Bangladesh Grameen

Bank (BGB) Model

5 members groups, they must be neighbors but

not relatives
Joint Liability Groups (JLG) or Solidarity Groups (SG)
Individual lending within JLG model
7 groups constitute a centre at the village level
All loans must be approved by other group
members as well as all other centre members
Lending is in the order of 2:2:1 (leader being the
last)
Every member must contribute Rs. 5/week
Inability of a client to pay savings results in the
concerned group or centre paying up for that client

Bangladesh Grameen
Bank (BGB) Model

5 % of all productive loans disbursed to a group is

collected as tax and deposited in the group fund
From this group fund, member can access loans for
consumption purposes (maximum 75% of group
fund), no interest charge
There is also an emergency fund (optional) where
each member contribute Rs. 1/week.
Loan disbursement is done at the centre level.
Weekly repayment schedule (maximum 52 weeks)
Interest rate varies between 15-24 % p.a. on flat
basis and on a weekly basis.

SHG V/s BGB Model

Client Perspective

Strength for SHG Model

- Flexible internal operations
- can select cheaper supplier of funds
- can evolve from existing groups
- can evolve into Federations
- very empowering
- a major part of the interest is retained
within the group fund

SHG V/s BGB Model

Client Perspective

Weaknesses of SHG model

- Need management skills
- can be hijacked internally or
externally
- cash may not be secure, if
savings are held within the group

SHG V/s BGB Model

Client Perspective

Strengths of BGB model

- No need for literacy
- Protected from internal exploiters
- Poorer are included
- Bank/MFI can offer tailor-made services
- savings are safe
- members are forced to accumulate
reserves, which can be used in emergencies

SHG V/s BGB Model

Client Perspective

Weaknesses of BGB model

- inflexible internal operations,
very rigid
- group composition not in
members control
- must meet frequently (weekly),
more time consuming

SHG V/s BGB Model

Bank/MFI Perspective

Strength of SHG model

- lower costs, (one account for
whole group) and (appraisal,
recovery done by members)
- groups can fit to any branch
- No social intermediation cost as
groups are promoted by SHPI
- large access to clients

SHG V/s BGB Model

Bank/MFI Perspective

Weaknesses of SHG model

- Need SHPI to promote the groups
- Groups may move to other bank
- more risks as hard to monitor the groups
- slow process to increase the scale of
business
- may be forced to link the groups under
some schemes

SHG V/s BGB Model

Bank/MFI Perspective

Strengths of BGB model

- Tight control over the groups, so
less risk
- standardized procedures
- members have the feelings of
belonging to bank/MFI

SHG V/s BGB Model

Bank/MFI Perspective

Weaknesses of BGB model

- Higher transaction costs
- members need continuous
guidance and presence
- needs dedicated system

SHG Model Suitable

Conditions

Existing bank network in rural areas

Communities are fragmented, with
various different groups based on caste,
or wealth level
There are credible NGOs or other
community development institutions to
promote the groups
Peoples opportunities and financial
service needs are diverse

BGB Model Suitable

Conditions

The prospective clients are very poor

and marginalized, and are vulnerable to
exploitation unless they are protected
by a rigid structure
Clients are illiterate
The area is densely populated, so that it
is practical for MFI staff to visit the
groups every week
The population is fairly homogenous

Federated SHG Model

Federation is apex institution of all SHGs

in an area (1000-3000 members)
SHG------Cluster------------Federation
Federation can be registered under
Society registration Act.
Helps in promotion of new SHG and
strengthening of existing SHGs
Facilitate inter-group exchange (financial
and non-financial)
Access of outside funds to member SHGs

Federated SHG Model

As the number of groups increases, it

becomes difficult for SHPI to interact
directly with each group
SHPI can start withdrawing and can
concentrate on other area
External funds for on-lending are routed
through federation
Federation can help SHGs in loan
recovery

NBFC Model

Profit maximization through financial

services to rural/poor clients
Registered as profit making NBFC under
the Companies Act 1956
Diverse client group
Multiple channels
Sound financial intermediation, no
social intermediation
Diversified products for different clients