38988 3 reb mun MoNIToR Replicating Village Phone from Uganda 6002 and Bangladesh ya m telecommunications and information and communication tech- nologies can reduce poverty in underserved areas of the world. in 2003 mtn uganda, uganda's leading telecommunications com- pany, joined Grameen foundation uSa, an arm of the bangladesh microfinance institution Grameen bank, to create mtn Village phone. Village phone brings telecommunications services to iso- lated communities by providing members with mobile telephone equipment and training them to become Village phone operators, who sell phone services to other residents. The International Finance Corpora- Intelecon Research and Consultancy noitaroproc tion (IFC) was an investor in the origi- Ltd., to review the replication of Village nal GrameenPhone project in Bangla- Phone in Uganda and provide recom- desh. It provided technical assistance to mendations on how the IFC should repli- Village Phone in Uganda and to MTN cate the model in other countries. in Nigeria, where a Village Phone pilot has been carried out and full-scale im- Comparing projects in plementation is being considered. And Bangladesh and Uganda ecnanif it funded an evaluation of the projects TheBangladeshandUgandaVillagePhone in Nigeria and Uganda and produced a projects differ in several respects: report and a learning note that assessed best practices for future Village Phone Partnerships. In Bangladesh the partners lanoitanretni replications. are all interrelated. Village Phone is owned Experience in Uganda, Nigeria, and by the main national telecommunications Bangladesh suggests that the IFC and carrier, GrameenPhone, which is owned the World Bank are in a unique position partially by Grameen Bank, the largest to replicate Village Phone around the microfinance institution in Bangladesh. world. But they will need to prepare for In Uganda Village Phone is a joint venture this role and recognize that the approach between Grameen Foundation USA and may vary from country to country given MTN Uganda and involves nine independ- eht local circumstances. In 2005 the IFC con- ent microfinance institutions that serve as tracted an independent consulting firm, its channel to market. m o n i t o r R e p l i c a t i n g V i l l a g e p h o n e f R o m U g a n d a a n d B a n g l a d e s h 2 Target clientele. By February 2006 the Bangla- a competitive environment where in- desh program had more than 196,000 Vil- termediary partners are not involved. lage Phone operators, 96% of them women. · Light is a commercial variation con- The MTN Uganda model was originally trolled by a mobile operator and op- projected to grow to 5,000 operators-- erates in a competitive environment there are now more than 36,000, 55% of as a standalone product for resale, them men and 45% women. but may also fall under the opera- tor's corporate social responsibility Channel to market mechanisms. Both models program. assume that rural microfinance institution there are members will accept small loans to buy Vil- Identifying an appropriate model lage Phone equipment kits, which enable While each of the proposed Village Phone many ways them to become Village Phone operators. program models supports the goal of uni- In Uganda, however, the institutions can versal access, the means to achieve that to establish bypass loans, offering kits to members and goal vary considerably. Some issues to be nonmembers for cash. considered when choosing between the and deploy models: Competitive environment. In Bangladesh Village phone GrameenPhone dominates the market in Program objective. Specific approaches will rural areas but faces increasing competi- vary according to the objectives of fund- tion. MTN Uganda deals with a competi- ing agencies and the interests of part- tive and dynamic sector that brings new ners. While the project in Uganda shared products on the market. other develop- with its Bangladesh predecessor the goal ments include a 25% reduction in tariffs, of delivering telecommunication oppor- reduced prices for equipment kits, relaxed tunities to rural communities through selection criteria for operators, and con- microfinance institutions and their mem- trols to reduce local competition among bers, unlike the earlier program it did operators. not ultimately focus on women. Because of the highly competitive nature of mar- Four models for replication kets in most countries, limiting an entity's The variations between the Bangladesh opportunities by serving only one gender and Uganda Village Phone models dem- group could place the development ob- onstrate the many ways to establish and jectives of a program in conflict with the deploy Village Phone. Evaluation of the business objectives of the operator. experiences in each market indicates that future operation models could be config- Cost of Village Phone operator equipment kits. ured in several ways: The kits were not meant to be a source · Legacy focuses on microfinance and of profit for the project. Competition in female entrepreneurs, operates in a Uganda's telecommunications market market with one dominant operator, (for example, availability of secondhand and involves funding partners inter- sets) has forced Village Phone to offer ested in financing gender-specific clients the option to purchase the kits programs. outright rather than take out six-month · Broadband works with operators and loans. If the cost of the kits provided microlenders and operates in a mar- through microfinance institutions be- ket with one dominant operator and comes uncompetitive or prohibitive when little competition. compared with other products available · Virtualworksthroughanindependent on the market, the business model should commercial operator and operates in be reassessed. m o n i t o r R e p l i c a t i n g V i l l a g e p h o n e f R o m U g a n d a a n d B a n g l a d e s h 3 Incentives for Village Phone operators and their The sources and levels of investment support institutions. In Uganda airtime sales required for a Village Phone program de- incentives were introduced to give micro- pend on circumstances. For example, the finance institution partners a percentage Virtual or Light models, which do not de- of the cost of airtime they sell to their Vil- pend on microfinance institutions, theo- lage Phone operator members. While this retically require much less investment for allows partners to earn revenue, there is capacity building and financial support no incentive for Village Phone operators than models that depend on intermediary to purchase airtime from their microfi- development partners. Similarly, if equip- incentive nance institution field officers rather than ment kits are sold for cash, Village Phone from private distributors who are flour- partners might not need lines of credit-- schemes ishing throughout much of the country. the amount of required investment could Furthermore, while microfinance institu- be substantially less than that required in were tried, tions charge small, one-time handling fees Uganda. for the cash sales of equipment kits, cash rejected, and transactions deprive them of interest rev- IFC opportunities enue they would otherwise earn from the The IFC should consider several options adapted all loan mechanism. The challenge of align- as it thinks about its next steps for involve- ing each party's incentives could jeopard- ment with Village Phone: along the way ize the role of microfinance institutions in the long term. Identifying potential program models. An In Uganda the business model was un- agency, institution, or project office could der constant evolution in response to com- define and promote various Village Phone petitive pressures and implementation and models and value-added services that operational challenges. Incentive schemes could be deployed in Africa and other de- were tried, rejected, and adapted all along veloping countries. the way. In Uganda the project created a successful business in a difficult environ- Producing a brief guide. This would in- ment by adapting to the market. form potential partners and investors on different business models, risks, and Funding future Village Phone projects opportunities. It could be distributed The Uganda project raised $800,000 in to potential stakeholders, operators, and grants, loans, and investments from many civil society organizations. (This guide institutions and funding agencies. A re- is distinct from the "how-to" replication view of its operations suggests two funding manual developed by Grameen Founda- challenges in replicating the program in tion USA.) other markets: funding predeployment-- which consists of country identification Assessing the appropriateness of the various and assessment, relationship building, and models in different operating environments. company formation--and funding opera- Helping Village Phone proponents de- tional activities. Unlike predeployment, termine which proposed model would be operational activities mean the potential most appropriate for a given operating to generate returns on investment and is environment could minimize risks for new thus more attractive for investors. In fact, replication efforts. to fund operational activities at least one in-country partner of the investment has Ensuring that financial incentives and mandates to be identified or confirmed after prede- are established to promote Village Phone sustaina- ployment has been completed. bility. Future replication models should have m o n i t o r R e p l i c a t i n g V i l l a g e p h o n e f R o m U g a n d a a n d B a n g l a d e s h Village Phone models for replication Legacy Broadband Virtual Light Operation Focuses on microfinance Works with a broad Marketed through an Marketed within a mobile model and female entrepreneurs range of operators and independent commercial operator, using commercial and involves funding microlenders operator as a separate channels only (marketwide partners who are service product) interested in financing gender-specific programs Preferred Ideal for a monopoly, Ideal for a monopoly, Ideally suited for a Ideally suited for a telecom could operate in an but could be adapted competitive, dynamic competitive, dynamic operating environment with up to for a more competitive environment with two or environment with two or environment two mobile operators environment more strong telcos more telcos (telcos), better with one dominant operator Need for Definitely required to Definitely required to Important to Virtual Less crucial if network is attractive, protect operators who protect operators who operators, but less based on nonborrowing preferential take loans from nonloan take loans from nonloan crucial if network is operators wholesale competitors competitors based on nonborrowing tariffs operators Distribution/ Loans to female clients Loans to men and Cash only, plus loans for Cash only and no loans, management women, plus cash-only microfinance institutions to general public mechanism sales (if required) Training Training program plus Training program plus "Slim" manuals, possible "Slim" manuals only manual manual fee-for-service training for microfinance institutions Revenue Operator: airtime Operator: airtime Operator: airtime sales Telco: franchise package streams Village Phone: operators Village Phone: operators Village Phone: equipment fee, airtime sales, and and total airtime and total airtime kit sales, airtime sales branding Microfinance institution: Microfinance institution: Telco: bulk airtime sales Franchisee: airtime sales airtime sales, credit airtime sales, credit to VP virtual operator payments payments, equipment and possibly branding Telco: airtime sales and sales' handling fees branding Telco: airtime sales and branding Airtime Via preferential Via microfinance Via private distributors Via private distributors distribution incentives with institutions (prepaid (prepaid cards) and (prepaid cards) microfinance institutions cards and virtual top- microfinance institutions and virtual top-up (prepaid cards and virtual up system) and private system (could include top-up system) and some dealers microfinance institutions) private dealers Funding Funding required for Funding required for Start-up capital required Start-up capital required process country assessments, country assessments, for telco sensitization for telco sensitization and microfinance institutions microfinance institution and dealmaking, operating budget relationship building, and relationship building, microfinance institution operating budget operating budget sensitization and operating budget m o n i t o r R e p l i c a t i n g V i l l a g e p h o n e f R o m U g a n d a a n d B a n g l a d e s h a clear and fair incentive-reward scheme so the microfinance institutions' reduced rev- that partners can be sure they will receive enues could impact their willingness to re- the rewards. In Uganda there is a concern main in the program. An open and acces- that the future viability of the program may sible resource center could sensitize stake- be challenged because of the absence of fi- holders to the importance of incentives. nancial incentives for Village Phone opera- tors to purchase airtime from microfinance Establishing funding mechanisms to support institutions.Withoutsuchincentiverewards, Village Phone replication. While some future Choosing a model: pros and cons Pros Cons Legacy Continues the Grameen model exclusively for women Focus on women could leave potential male operators via microfinance institutions. looking for another product from another telco. Provides microfinance institutions with a new loan Focus on microfinance institutions and need for credit product and an opportunity for future revenue streams. mechanism increases the value of the equipment kits for Microfinance institution involvement provides rural operators. channel to market. Within a competitive environment will be less effective as a universal access mechanism due to operator gender selectivity. Slowest channel to market option of the four due to relationship building, capacity building, and so on. Broadband Meets existing demand for rural phones from Not exclusively focused on maintaining a business focus microfinance institutions and general public. on women. Provides microfinance institutions with a new loan Focus on microfinance institutions and need for credit product and an opportunity for future revenue streams. mechanism increases the value of the equipment kits for Microfinance institution involvement provides rural operators. channel to market. Within a competitive environment will be less effective as Business objective offers whatever services are required a universal access mechanism due to operator selectivity to remain viable/relevant in the market. owing to microfinance institution­only membership. Virtual Demand driven with a possible social component via the Operating budget required to support the Virtual microfinance institutions. company operations, thus less profit. Opportunity for small and medium enterprises focusing Is more of a universal access initiative than a social on rural telecom operations. development initiative. Telco offers support as required via existing help lines Possibility of management not having a presence in rural and the like. areas could jeopardize the sustainability of the network. Offers a low-cost equipment package for place phones in more rural localities. Light Demand driven, low overhead, and relatively little A purely universal access initiative with few traditional, revenue sharing required. donor-driven development themes. Product sold as any other product by the telco. Possibility for little attention to the strategy of the Telco offers support as required via existing help lines program beyond its launch (program management?). and the like. Few dedicated staff to manage. Offers a low-cost equipment package for place phones in Lack of rural microfinance institution involvement and more rural localities. the possibility of management (field offices) not having a Fastest channel to market of the four options. presence in rural areas could jeopardize the sustainability of the network. m o n i t o r R e p l i c a t i n g V i l l a g e p h o n e f R o m U g a n d a a n d B a n g l a d e s h 6 replication initiatives need not cost as much sector. The IFC should take the following as the MTN Uganda program (the invest- actions without delay: ment portion of Village Phone start-up costs are likely to be $500,000 or less), funding Refine and expand the four operational models. remains a stumbling block to Village Phone The IFC can become a leader in Village replication. An international Village Phone Phone by commissioning a rapid, detailed fund and coordinating unit would: study of the operating models and the coun- · Coordinate and distribute assess- tries where each would be appropriate. ment studies and reports. · Coordinate or facilitate partner- Quickly develop how-to replication manuals ships between international donors corresponding with each of the viable operating and commercial investors for Village models. Phone­style rural telecom and devel- opment initiatives. Ensure a fast route to market for the Village Phone · Serve as a liaison between interna- model. To accelerate the implementation and tional donors and funding agen- testing of the Village Phone operating mod- cies on the one hand and local, els the IFC should approach mobile opera- in-country Village Phone propo- tors in which it has a stake, assess their inter- nents on the other. The coordi- est in Village Phone, and help steer them to- nating unit would help identify ward the most appropriate model based on funding opportunities for prede- individual country conditions and demand. ployment activities, training and capacity building, program evalua- Establish a central Village Phone resource Web site. tion, start-up microloan financing, Contentcouldincludeinformationforinves- and Village Phone working capital. tors, program evaluations and best practice Because of the diversity of activities case studies, rural telecommunication de- that may require support, the fund mand studies, model assessments, questions would need to comprise a range of and answers for prospective stakeholders, Monitor donor partners who would focus and a contacts page that proponents can on their respective areas of interest use to develop their opportunities further. and a discrete division that would Monitor shares offer equity or loan capital in part- Establish a Village Phone operational fund. The key findings from nership with commercial partners. IFC should bring together donors and oth- in-depth reviews of er funding agencies interested in Village technical assistance Next steps Phone with local in-country proponents programs and projects The window of opportunity to take action who have expressed a need for funding conducted by external and support the evolution of Village Phone assistance and capacity support. The role evaluators. These across Africa, Asia, and other continents is played by the IFC could range from simply reviews address the changing rapidly due to the intense com- bringing different partners together to cre- relevance, efficiency, effectiveness, and petition within the telecommunications ating a funding channel for new initiatives. sustainability of technical assistance programs. SME Department Email: infosme@ifc.org t h i s n o t e i s a v a i l a b l e o n l i n e : w w w . i f c . o r g /