Have we got a business deal for you! Build a state-of-the-art cell-phone network in one of the world's poorest countries. And include among your target customers the country's poorest citizens — many of whom live without running water, few of whom have ever seen a telephone. Laughable, right? Not when the entrepreneur behind this deal has spent 20 years building one of the world's most remarkable financial institutions. Not when he ranks among the leading social innovators of his generation. "This is not the first crazy thing we've done," says Muhammad Yunus.
Yunus, 57, is the founder of Grameen Bank, headquartered in Dhaka, Bangladesh. (Grameen is the Bangladeshi word for "village.") He started the bank to provide desperately needed credit to his country's desperately poor villagers. The business model he pioneered — called "microlending" — broke all the rules of traditional finance. Yunus focused on making loans as small as $30, just enough to get a microbusiness started. He did not ask for collateral. Instead, he required borrowers to organize into small groups and guarantee one another's loans. And he ended up lending almost exclusively to women, who account for 94% of the bank's customers.
The results have been stunning. Over the past two decades, Grameen Bank has grown to include nearly 1,100 branches, covering every corner of Bangladesh. It has made more than 2 million loans worth a combined $2 billion. It boasts a loan-repayment rate of 98%. It's become a model for similar institutions in 50 countries.
Many of Yunus's admirers see him as a social crusader. He sees something else. "I am a businessman," he says, "but it's business with a twist. I practice business with a social objective. That's what's missing from the capitalist system. We look for market solutions to social problems."
GrameenPhone Ltd. is the next twist in Muhammad Yunus's brand of capitalism. The company is a consortium of four partners: Yunus's Grameen Telecom (a 35% shareholder); Telenor AS, the main Norwegian telecommunications company (51%); Marubeni Corp. of Japan (9.5%); and New York-based Gonofone Development Corp. (4.5%). GrameenPhone opened for business last spring. It now offers service in Dhaka and in about 20 nearby villages. By the end of 1998, GrameenPhone will distribute 4,000 phones throughout the country. And it will keep adding not only phones but also services: fax, voice mail, Internet access.
Yunus and his partners recognize the risks of their venture. There are fewer than 300,000 working telephones in all of Bangladesh, a country with a population of 120 million. Four years ago the government gave an exclusive cellular license to Pacific Bangladesh Telecom. By late 1996, when authorities ended PBT's monopoly, it had sold just 4,000 cell-phone subscriptions.
Yunus's approach to a tough market? Innovate. His strategy is to keep the service cheap so he can market it to the rural poor as well as the urban elite. And he plans to use the network as an engine of economic development, not just a source of revenue. The company is offering "village phones" to rural residents. Grameen Bank lends money to individual entrepreneurs to buy the phones. These entrepreneurs then sell the service to their fellow villagers and use the income to repay the loans. Yunus's goal is to have at least one cell-phone in each of Bangladesh's 65,000 villages within six years.
The first person to make a call on the GrameenPhone network was Laili Begum, a 27-year-old woman who lives in Patira, a village of 2,500 people. Seven years ago she started a grocery store with a loan from Grameen Bank. Now she's in the cell-phone business. She borrowed $430 to buy the handset. Air time costs her 4 taka per minute (about 9 cents). She charges her customers 5 taka per minute and uses the margin to repay her loan. Once she pays it off, that 1 taka per minute will be pure profit.
Begum's new business is booming. Villagers line up outside her house to use the phone. She's even giving international interviews — over her cell-phone, of course. "Three or four days after she got into the business, she got a call from the BBC," Yunus reports. "A week later she got a call from the Voice of America in Washington." Unfortunately, Yunus says, Begum missed the call from Washington. "I asked where she was at the time," Yunus says. "'Well, I went to bring my cow home,' she said. This is probably the first time someone missed a call from the Voice of America because she was out tending a cow."
If GrameenPhone works as a business, it will further document the power of its founder's bootstrap approach to fighting rural poverty. The logic behind Grameen Bank and GrameenPhone is to create financial and business tools that poor people can use to help themselves. Don't just offer the poor charity, Yunus argues: give them access to credit. Don't create incentives for villagers to head for the misery of the city; unleash engines of growth in the country.
When you combine access to credit with access to information, Yunus says, you change the game for the rural poor: "Poor people live at the mercy of the middleman. The middleman says, 'The price for your crop is this much. I can't do any better — the market price in the city is so low.' Of course, he's making that up. But villagers have no connections in the city. Now, with the cell-phones, they can call up and find out the market price for themselves. We can gradually eliminate the middleman. And the more middlemen you eliminate, the more rural producers you benefit."
Peter Carbonara (firstname.lastname@example.org) is a freelance writer based in Brookline, Massachusetts. He contributes frequently to Fast Company. Contact Grameen foundation by telephone (202-543-2636) or email (email@example.com)
A version of this article appeared in the December 1997/January 1998 issue of Fast Company magazine.