Grameen Bank

Grameen Bank (GB)

Type Body Corporate (Bank Ordinance)

Industry Finance

Founded 1983

Headquarters Dhaka, Bangladesh

Area served Bangladesh

Key people Muhammad Yunus, founder

Products Financial Services

Microfinance

Revenue ▲ 6,335,566,324 Taka (92.3 million USD)

(2006)[1]

Operating income ▲ 5,959,675,013 Taka (86.9 million USD)

(2006)[1]

Net income ▲ 1,398,155,030 Taka (20.3 million USD)

(2006)[1]

Total assets 59,383,621,728 Taka (2006)[2]

Employees 24,703 (Oct 2007)[3]

Website www.grameen-info.org
The Grameen Bank is a microfinance organization and community development bank started
in Bangladesh that makes smallloans (known as microcredit or "grameencredit") to the
impoverished without requiring collateral. The word "Grameen" is derived from the word "gram"
and means "rural" or "village" in Bangla language. The system of this bank is based on the idea
that the poor have skills that are under-utilized. A group-based credit approach is applied which
utilizes the peer-pressure within the group to ensure the borrowers follow through and use
caution in conducting their financial affairs with strict discipline, ensuring repayment eventually
and allowing the borrowers to develop good credit standing. The bank also accepts deposits,
provides other services, and runs several development-oriented businesses including fabric,
telephone and energy companies. Another distinctive feature of the bank's credit program is that
a significant majority of its borrowers are women.

The origin of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus,
a Fulbright scholar at Vanderbilt University and Professor atUniversity of Chittagong, launched
a research project to examine the possibility of designing a credit delivery system to provide
banking services targeted to the rural poor. In October 1983, the Grameen Bank Project was
transformed into an independent bank by government legislation. The organization and its
founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize in 2006 the
organisation's Low-cost Housing Programme won a World Habitat Award in 1998.

History
Muhammad Yunus, the bank's founder, earned a doctorate in economics from Vanderbilt
University in the United States. He was inspired during the terrible Bangladesh famine of
1974 to make a small loan of US$27.00 to a group of 42 families so that they could create small
items for sale without the burdens of predatory lending Yunus believed that making such loans
available to a wide population would have a positive impact on the rampant rural poverty in
Bangladesh.

The Grameen Bank (literally, "Bank of the Villages", in Bangla) is the outgrowth of Yunus' ideas.
The bank began as a research project by Yunus and the Rural Economics Project at
Bangladesh's University of Chittagong to test his method for providing credit and banking
services to the rural poor. In 1976, the village of Jobra and other villages surrounding the
University of Chittagong became the first areas eligible for service from Grameen Bank. The
Bank was immensely successful and the project, with support from the central Bangladesh
Bank, was introduced in 1979 to the Tangail District (to the north of the capital, Dhaka).[8] The
bank's success continued and it soon spread to various other districts of Bangladesh. By a
Bangladeshi government ordinance on October 2, 1983, the project was transformed into an
independent bank.Bankers Ron Grzywinski and Mary Houghton of ShoreBank, a community
development bank in Chicago, helped Yunus with the official incorporation of the bank under a
grant from the Ford Foundation. The bank's repayment rate was hit following the 1998 flood of
Bangladesh before recovering again in subsequent years. By the beginning of 2005, the bank
had loaned over USD 4.7 billion and by the end of 2008, USD 7.6 billion to the poor.

The Bank today continues to expand across the nation and still provides small loans to the rural
poor. By 2006, Grameen Bank branches numbered over 2,100. Its success has inspired similar
projects in more than 40 countries around the world and has made World Bank to take an
initiative to finance Grameen-type schemes.

The bank gets its funding from different sources, and the main contributors have shifted over
time. In the initial years, donor agencies used to provide the bulk of capital at very cheap rates.
In the mid-1990s, the bank started to get most of its funding from the central bank of
Bangladesh. More recently, Grameen has started bond sales as a source of finance. The bonds
are implicitly subsidised as they are guaranteed by the Government of Bangladesh and still they
are sold above the bank rate.

Application of microcredit

16 Decisions

1. We shall follow and advance the four principles of Grameen Bank: Discipline, Unity, Courage and Hard

work – in all walks of our lives.

2. Prosperity we shall bring to our families.

3. We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new

houses at the earliest.

4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.

5. During the plantation seasons, we shall plant as many seedlings as possible.

6. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our

health.

7. We shall educate our children and ensure that they can earn to pay for their education.

8. We shall always keep our children and the environment clean.

9. We shall build and use pit-latrines.

 10. We shall drink water from tubewells. If it is not available, we shall boil water or use alum.

11. We shall not take any dowry at our sons' weddings, neither shall we give any dowry at our daughter's

wedding. We shall keep our centre free from the curse of dowry. We shall not practice child marriage.

12. We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.

13. We shall collectively undertake bigger investments for higher incomes.

14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.

15. If we come to know of any breach of discipline in any centre, we shall all go there and help restore

discipline.

16. We shall take part in all social activities collectively.

Grameen Bank is best known for its system of solidarity lending. The Bank also incorporates a
set of values embodied in Bangladesh by the Sixteen Decisions. At every branch of Grameen
Bank the borrowers recite these Decisions and vow to follow them. As a result of the Sixteen
Decisions, Grameen borrowers have been encouraged to adopt positive social habits. One such
habit includes educating children by sending them to school. Since the Grameen Bank
embraced the Sixteen Decisions, almost all Grameen borrowers have their school-age children
enrolled in regular classes. This in turn helps bring about social change, and educate the next
generation.

Solidarity lending is a cornerstone of microcredit and the system is now at work in over 43
countries. Although each borrower must belong to a five-member group, the group is not
required to give any guarantee for a loan to its member. Repayment responsibility solely rests
on the individual borrower, while the group and the centre oversee that everyone behaves in a
responsible way and none gets into a repayment problem. There is no form of joint liability, i.e.
group members are not obliged to pay on behalf of a defaulting member. However, in practice
the group members often contribute the defaulted amount with an intention of collecting the
money from the defaulted member at a later time. Such behavior is facilitated by Grameen's
policy of not extending any further credit to a group in which a member defaults.

There is no legal instrument (no written contract) between Grameen Bank and its borrowers, the
system works based on trust. To supplement the lending, Grameen Bank also requires the
borrowing members to save very small amounts regularly in a number of funds like emergency
fund, group fund etc. These savings help serve as an insurance against contingencies.

In a country in which few women may take out loans from large commercial banks, Grameen
has focused on women borrowers as 97% of its members are women. While a World
Bank study has concluded that women's access to microcredit empowers them through greater
access to resources and control over decision making, some other economists argue that the
relationship between microcredit and women-empowerment is less straight-forward. In other
areas, Grameen's track record has also been notable, with very high payback rates—over 98
percent. However, according to the Wall Street Journal, a fifth of the bank's loans were more
than a year overdue in 2001. Grameen claims that more than half of its borrowers in
Bangladesh (close to 50 million) have risen out of acute poverty thanks to their loan, as
measured by such standards as having all children of school age in school, all household
members eating three meals a day, a sanitary toilet, a rainproof house, clean drinking water and
the ability to repay a 300taka-a-week (around 4 USD) loan.

Village Phone Program

Among many different applications of microcredit by the bank, one is the Village Phone
program, through which women entrepreneurs can start a business providing wireless
payphone service in rural areas of Bangladesh. This program earned the bank the 2004
Petersburg Prize worth of EUR 100,000/-, for its contribution of Technology to Development. In
the press release announcing the prize, the Development Gateway Foundation noted that
through this program:

...Grameen has created a new class of women entrepreneurs who have raised themselves from
poverty. Moreover, it has improved the livelihoods of farmers and others who are provided
access to critical market information and lifeline communications previously unattainable in
some 28,000 villages of Bangladesh. More than 55,000 phones are currently in operation, with
more than 80 million people benefiting from access to market information, news from relatives,
and more.

Struggling members program

In 2003, Grameen Bank started a new program, different from its traditional group-based
lending, exclusively targeted to the beggars in Bangladesh. This program is focused on
distributing small loans to beggars. The existing rules of banking are not applied, the loans are
completely interest-free, the repayment period can be arbitrarily long, for example, a beggar
taking a small loan of around 100 taka (about US $1.50) can pay only 2.00 taka (about 3.4 US
cents) per week and furthermore the borrower is covered under life insurance free of cost.
The bank does not force borrowers to give up begging; rather it encourages them to use the
loans for generating income by selling low-priced items. Based on a paper presented in the
Global Microcredit Summit in 2006 by one of the bank's managers, as of May 2006, around
73,000 beggars have taken loans of about Tk 58.32 million (approx. USD 833,150) and repaid
Tk. 34.78 million (about USD 496,900).

Operational statistics
One unusual feature of the Grameen Bank is that it is owned by the poor borrowers of the bank,
most of whom are women. Of the total equity of the bank, the borrowers own 94%, and the
remaining 6% is owned by the Government of Bangladesh.

The bank has grown significantly between 2003-2007. As of October 2007, the total borrowers
of the bank number 7.34 million, and 97% of those are women. The number of borrowers has
more than doubled since 2003, when the bank had only 3.12 million members. Similar growth
can be observed in the number of villages covered. As of October 2007, the Bank has a staff of
over 24,703 employees and 2,468 branches covering 80,257 villages.  up from 43,681 villages
covered in 2003. Since its inception, the bank has distributed Tk 347.75 billion (USD 6.55
billion) in loans. Out of this, Tk 313.11 billion (USD 5.87 billion) has been repaid. The bank
claims a loan recovery rate of 98.35%, up from the 95% recovery rate claimed in 1998.The Wall
Street Journal, in November, 2001, published an article expressing doubt about the 95%
recovery rate from 1996 and the accounting practices that Grameen used to determine this rate.

Nobel Peace Prize

Grameen Bank received several prestigious awards including the highest civilian award in
Bangladesh, the Independence Day Award, in 1994. However, the greatest recognition of the
bank's achievements came on October 13, 2006, when the Nobel Committee awarded
Grameen Bank and its founder, Muhammad Yunus, the 2006 Nobel Peace Prize "for their
efforts to create economic and social development from below." The award announcement also
mentions that:

From modest beginnings three decades ago, Yunus has, first and foremost through Grameen
Bank, developed micro-credit into an ever more important instrument in the struggle against
poverty. Grameen Bank has been a source of ideas and models for the many institutions in the
field of micro-credit that have sprung up around the world.
On December 10, 2006, Mosammat Taslima Begum, who used her first 16-euro (20-dollar) loan
from the bank in 1992 to buy a goat and subsequently became a successful entrepreneur and
one of the elected board members of the bank, accepted the Nobel Prize on behalf of Grameen
Bank's investors and borrowers at the prize awarding ceremony held at Oslo City Hall.

Grameen Bank is the only business corporation to have won a Nobel Prize. In a speech given at
the presentation ceremony, Professor Ole Danbolt Mjøs, Chairman of the Norwegian Nobel
Committee, mentioned that, by giving the prize to Grameen Bank and Muhammad Yunus, the
Norwegian Nobel Committee wished to focus attention on dialogue with the Muslim world, on
the women's perspective, and on the fight against poverty.

The Nobel prize announcement was celebrated with a lot of enthusiasm in Bangladesh. Some
critics asserted that the award affirms neoliberalism.

Related ventures
The Grameen Bank has grown into over two dozen enterprises represented by the Grameen
Family of Enterprises. These organizations include Grameen Trust, Grameen Fund, Grameen
Communications, Grameen Shakti (Grameen Energy), Grameen Telecom, Grameen
Shikkha (Grameen Education), Grameen Motsho (Grameen Fisheries), Grameen Baybosa
Bikash (Grameen Business Development), Grameen Phone, Grameen Software
Limited, Grameen CyberNet Limited, Grameen Knitwear Limited, and Grameen Uddog (owner
of the brand Grameen Check).

On July 11, 2005 the Grameen Mutual Fund One (GMFO), approved by the Securities and
Exchange Commission of Bangladesh, was listed as an Initial Public Offering. One of the first
mutual funds of its kind, GMFO will allow the over four million Grameen bank members, as well
as non-members, to buy into Bangladesh's capital markets. The Bank and its constituents are
together worth over USD 7.4 billion.

The work of Grameen Bank in Bangladesh Inspired the creation of the Grameen Foundation,
which aims to share the Grameen philosophy and accelerate the impact of microfinance on the
world’s poorest people. Grameen Foundation, which has an A-rating from Charity Watch[.not
only provides microloans in the USA itself (the only developed country where this is done), but
also supports microfinance institutions worldwide with loan guarantees, training, and technology
transfer. As of 2008, Grameen Foundation supports microfinance institutions in the following
regions:
 Asia-Pacific: Bangladesh, China, East
Timor, Indonesia, India, Lebanon, Pakistan, Philippines, Saudi Arabia, Yemen
 Americas: Bolivia, Dominican Republic, El
Salvador, Haiti, Honduras, Mexico, Peru, USA
 Africa: Cameroon, Egypt, Ethiopia, Ghana, Morocco, Nigeria, Rwanda, Tunisia, Uganda

Premiering at the 2010 Sundance Film Festival, the film To Catch a Dollar documents the
process of establishing Grameen America programs in Queens, New York in 2008. The
documentary is expected to open in September 2010.

Criticism
Sudhirendar Sharma, a development analyst, claims the Bank has "landed poor communities in
a perpetual debt-trap", and that its ultimate benefit goes to the corporations that sell capital
goods and infrastructure to the borrowers. It has attracted criticism from the former Prime
Minister of Bangladesh, Sheikh Hasina, who commented, "There is no difference between
usurers [Yunus] and corrupt people."[

Hasina touches upon one criticism of Grameen Bank: the high rate of interest it demands from
those seeking credit. Similar to all microfinance institutes, the interest charged by Grameen
Bank is high compared to that of traditional banks, as Grameen's interest (reducing balance
basis) on its main credit product is about 20%. The Mises Institute's Jeffrey Tucker has criticized
the Bank, asserting it and others based on the Grameen model are not economically viable and
depend on subsidies in order to operate, thus essentially becoming another example of welfare.
They disregard Yunus' claims that he is working against subsidized economy, giving borrowers
the opportunity to make business. Another source of criticism is that of the Grameen's Sixteen
Decisions Critics say the bank's Sixteen Decisions force families and borrowers to abide by the
rules and regulations set forth by the bank. However, they do not make clear why the leading
principles (unity, courage, discipline and hard work; and some additional rules that are set up by
the bank, like living in healthy houses in good repair, not drinking unsafe water or refusing to
give dowries for daughters) can be bad for borrowers. They mostly object to the requisite of
having to make a borrower club to cover defaults, which they disqualify as a totalitarian tool,
instead of a community building strategy. David Roodman and Jonathan Morduch disagreed
with a statistic once often cited by Yunus that “5% of the Grameen borrowers get out of poverty
every year.” Reanalyzing the underlying study, they obtained opposite results. But they did not
interpret these to imply that lending to women made families poorer. Rather, the negative
causality may go the other way: women in richer families may borrow less.