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Mobile - Bangladesh
Introduction
The Grameen Bank of Bangladesh has earned fame as the pioneer of credit services for poor rural people throughout the country. One of the primary reasons for the existence of the Grameen Bank is to help the poorest people to gain access to the small loans they need to set up micro-business so that, slowly but surely, more and more people can work themselves out of poverty.
The Grameen Bank’s unique approach to the credit-worthiness of the very poor contrasted with the attitude of the conventional banking system which simply assumed that the poor, who have no assets to use as a guarantee, could not be relied upon to repay loans, even very small ones. Muhammad Yunus, the founder of the Grameen Bank, discovered from his own experience that this assumption was simply not true. He has built a network of over 1,100 branches in 36,000 villages which, together, have more than 2,300,000 borrowers, making the Grameen Bank the largest rural financial institution in the country.
Contrary to the expectations of the conventional banking world, the Grameen Bank achieves a repayment rate of 98% from its borrowers, 94% of whom are women. So successful has the Grameen Bank been since it launch in 1983, it has become the model for more than 200 replication projects in 58 countries and over 4,000 people from all parts of the world have undertaken the Grameen Bank 's training/exposure programmes.
Rural communications
The latest venture of the Grameen Bank is in rural communications. The Grameen Bank has been responsible for developing telephone access points in villages by making use of mobile telephones. It has formed a non-profit company called Grameen Telecom (GTC). Together with its partner, the Norwegian telecommunications company, Telenor, GTC has formed a new company, Grameen Phone Limited through which the initiative is being developed.
The need for improvement in telephone access in Bangladesh has been highlighted by many studies which have identified that there are less than three land-line telephones for every 100 people. The waiting time for new lines is more than ten years. The majority of the existing telephones are concentrated in the urban areas and most rural communities have little or no access to a telephone for essential family or business use. The Grameen initiative is intended to make telephone access available through as many as 50,000 'Village Pay Phones' (VPP) within five years.
Village Pay Phones and poverty reduction
The loans made by the Grameen Bank in the past have tended to be for traditional rural activities but the bank is now supporting purchases of mobile phones which are used as the core of a VPP service businesses in villages across the country. The cost of a phone is about four times the cost of a milk-cow, the most common use for a Grameen loan, so the selection criteria for VPP operators are necessarily quite strict.
In order to qualify for a loan, the borrower must have a good record of repayment of at least three loans from the Grameen Bank in the past. The borrower's home location is also taken into account, the Grameen Bank preferring that the phone should be close to the centre of the village. It is also necessary that the phone owner is able to keep accurate accounts and records of all usage of the VPP.
When a new phone owner, usually female, and increasingly known as 'Telephone Ladies', joins the network, Grameen Telecom provides the phone service at fixed charges. The owner can charge a higher rate to her customers to cover the costs of repaying the loan and to generate a little income from her business. Every call is carefully timed and the customer pays for the time used. The owner also provides a service by receiving incoming calls and either taking the VPP to the customer or sending somebody to bring him/her to the phone.
Already, there are some 900 women buying phones to become VPP operators.
Benefits of the Village Pay Phones
A study carried out by the Centre for Development Research at Bonn University revealed some interesting effects resulting from the VPP network. The majority of calls (nearly half) made by the poorer villagers tended to be in relation to economic or finance matters while some 18% of the calls made by the poorest section of the communities were health related.
One of the uses the phone calls made by the poor villagers was to find out the prices being paid for their products by the final consumer. Armed with the latest market information, they were then in a stronger position in their negotiations with the traders who visit the villages to buy products for sale in the city markets. Compared to villages without VPP access, the prices secured for rural produce - eggs, chickens, rice etc - were notably higher, sometimes by as much as 10%. People without the knowledge of market prices, on the other had, were at a distinct disadvantage and had to accept the prices offered by the middlemen.
The study also revealed that two-thirds of poorest people making use of the service would have had no alternative but to travel to see the person they had called if they had not had access to the VPP. These people, of course, are those least able to afford to travel so the benefits to them are significant. The saving to the poor made by using the VPP compared with travelling was estimated to be the equivalent of the price of 12 kg of rice.
The supply of agricultural inputs, such as diesel fuel and fertilizer, has also been smoothed out in the villages served by VPP operators because the suppliers have been able to assess the supply situation and plan better - which has also helped to stabilise prices.
Many people, mainly men, from the rural areas of Bangladesh seek employment outside the country and send some of their earnings to the family at home. In one of the villages studied, some 75% of the households have at least one person working abroad so the total amount of money being sent to the village is quite large. Mainly, these funds are sent in the form of foreign currency which has to be changed into Bangladeshi Takas (Tk). These transactions are often made through currency dealers who visit the villages. Unfortunately, some of the dealers are unscrupulous and offer poor exchange rates to the villagers. However, the VPP system is being used increasingly to find out the real rate of exchange by telephoning the city. When the dealers visit, the villagers are fully informed so the trader cannot exploit them and they can negotiate a better return on their foreign currency.
The VPP has also made it possible for village families to stay in better contact with their members who are working outside the country, which is a very important consideration in Bangladeshi society. In the past, the only communication system available to the rural poor was by letter and, in some cases, letters could take months to arrive. Now that the village phones are more widely accessible, it is relatively easy for the overseas worker to contact his/her family on a regular basis, which helps to sustain family relationships.
Livestock is considered to be one of the most important sectors in producing income for the rural poor and many villagers have used the Grameen Bank's loan system to establish their micro-business. However, such activities are risky because the animals are subject to various diseases and there is a shortage of extension services to provide adequate animal health care. In the villages with VPP services, if there is an outbreak of disease, the phone can be used to get immediate access to expert advice and many animal losses have been averted. As a result, livestock mortality rates have been found to be falling in these villages, with obvious benefit to the owners.
Also in the livestock sector, poultry breeders have found it possible to use the VPP to buy feeds at reasonable prices which helps to lower their production costs. At the same time, it is also possible for the breeders to obtain information on the market prices for their products. Overall, it has been reported that the VPP system has helped significantly to increase the productivity, capacity utilisation and profitability of these tiny enterprises by making it easier and cheaper to locate and purchase input materials, by ensuring fair prices and by reducing the risks associated with animal-based business.
During the period of the worst flooding across two-thirds of the country in 1998, many people found themselves cut off from their home villages or whole villages cut off from the rest of the country. Where a VPP system was in place, stranded travellers were able to contact their families to reassure them. Most importantly, the emergency and relief agencies could be contacted using the VPP when the conventional land-line telephone systems were put out of action by the flooding. At other times, the VPP has been used effectively to advise the appropriate authorities more quickly when electricity supplies have been interrupted by damaged poles etc.
The VPP owners themselves - Telephone Ladies - add significantly to the household income by selling telephone services to the villagers. After paying loan repayments and deducting any other expenses, the average weekly income for the VPP owner is about Tk 277 (US$1 = Tk 54) and the net profit ranges up to as much as Tk 680 per week. The ladies use the extra income mainly to provide benefits to the family, such as education, clothing and health.
For further information, please contact:
This document is an output from a project funded by the UK Department for International Development (DFID) for the benefit of developing countries. The views expressed are not necessarily those of the DFID.
Further reading available from ITDG Development Bookshop
Helen Todd (Ed)
Cloning Grameen Bank: Replicating a poverty reduction model in India, Nepal and Vietnam
Inspired by the enormous success of the Grameen Bank in providing financial assistance to the poorest of the poor, four individuals - a central banker, an appropriate technology NGO organiser, a professor of international relations and a top level communist official - each sought to replicate and adapt the model elsewhere in Asia. In very different political and economic contexts, they formed organisations which reached poor women and supplied their demand for credit, proving once and for all to the development theory doubters that replication works. This book draws on evaluation reports prepared by the CASHPOR Network, case studies and interviews. By giving an unvarnished account of the problems encountered in the crucial first years of establishing a credit programme, it seeks to alert potential microcredit practitioners to the pitfalls and obstacles likely to be encountered in setting up a programme. The book provides the opportunity to analyse the process of creating a successful credit programme and draws from the experience of these four projects some lessons in best practice.
£9.95 ITP PB 1996 ISBN 1853393908
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