her neighbors have bought for themselves as prices have come down. As a result, Begum's phone rentals these days bring in monthly profits of only $22. "If I didn't have so many other businesses," she told me, "I couldn't afford to be in this one." Says her loan officer, Salim Khan, general manager of a Grameen Bank branch: "She is fortunate that she began when she did. Today, poor women who go into the phone business stay poor."

Clearly, the shared access model, as described, makes sense only when there is no wide-spread phone ownership. In other words, sharing phones is only profitable if they are a high-value good and not a ubiquitous commodity accessible to even the poorest people.

Shaffer again: "...in the face of cheaper phones, accessible calling plans, and low-cost infrastructure, the phone ladies didn't stand a chance. Dawn Hartley, who manages the economic development fund of the GSM Association in London, a trade group that includes most wireless carriers, observes, "The outcome [for the Village Phone Program] was always inevitable. The shared access model is a halfway house between no one owning a mobile phone and everyone owning a mobile phone. Shared access models are a great bridge, and in some areas they will last a very long time, but by and large, they have a shelf life."

Shaffer goes even further:

"Not that the Village Phone Program is being abandoned. Indeed, it continues to recruit more operators. Although the program has become a marginal business for the typical phone lady, it may still contribute to GrameenPhone's corporate net income--which is already robust. Despite peak rates that are among the world's lowest, less than two cents a minute, it earns operating margins of 42%....In much the same way, the Village Phone Program has served as a lever to efficiently expand GrameenPhone's very lucrative market. GrameenPhone's employees and managers also seem genuinely convinced of their duty to reduce poverty in Bangladesh. It is encouraging Village Phone operator-entrepreneurs to supplement incomes by selling SIM cards and over-the-air calling credits. In pilot projects, customers are paying utility bills over the phone and buying and selling goods via text messages. The company has provided more than 70,000 street beggars with interest-free loans, handsets, and wireless accounts, encouraging them to earn money by reselling airtime."

So is this social enterprise at its best, or just a way to expand a market at the bottom of the pyramid? Tim Wood describes it this way in an interview with MobileActive.org:

"There is a finite window of sustainability with the village phone program. It is true that mobile phone prices are dropping but people who live on less than $1 day still can not afford a phone. For a vast segment of the population that can not afford mobiles, shared public access to phones is still important. The growth in Bangladesh of village phone operators has started to slow as the country is starting to approach a saturation point. But there is undoubtedly still a window of opportunity for shared phones and that window can be huge in some countries. Village phone businesses may not be as lucrative as it was a few year ago, but it is premature to predict their demise."

Interestingly, according to Wood, borrowers are often still able to pay back their loans, often not so much because of income from the phones but because many operators are also small store owners serving as a local gathering spot from the days when phones where still shared - and where people buy other goods.

Wood's colleague Sean deWitt, charged with getting a Village Phone program off the ground in Indonesia, said in a skype interview with me when I asked him whether a shared phone a sustainable business for micro borrowers that "if you're in an area where everyone already has a phone - of course not. if you're in an area that is on the fringes of coverage and people do not have mobile phones by and large, then it can be a sustainable model. The key to me, is that is has to be sustainable throughout the loan term. The loan term is usually one year. No business involving technology of any kind is going to be sustainable on a long-term horizon, without adapting. This model is no different. But if the borrower can pay back the loan, then they have a device that is empowering and can still be profitable. But once an area is saturated, its time to think beyond a public access model that only offers voice and standard SMS services.

He goes on to note:

"But to think that the access problem has been solved..hah. If anyone thinks that, I encourage them to visit our projects in Cameroon, Uganda, Rwanda or here in Indonesia. It simply hasn't happened yet in these countries. For us at Grameen Foundation working in Village Phone, we are actively working with partners to pilot mobile applications to add additional services to the business model of village phone operators... as saturation (thankfully) will happen over the longer term. So we need to adapt the model to provide additional services. Mobile banking is the obvious "magic bullet" app, since we working with microfinance institutions but its also the most complicated in terms of the applications' effect on the operations of microfinance institutions. We're giving these process changes lots of thought these days in preparation for this next phase.

Meanwhile, the Grameen Foundation is expanding the Village Phone program to Rwanda, Uganda, and Indonesia and is exploring, with a team of ethnographers, the need and business models for value-added transaction and information services that small, rural entrepreneurs can offer. And so while the Village Phone Ladies in Bangladesh may have an increasingly hard time making an income from their shared phones as the technology environment and economics are changing, the projects and operators in Uganda are just coming into their own. It remains to be seen how long they will make a living with their shared mobile phones and whether they will be able to sustain their businesses beyond the increasingly smaller window of opportunity before mobiles are everywhere there as well. Or until Grameen and its partners can offer them additional mobile services. As Wood said to me: "We are in a formative phase right now where we are trying to figure out what needs might be be filled; and experiment to see whether sustainable business models can be reached."