A Bangladesh start-up defies investing wisdom [GrameenPhone]

["Irfan Khan" <khania2@super.net.pk>]

A Bangladesh start-up defies investing wisdom

Susan E. Reed The New York Times
Saturday, May 25, 2002

Cell-phone venture is a ringing success

NEW YORK In the early 1990s, when Iqbal Quadir was looking for
investors to back his idea for a mobile-phone network in Bangladesh,
he said he was turned down by an executive at a cell-phone company in
New York who told him, "We're not the Red Cross."

That mind-set, which interprets investment in the Third World as
charity, not an opportunity for profit, is what keeps countries poor,
Quadir said.

"In the United States we either give charity to the poor or we ignore
them, and neither one helps them," he said. "Business is a proven
method of solving their problems in a sustainable way."

At the end of last year, Quadir showed how Third World ventures can
be profitable - and provide a useful service - when GrameenPhone
Ltd., the cell-phone company he founded in Bangladesh, made $27
million in pretax profit. It turned that profit after just five years
- far sooner than many First World start-ups.

The experience of Quadir, now a lecturer in public policy at the
Kennedy School of Government at Harvard University, contradicts the
conventional wisdom from luminaries like Bill Gates, who has said
there is no market for such sophisticated devices in places of
widespread poverty and illiteracy as well as unreliable electricity.
Through his foundation, Gates has sought to first improve the health
of the poor.

To Quadir, the two approaches are not mutually exclusive. He says the
poor will improve their health as they become richer, and he sees
cell phones as tools of production, not consumption.

With help from Telenor AS, the Norwegian telecommunications company,
and Grameen Bank, an established lender in Bangladesh, GrameenPhone
began operations in 1997. Investment has totaled nearly $200 million.
The enterprise has two tiers: It sells phones and time to urban
customers, and it sponsors Village Phone, a program in which people
without phone service in rural areas take out small loans for cell
phones and buy air time at cost.

The borrowers then charge other villagers the market rate to make
calls. GrameenPhone now has 575,000 subscribers in 12,000 villages,
making it the largest mobile-phone operation in Bangladesh.

A native of Bangladesh, Quadir, 43, was in unique position to put the
deal together because he bridges many worlds. He holds two master's
degrees from the Wharton School of the University of Pennsylvania,
one in finance, the other in applied economics.

He helped establish Atrium Capital, a Wall Street investment bank;
but one day, when Atrium's computer system was not working and he
could not conduct business, he was reminded of his boyhood in
Bangladesh: In 1971, when transportation was disrupted by war, he
spent an entire day walking, trying to find medicine for his younger
brother. But he returned empty-handed. That day in his Wall Street
office, he concluded that "connectivity is productivity" and soon set
out to prove it in Bangladesh.

He saw an opportunity to provide a needed service there and to make
money by going into a wide-open market.

But nearly all the potential investors Quadir approached expressed
skepticism. Sixteen, mainly in the United States, turned him down.
Quadir worked four years, without salary, to get his vision financed.

Quadir now serves on the boards of many organizations, like
DigitalDivide.org, that are devoted to finding ways to combine public
and private financing to help entrepreneurs in emerging markets.

Combining financing this way is not new. International Finance Corp.,
the private investment wing of the World Bank, does so often. But
there is less interest among private investors in developing the
infrastructure or expanding services within countries that can
actually reach the mass population, said Daniel Crisafulli, a loan
officer at the finance group.

Many investors simply do not want to negotiate with foreign
governments, which often expect high fees to gain access to their
markets. Quadir was fortunate. The Bangladesh government did not
charge an upfront licensing fee, because, he maintains, it expected
cell phones to be a marginal business for the very rich. GrameenPhone
now has more subscribers than the government-owned telephone company.

Despite Quadir's aversion to a charitable business approach,
GrameenPhone would not have gotten off the ground without financing
from private investors who were also interested in philanthropy.

Joshua Mailman, who founded the Social Venture Network, a group of
entrepreneurs and investors concerned about social justice and the
environment, gave Quadir $125,000 to begin the project and to travel
from Bangladesh to the United States and Europe. Mailman is among the
12 board members of Gonophone, GrameenPhone's New York-based holding
company.

With his classes at Harvard over for the semester, Quadir,
Gonophone's president, may soon be leading this group on an
investment adventure even more difficult than in Bangladesh: setting
up a cell-phone network in Afghanistan. Even if the political
situation there stabilizes,
there is no reliable banking system or telecommunications
infrastructure.

Quadir envisions starting a small lending system and a cell-phone
network at the same time.
The biggest challenge for Quadir will be to prove he can replicate
GrameenPhone's success in
other, very different countries.

"I have done it before," he said.


 Copyright © 2002 The International Herald Tribune



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