MICROCAPITAL STORY: New York Times Magazine Surmises Cell Phones Can Transform Developing World in Similar Vein as Microfinance

An article in the Apr. 13 issue of the New York Times Magazine examines the proliferation of cell phones in the developing world and their potential to profoundly impact the global economy in years to come. Significantly, the trend, like microfinance, is seen as a bottom-up approach to development, with the poor taking advantage of emerging opportunities to lift themselves out of poverty.

The furious growth of worldwide cell phone use in the past few years is seen as affirmation that there has been and continues to be a huge and compelling latent demand for the ability to communicate and gather information in an instant. Statistics cited include a billion cell phones sold in two years, for a total of about three billion globally; the first billion cell phones took all of 20 years to sell. Today 80 percent of the world’s population lives within range of a cellular network, double the figure from 2000, and by the end of 2006, 68 percent of subscriptions were in the developing world. According to the World Resources Institute’s “Next Four Billion” report, very poor families are spending remarkably large proportions of their income on information-communications technology, presumably cell phones. The natural question, then, is what accounts for the runaway popularity of cell phones among the world’s poor, especially relative to other modern technologies?

The article analogizes cell phones in emerging economies to the “just in time” manufacturing concept at car-maker Toyota, where waste was minimized by making parts to order as needed. Likewise, ordinary people who previously would spend unproductive hours planning appointments to meet colleagues or family at a given time or place, getting lost, or just waiting around could avoid all this with a portable phone. Farmers could check market prices of their crops without actually making the long trek to market. Given the potential cumulative effect of such incremental improvements for the poor, the author postulates that “the possibilities afforded by a proliferation of cellphones are potentially revolutionary.”

Most instructively, this “revolution” shows a kinship with microfinance in that it appears to organically originate from the very bottom rung of the economic ladder – essentially, the poor are taking a new technology and running with it (italics added):

Some of the mobile phone’s biggest boosters are those who believe that pumping international aid money into poor countries is less effective than encouraging economic growth through commerce, also called “inclusive capitalism.” A cellphone in the hands of an Indian fisherman who uses it to grow his business — which presumably gives him more resources to feed, clothe, educate and safeguard his family — represents a textbook case of bottom-up economic development, a way of empowering individuals by encouraging entrepreneurship as opposed to more traditional top-down approaches in which aid money must filter through a bureaucratic chain before reaching its beneficiaries, who by virtue of the process are rendered passive recipients.

The author cites the example of Grameen Phone Ltd., an offshoot of the pioneering microfinance institution (MFI) Grameen Bank of Bangladesh. Founded in 1996, it makes microcredit loans for women to buy their own mobile phone kits, which they then bring along as they travel from village to village, charging people a fee to use the phone service.

The phenomenon has itself given rise to another illustration of entrepreneurship: the “phone ladies” have also taken on the role of bankers. A caller will buy a phone card for a certain amount, read the card’s code to the phone lady on the other end of the line, and the phone lady will then give the call recipient the cash value of the card while taking possession of the phone card’s minutes. In this and other ways, cell phones are becoming a means of transferring and even spending cash, and observers are becoming aware of a nascent mobile phone-based banking system available to people who do not have traditional bank accounts. In fact, Al Hammond of the World Resources Institute predicts that the growth of this mobile banking will soon far outstrip that of microfinance, adding a billion new users in the next five years.

For now, the seemingly boundless optimism about economic development generated by cell phone technology is tempered by current realities. The proportion of poor populations that owns a cell phone is still quite low, many rural areas remain out of the reach of cell networks, and many people do not have reliable access to electricity.

Nonetheless, enthusiasm for the transformational potential of cell phone technology just might be enough to motivate the poor to creatively and entrepreneurially overcome any obstacles to its growth.

MicroCapital has reported extensively on the role of cell phones in microfinance, including a paper wrap-up examining the effects of so-called “branchless banking;” the Central Bank of Kenya’s recent effort to reassess regulations to accommodate mobile banking; the International Finance Corporation’s (IFC) investment in a South African mobile-banking provider in January; a profile on a popular Kenyan cell-phone cash-transfer service last October; an Australian cell phone recycling program for microfinance last August; and Grameen Phone’s initial public offering (IPO) announcement last June.

By Stephen Son

Additional Resources:

New York Times Magazine: “Can the Cellphone Help End Global Poverty?”

MicroCapital.org article, April 16, 2008: “PAPER WRAP-UP: Consultative Group to Assist the Poor, Focus Note: The Early Experience with Branchless Banking (On the Potential of Branchless Banking in the Microfinance Sector)”
MicroCapital.org article, April 11, 2008: ““Kenya’s Central Bank Reviews Legislation to Promote Banking in Rural Areas, Including Mobile Banking”

MicroCapital.org article, January 18, 2008: “International Finance Corporation (IFC) signs a partnership agreement with WIZZIT Bank, introducing microfinance services to the poor through their mobile phones”

MicroCapital.org article, October 17, 2007: “Vodafone and Safaricom’s Mobile Cash-Transfer System M-PESA Makes Microfinance Easy for a Growing Number of Kenyan Customers”

MicroCapital.org article, August 17, 2007: “Australian Non-Profit Group Recycles Mobile Phones to Promote Microfinance”

MicroCapital.org article, June 26, 2007: “Public Sale in Microfinance Telecommunications Sector: GrameenPhone of Bangladesh Announces IPO set for 2008”