Type Body Corporate (Bank Ordinance)

Industry Finance
Founded 1983
Headquarters Dhaka, Bangladesh
Area served Bangladesh
Key people Muhammad Yunus, founder
Financial Services
Products
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 5 9,383,621,728 Taka (2006)[2]
Employees 24,703 (Oct 2007)[3]
Website www.grameen-info.org
The Grameen Bank (Bengali: গামীণ বাংক) is
a microfinance organization and community development
bank started inBangladesh that makes small loans (known
as microcredit or "grameencredit"[4]) to the impoverished without
requiring collateral. The name Grameen is derived from the
word gram which means "rural" or "village" in the Bengali
language.[5]
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 the overwhelming
majority (98%) 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
Universityand Professor at University 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;[6] the organization's Low-
cost Housing Program won a World Habitat Award in 1998.
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[edit]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.[7] Yunus believed that making such loans
available to a wide population would have a positive impact on the
rampant rural poverty in Bangladesh.

Nobel Laureate Muhammad Yunus, the bank's founder

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.[8]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.[8] Bankers Ron
Grzywinski and Mary Houghton ofShoreBank, a community
development bank in Chicago, helped Yunus with the official
incorporation of the bank under a grant from the Ford Foundation.
[9] 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[10] and by the end of 2008, USD 7.6 billion[11] 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.[12] 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.[13]
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.[14]
[edit]Application of microcredit
Grameen believes that charity is not an answer to poverty. It only
helps poverty to continue as it creates dependency and takes
away individual's initiative to break through the cycle of poverty,
whereas loans offer people the opportunity to take initiatives in
business or agriculture, providing earnings and enabling them to
pay off the debt.
Grameen regards all human beings, including the poorest, as
endowed with endless potential, and that unleashing the creativity
in each individual should be the answer to poverty.[15]Grameen
has offered credit to many poor, women, illiterate and unemployed
people. It created access to credit on reasonable terms such as the
group lending system and weekly-installment payment with
reasonably long term of loans, enabling the poor to build on their
existing skill to earn a better income in each cycle of loans.[15]
Grameen’s objective has been to promote financial independence
among the poor. Yunus encourages all borrowers to eventually
become savers so that their local capital can be converted into
new loans. Since 1995, Grameen has funded 90 percent of its
loans with interest income and deposits collected, hence aligning
the interests of its new borrowers and depositor-shareholders.
Hence, Grameen distinguishes itself from such institutions by
converting deposits made in villages into loans for the more needy
in the villages (Yunus and Jolis 1998).[16]
It targets the poorest of the poor, with a particular emphasis on
women, who receives 95 percent of the bank’s loans. Women
represent a suitable clientele because, given that they have less
access to alternatives, such as traditional credit lines and incomes,
they are more likely to be credit constrained and they have an
inequitable share of power in household decision making. Lending
to women also generates considerable secondary effects, including
empowerment of a marginalized segment of society (Yunus and
Jolis 1998). This is especially crucial as Yunus claims that in 2004,
women still have difficulty getting loans as it represented less than
1 percent of borrowers from commercial banks (Yunus 2004).
[16] The interest rates charged by microfinance institutes
including Grameen Bank is high compared to that of traditional
banks; Grameen's interest (reducing balance basis) on its main
credit product is about 20%.[17]
Down the years, Grameen has also diversified the types of loans it
makes. Among its new interests, hand-powered wells and loans to
support the enterprises of Grameen members' immediate
relatives. There were also seasonal agricultural loans and lease-to-
own agreements for equipment and livestock. The bank also set a
new goal for itself: making each of its branches free of poverty, as
defined by benchmarks such as having adequate food and access
to clean water and latrines.
16 Decisions[18]
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 Building inDhaka

Grameen Bank is best known for its system of solidarity lending.

[13] The Bank also incorporates a set of values embodied
in Bangladesh by the Sixteen Decisions.[19] 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.[20]
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.[21]
There is no legal instrument (no written contract) between
Grameen Bank and its borrowers, the system works based on
trust.[22] 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.[13]
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.[3] 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.[23] 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.[24] 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
300 taka-a-week (around 4 USD) loan.[25]
[edit]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.[26] 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.[26]

[edit]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.[27] 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).[28]
[edit]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.[3]
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.[3] The number of borrowers
has more than doubled since 2003, when the bank had only 3.12
million members.[29] 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,[3] up from 43,681 villages covered in 2003.
[29] 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.[3] The bank claims a loan recovery rate of
98.35%, up from the 95% recovery rate claimed in 1998.
[30] David Roodman has critiqued the accounting practices that
Grameen used to determine this rate[24] David Roodman[31] and
Jonathan Morduch[32] questions the statistical validity of studies
of microcredit's effects on poverty, given the complexity of the
situations involved.[33]
[edit]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."[34] 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.[34]

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.[35]
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.[36]
The Nobel prize announcement was celebrated with a lot of
enthusiasm in Bangladesh.[37] Some critics asserted that the
award affirms neoliberalism.[23]
[edit]Related ventures
Main article: Grameen family of organizations
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 brandGrameen Check).[38]
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.[39]
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.[40] Grameen Foundation, which has an A-
rating from Charity Watch,[41] 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.[42] As of 2008, Grameen
Foundation supports microfinance institutions in the following
regions:[43]
• 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.
[edit]Criticism

Analysts have suggested that microcredit can bring communities

into debt from which they cannot escape,[44][45][46][47] citing
situations where microloans from the Grameen Bank were linked to
exploitation and pressures on poor families to sell their belongings,
leading in extreme cases to humiliation and ultimately suicides.
[48]
The Mises Institute's Jeffrey Tucker suggests that microcredit banks
depend on subsidies in order to operate, thus essentially becoming
another example of welfare,[49] whereas Yunus believes that he is
working against the subsidized economy, giving borrowers the
opportunity to create businesses.
Maulana Ibrahim, a reactionary imam in Bangladesh, spoke out
against the Grameen Bank in 1993 for fostering "un-Islamic ways",
alleging (referring to the lenders' pledge) that women were taking
a vow not to obey their husbands and not to live in poverty
anymore.[50]
Grameen bank has been accused of tax evasion in a Norwegian
Documentary: "Caught in Micro debt" ths accusations have
recently been repeated in a Spanish documentary:'Microcredit'.
The accusation is based on the unauthorised transfer of
aproximately 100 million USD donated by The Norwegian Agency
for Development Cooperation (NORAD) from one Grameen entity
to another 'Grameen Kalyan' in 1996, before the expiry of the
Grameen bank's tax exemption. Muhammad Yunus denies that this
is tax evasion: 'There is no question of tax evasion here. The
Government has provided organizations with opportunities; we
have made use of these opportunities with aim of benefitting our
shareholders who are the rural poor women of Bangladesh.' The
matter has since been resolved.
[edit]