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Unwired Bangladesh: Taking a Lesson from Microcredit

September 4, 2007 By

Getting bright ideas while performing everyday tasks in life is not really unusual; after all many have gotten their brightest ideas while doing the most mundane things in life. But getting the idea of bridging the digital divide from wheeling and dealing in Wall Street?

That's what happened to Iqbal Quadir way back in 1993, when this Wharton-educated Bangaldeshi national working as investment banker in Wall Street, realized that just like people find gold mines in "unglamorous companies" by buying them cheap and selling high, he too has an "unglamorous" country Bangladesh, whose huge population of very poor people could be an "asset" if only they could communicate.

Quadir knew that one of the biggest reasons why over 80 percent of his country's residents lived below what the world considers poverty level, is the fact that most homes in Bangladesh and virtually all rural villages lack telephone connectivity, making the nation one of the least wired in the world. So, if connectivity meant productivity, then it must be a weapon against poverty.

Thus in 1997 GrameenPhone was born (Grameen means rural in the local lingo) to offer affordable mobile phone services to as many people as possible.

However, it wasn't easy in the beginning. The country had a very large population of poor, who lived in places underserved to such an extent that it took four hours of walking to reach the nearest post office or a medicine shop. So how does one get a mobile phone to all those Bangladeshis, most of whom couldn't even afford to pay for a call, let alone afford to own a mobile telephone?

The solution came from of a Nobel-prize winning innovative concept called Grameen Bank, a microfinance organization and community development bank in Bangladesh that agreed to work with Quadir as a partner and to provide its extensive network of branches in Bangladesh for spreading mobile telephony in the country. Ever since 1974, Grameen Bank has been providing small loans (known as microcredit) to the impoverished so that they could create a small business without the burdens of predatory lending practices. , This micro credit company not only had an extensive network spanning 2100 branches covering over 65000 villages, but by serving 6.5 million borrowers, it also well understood the economic needs of the rural population.

Meanwhile although Quadir has sold off his interests in this venture two years ago and Grameen Phone is now a part of the Grameen Bank, which holds 38% stake in the company -- the balance is held by Telenor, Norwegian telecom company- GrameenPhone today is the largest mobile telephony operator in Bangladesh

The company has a market share of over 60% with a network that covers more than 95% of the country's population, up from around 50% two years earlier.

Building a Community
According to Erik Aas, the current CEO, Grameen Phone is unique instance of how a joint venture between two partners with completely opposite business objectives, can work together to achieve the dual purpose of receiving an economic return on its investments and, at the same time, build a community that can contribute to the economic development of the country. While Grameen Telecom, a subsidiary of Grameen Bank that owns 38% stake in Grameen Phone is a not-for profit organization, Telenor the majority shareholder seeks mainly profits.

"Much of Grameen Phone's success is due to its ability to adapt to the needs of its customers," says the company spokesperson. "It has implemented customer-driven innovations that meet the specific needs of low-income segments."

The concept has an unusual business model too. For instance, like all phone companies, it sells mobile connections to urban areas or cities where the subscribers are "rich enough" to buy their own mobile phones. But in rural areas, Grameen Phone provides the service by creating "micro-enterprises that can both generate individual income

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