The current issue of The Economist features an article entitled "Calling an End to Poverty," subtitled “mobile phone firms have found a profitable way to help the poor help themselves.” The article discusses the obstacles that prevent cell phones from being available to and affordable for people in the developing world. According to the article, despite rapid subscriber growth in much of the developing world, only a small proportion of people—around 5% in both India and sub-Saharan Africa—have their own mobile phones. Overcoming barriers to market penetration is clearly in the best interest of everyone involved: in a typical developing country, a rise of ten mobile phones per 100 people boosts GDP growth by 0.6 percentage points.
The Economist’s cover story from several months ago, entitled “The Real Digital Divide,” cites a new study indicating that the spread of mobile phones is the best new technology for addressing poverty. In its usual fashion, the editors rail against the UN-directed “Digital Solidarity Fund,” which sets up projects such as “technology centers” filled with computers that few people actually use because, among other factors, most of the world’s poor are illiterate. Opening telecommunications markets creates a lot more wealth than a quasi-governmental official directing tax dollars to help the poor across the digital divide.
Shamefully, The Economist does not mention microfinance. Yet, the editors cite “the phone ladies of Bangladesh” as the great example of cell phone-driven development: one phone is rented throughout a village as a business, thus multiplying wealth creation. Why so stingy with giving recognition and praise to microfinance, which supported the phone ladies?
After all, it was the genius of the Grameen Bank of
Why does The Economist remain bearish on microfinance, despite the success of the phone ladies and so many others? The answer is simple: microfinance is still the child of governmental and charitable funding. So, while alerting us to the ballooning sinkhole called the ‘digital divide’ filled by the UN and other stewards of your tax and charitable dollars, the editors are weary to simultaneously tip their hat to microfinance, which they suspect of being more of the same. This caution makes sense. Nonetheless, let’s give credit where credit is due: microfinance, if done right, facilitates the creation of wealth, not just the creation of “aid” funds.
Additional Resources
1) Initial article discussed in entry, The Economist: "Calling an End to Poverty."
2) Grameen Phone Company
3) Consultative Group to Assist the Poor (CGAP): "Key Principles of Microfinance"
4) BBC News: "Mobile Money Spinner For Women"
5) "Global Cell Phone Giants to Capture Bangladeshi Market."
6) Subscription only: "Mobilising Africa’s Untapped Potential." African Business,
7) “Telenor Ups Ownership Of Grameen Phone.” Dow Jones International News. 28 Dec 2004
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