World Dialogue on Regulation

Sixteeen per cent of the revenues of Bangladesh’s Grameen Phone come from four per cent of customers.  And they are not the most affluent people; they are village phone ladies.  This is one of the key findings of recent research conducted by LIRNEasia.

The report is available for download here.

WDR partner LIRNEasia, has released a study titled, An Investigation of the Replicability of a Microfinance Approach to Extending Telecommunications Access to Marginal Customers which indicates that the widespread perception that it is not economical to serve “marginal customers”/ the poor is a myth. “The results of this research underscore the fact that the poor are a good investment; that developmental and business goals are not incompatible; and that a carefully structured, prudent mix of the two can result in a “win-win” outcome for all,” said Ms Malathy Knight John, the leader of the research team.

This study is an investigation of the Grameen approach to extending telecom access to the rural poor in Bangladesh. The research sought to unpack the ingredients that contributed to the success of the Grameen approach and to evaluate the case for replicating this model under different market, regulatory and technological conditions.

Some of the key factors behind the success of Grameen included:

• Access to nation-wide backbone infrastructure with the acquisition of a 1800 km long fiber optic network from Bangladesh Railway;
• Seeing marginal customers as a source of profit, based on Grameen Bank’s years of experience with microfinance;
• A business model that piggy-backed on Grameen Bank’s established
  microfinance infrastructure and brand image, and was carefully structured to overcome problems of creditworthiness and repayment and thereby ensure sustainability; and,
• The unconventional approach to microfinance adopted by Grameen – analogous to the ancient Chinese proverb of giving a poor man a fishing rod instead of a fish – in this case, providing entrepreneurial women with a means of generating a steady income by reselling telecom services.

Muhammad Yunus, the founder of Grameen Bank, has said: “The quickest way to get out of poverty right now is to have one mobile phone, and you will see how quickly she is changing her life. Come back in two years and you will not recognize what she was before”.

The Village Phone program covers 45 per cent of the country’s population in around 50 per cent of the villages in Bangladesh, as at June 2005. This is certainly impressive in a country that had a total tele-density of just 3.44 in 2004. The additional advantage of this approach moreover, is that one phone provides access to multiple users; Grameen Phone earns 16 per cent of its revenue from these Village Phones, which make up only 4 per cent of the total connections.

Whilst documenting the success of the Grameen model under given market, regulatory and technological conditions, the study emphasizes that this approach is by no means a cookie-cutter template. Operators in Uganda and Rwanda for instance, have selectively implemented elements of the Grameen solution.

Ms Knight John said that “the key to success and sustainability is to ensure that both operators and users benefit from the provision of telecom services.” This requires a solution that reduces the relatively high transaction costs associated with serving marginal customers – in particular screening creditworthy users and preventing default. In this regard, some of the alternative approaches to the Grameen solution, identified in this study include the pre-paid option (adopted in the Ugandan case) and a franchise approach, where network operator transfers the risk of providing service to marginal users to the franchisee.

The study concludes that given the strong business case for serving marginal customers, microfinance institutions need no longer be the only players in this area. “Whilst microfinance was critical to the success of the Grameen Village Phone program in its initial stages, the advent of pre-paid cards and low-cost hand sets offer simpler solutions now that can be used by non-profit as well as for-profit entities,” Mr Abu Saeed Khan, another member of the research team from Bangladesh said.

For more information:
Malathy Knight-John
Research Fellow
Institute of Policy Studies
99, St. Michael’s Road
Colombo 3
Telephone: +94-112-431368
E-mail: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

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