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worried about her house getting damaged during the monsoon. Her house now had a tin roof, mud walls and wooden windows, a luxury in rural Bangladesh. Earlier, Begum’s house had a straw roof and bamboo walls, which used to get damaged in the monsoon season, forcing the whole family to live in the kitchen. She got her hut repaired with a loan from the Bangladesh Grameen Bank (Grameen Bank). Begum wasn’t the only one; there were thousands of people in rural Bangladesh who had improved their living conditions with the help of the microfinance programs of Grameen Bank, a pioneer in microfinance (Refer Exhibit I for more about microfinance). Grameen Bank helped thousands of poor Bangladeshi women to improve their lives by extending loans to them to start. their own enterprises. By 2003, it was reported that between 33-48% of Grameen Bank borrowers had moved above the poverty line . By 2003, with 1,170 branches across Bangladesh, Grameen Bank was seen as a role model for microfinance all over the world. The Grameen Bank model was replicated across the world -- not only in developing countries like India, Pakistan, and Vietnam, but even in developed countries such as Australia and the USA, where similar schemes were set up to improve the lives of the urban poor (Refer Exhibit II). However, the Grameen Bank also attracted criticism from the media and economists all over world. Analysts pointed out that there was no proper monitoring of how the loans were utilized; it was reported that the loans availed of by women were used largely for consumption rather than for investment purposes. Analysts also pointed out that the accounting methods used by Grameen Bank were not in accordance with industry standards, and that the bank did not provide full details about its financial position and loan repayments position.
In the mid-1970s, Professor Muhammad Yunus (Yunus), then Head of the Rural Economics Program at the University of Chittagong, observed that banks did not extend their credit schemes to the rural poor as they were not considered creditworthy. In this situation, the rural poor were forced to approach moneylenders who charged exorbitant rates of interest. In 1976, Yunus launched The Grameen Bank Project, on an experimental basis to study the framework of banking services for the rural poor. The objectives of the Grameen Bank Project were: • Providing banking services to the rural poor • Eliminating exploitation of the rural poor by moneylenders • Facilitating self-employment projects for unemployed rural people • Making women self-reliant by providing them opportunities through Grameen Bank • To reverse the vicious cycle of – low income, low saving & low investment, into a new cycle of “low income, credit, investment, more income, more credit, more investment, more income.”
BACKGROUND NOTE Contd...
TABLE I GRAMEEN FAMILY
FOUNDATION Grameen Trust Grameen Fund Grameen DESCRIPTION Grameen Trust was formed in 1989. It provided training to organizations for replicating Grameen Bank model in other countries. Grameen Fund was formed in 1994 to provide capital for the new ventures. Grameen Bank’s IT department was hived off into
Program officers assisted the area office to supervise the utilization of loans and their recovery. Under this technique in the first stage. After the group cleared the oral examination. a branch was set up with a manager and staff.4 million borrowers (95% of them were women) and its activities were spread across 41. supervision.000 villages with over 1. a 16% interest rate was charged on the . This was established in 1997 to provide education to bank’s members and their children. An area office supervised around 10-15 branch offices. For every 15-22 villages. All the groups discussed the loan proposals in the branch’s weekly meetings and approved loans were sanctioned in sequence.000 villages. The Bank had four tiers. dyeing. It also offered customer service. supervising the credit process and sanctioning loans to members. each group had to submit proposals for loans to the branch. By August 2002. Unlike commercial banks. Initially. Each zonal office supervised around 10-13 area offices and all zonal offices reported to the head office situated in Dhaka. Grameen Bank had 2. Grameen Bank operated on the principles of mutual trust. accountability and member participation. By 2002. finishing and garments production facilities and majority of its finished products were being exported to Europe. the lowest level being branch office and the highest level being the head office (Refer Figure I). It was mandatory for the members to abide by the social contract known as Sixteen Decisions for getting loans from Grameen Bank (Refer Exhibit IV). Grameen Telecom was formed to provide telephone services to the rural areas. The branch office supervised all the ground activities of the bank such as organizing target groups. but lower than the interest charged by moneylenders. The loan amount usually ranged between 1000 to 3000 Taka  . In 1997.Communications Grameen Shakti/Energy Grameen Shiksha/Education Grameen Communications in 1994. It provided GSM cellular mobile phone services to 100 million rural people in and around 68. which included introducing them to the rules of the bank and the bank’s social contract. around six to eight groups were formed. A 100% export-oriented composite knitwear factory with Knitwearknitting. two financially weak members were chosen for loans. After choosing members for loans. Grameen Bank did not demand any security for extending credit. THE GRAMEEN BANK MODEL The Grameen Bank model was one of the most widely researched microfinance models all over world. which had to be repaid in 50 weekly installments spread over one year. Grameen Telecom Grameen Limited Grameen Ltd. Each group consisted of 5 women who became members of the Grameen Bank. All area offices were under the purview of a Zonal Office. All the members were given training for a week.100 branches. The difference between the interest earned by the Grameen Bank and interests paid by it on the loans taken from commercial banks was used to cover the operational costs of the Bank Grameen Bank adopted an innovative Group Lending Technique for extending loans to the rural poor. The interest charged by Grameen Bank was higher than that charged by commercial banks. it had disbursed cumulative loans of $3708. which granted credit on the basis of collateral security. it entered the ISP market. It also extended scholarships to the children for pursuing higher education. Every group had to pass an oral examination. This became operational in 1996 and it provided Internet Cybernet service. technical support and web page consulting. This was formed in 1996 to provide renewable energy in the rural areas. These sixteen decisions helped in increasing awareness about social issues among the rural poor.22 millions and the loan repayment rate was reported to be around 95%. which tested the members’ understanding of the bank’s rules and decisions.
In 1989. each member had to save 1 Taka every week and buy non-saleable Grameen Bank shares. The landless poor. was introduced in the northern part of the country (Refer Exhibit III).000 in 1984.. apart from offering loans for entrepreneurial ventures. every member of the group was bound to contribute 5% of the loan amount to the group fund. Grameen Bank also started extending housing loans to its members. Creditors’ knocking at the door for loan repayments was considered disgraceful among Bangladeshis. . another type of housing loan. Grameen Bank offered housing loans of upto US $312.39 million in August 2002 (Refer Table II). From 15. Grameen Bank did not demand any collateral against the housing loans. Grameen Bank introduced a new housing loan – Basic Housing Loan up to US $145. the number increased to 2. other members went to her home and demanded the installments. earlier loans had to be repaid. According to a World Bank study conducted in 1994. The loan repayment rate was reported to be 95%. Grameen Bank charged 8% interest per annum on housing loans and repayment was in weekly installments spread over 10 years. In 1984.83 (around 25. The group fund was utilized during emergencies. in 1992. From a figure of US $498 in 1976. The high repayment rate was probably a result of peer group pressure.000 Taka).000 Taka) in its Moderate Housing category. more than 2. Unlike the traditional methods followed by banks and financial institutions. acquired land for their own farming activities after becoming Grameen Bank members.000 Taka).5 (around 15. the rate of school-going girls among Grameen Bank member families was 57% higher than that in nonmember families A SUCCESSFUL MODEL Contd.declining balance. Grameen Bank members even took active part in politics. Initially. Grameen Bank had improved the position of women in rural Bangladesh. In the 1997 local elections. It is believed that the above factors led to the success of Grameen Bank which also succeeded in improving the lives of its members. Grameen Bank also provided loans for buying land for constructing a house. the membership increased to 100.842 members. When a member failed to repay the installments. in order to mobilize savings among the poor.000 Grameen Bank women members were elected to local civic bodies. Bangladesh Grameen Bank – Pioneer in Microfinance <<Previous A SUCCESSFUL MODEL When Grameen Bank started. It provided educational loans to its members to enable their children to go to school and college. the interest rate was increased to 20%. In 1987. but on the contrary the bank expanded its operations very rapidly. many felt that it would soon fail. Later on the amount was increased to US $520. the Pre-Basic Housing Loan. and the Grameen Bank’s rule – that for availing of fresh loans. who earlier worked as agricultural laborers. In addition to this.3 million. by 1991 it had 910. Women members of Grameen Bank were more confident and socially aware than their nonGrameen Bank counterparts. which became very popular. Another important factor that led to high repayments of loans was social pressure. Many research studies indicate that Grameen Bank bought positive changes in the lives of thousands of rural Bangladeshis.. the bank’s total disbursements increased to US $170. In addition to paying interest.83 (around 7. Grameen Bank also encouraged the rural poor to get educated. The landless poor benefited the most from the Grameen Bank movement. According to reports. and by 2002.000 borrowers in 1980.
33 393.12 260.9 20.19 6. Around 75% of the country was submerged for around two-and-ahalf months. Even weekly loan repayment was suspended and employees were allowed to utilize group collective savings.09 171.22 1976* 1983 1988 1993 1998 2002** Total Disbursement Cumulative Disbursement Cumulative Repaid Balance Savings Balance Savings Coverage Members Groups Centers No. QUESTIONS FOR DISCUSSION: 1.98 92.grameen-info.74 0 491012 0 152.45 3708. there was a large amount of crop damage.08 0. and damage to housing and infrastructure. Many analysts criticized Grameen Bank for its style of functioning.11 848. Grameen Bank declared around 24.76 618.46 0 44556 40. Analyze the drawbacks of the Grameen Bank model.TABLE II GROWTH OF BANGLADESH GRAMEEN BANK OVER THE YEARS (in $ millions except for 1976) PARTICULARS Yearly Loan Disbursed · · General Housing 498 0 498 498 166 0 0 0 10 1 1 1 1 1 2. of Area Offices No. of Zonal Offices * in dollars ** August 2002 of of Amount Group Fund 136.2 million Grameen Bank members.71 5. of Villages Covered Employees No.2 170. In addition to the huge loss of human lives and livestock.org TESTING TIMES The Grameen Bank faced a difficult situation in 1997 when Bangladesh experienced the worst-ever floods in the country’s history. . of Houses built 58320 490363 1814916 2368347 2366488 11667 98073 2443 1249 824 86 0 5 19663 10552 7093 501 61 9 372298 57649 33667 11459 1040 110 12 486870 66712 39045 12850 1137 121 15 500639 70057 41015 11752 1175 123 15 Source: www. of Branches No.64 414.83 0 258194 2255. Analyze the working model of Grameen Bank and discuss how it differs from the traditional commercial banking model? 2. The floods affected around 1.54 2652.41 49.64 3376.56 100. Grameen Bank was successful because of its unique working model.84 6.000 centers as disaster-stricken centers and suspended all banking activities in those centers.29 0 2.36 1.51 0 0 43.24 42.29 8.4 549911 Members No. According to analysts.09 302.
Inc. Together with providing financial services. Bangladesh Grameen Bank – Pioneer in Microfinance <<Previous EXHIBIT II WORLDWIDE REPLICATION OF GRAMEEN BANK* COUNTRY PROJECT NAME Brazil Indonesia USA India Pakistan Malaysia Uganda Vietnam Senegal Samoa Banco do Nordeste Dagang Bali Bank People’s Fund People's Institute for Development and Training (PIDT). For instance. The Activists for Social Alternatives (ASA) KASHF Foundation. Explain the role played by Grameen Bank in reducing poverty in Bangladesh. their activities do not include providing training for basic skills required for doing business. small amounts are disbursed as loans. South Pacific Business Development Foundation * This list is not exhaustive Philippines Ahon Sa Hirap. and the timeframe for repayment of loans is longer compared to commercial banks. • No collateral demanded. Grameen Bank’s sixteen decisions were intended to bring in social development in Bangladeshi villages. Though microfinance institutions provide the necessary monetary support and try to increase social awareness among their members. Horizon Vets. TARAQEE Yayasan Usaha Maju (YUM) Micro-Credit Development Trust (MCDT) Capital Aid Fund to Employment of the Poor. Do you suggest that the Grameen Bank model for poverty alleviation be emulated in other developing countries? Explain with reasons. Generally.3. these institutions impose compulsory savings and group guarantees. . They do not extend any marketing facilities nor undertake activities to improve the literacy rate and health conditions of members. • Minimal appraisal of borrowers and investments as compared to commercial banks. microfinance institutions extend larger loans to the members repeatedly. Adapted from World Bank reports and various newspaper articles. Microfinance institutions generally have the following characteristics: • Providing small loans for the working capital requirements of the rural poor. many microfinance institutions work for social development in the areas in which they operate. Microfinance has tremendous potential as an instrument for poverty reduction. however. EXHIBIT I ABOUT MICROFINANCE Microfinance refers to providing loans and finance to poor people for selfemployment. • Based on the loan repayment history of the members.
• It also decided to extend seasonal loans to the members who had paid 16 installments of the total 50 installments. • It also extended around 2. • We are always ready to help each other. • To increase our income. we all give a helping hand. we go along to help and restore order. we make important investments in common. • During the season for planting. we pick out as many seedlings as possible. We shall reduce our expenses to a minimum.org EXHIBIT V RELAXATIONS ANNOUNCED BY GRAMEEN BANK IN 1998 • Grameen Bank extended new loans to the members who had 5 – 10 installments due. Source: www. • We are introducing physical culture in all centres. • If we learn that discipline is not respected in a centre. We take care of our health. • We cause harm to no one and we will not tolerate that anyone should do us harm.grameen-info.Bangladesh Grameen Bank – Pioneer in Microfinance <<Previous EXHIBIT IV SIXTEEN DECISIONS OF GRAMEEN BANK • We respect the four principles of the Grameen Bank . Source: www. unity. When someone is in difficulty. Our centre is against this practice. • It also extended a supplementary loan of 5.500 Taka to the people who had not received housing loans earlier.000 Taka to its existing housing loan members for repairing their houses. • We educate our children and see that they can earn enough money to finance their training. • We build latrines and use them.org ADDITIONAL READINGS & REFERENCES: . We take part in all social events. we boil the water or we use alum. • We will not accept a marriage dowry for our son and we do not give one to our daughter at her marriage. • We intend to have small families. • It extended new housing loans to members whose houses were completely damaged. We repair them and work to build new ones. • We see to it that our children and homes are clean. • We cultivate vegetables the whole year round and sell the surplus. • We will not live in dilapidated houses.grameen-info. • We only drink water drawn from a well.discipline. If not. and the repayment schedule was extended for a year. • We wish to give our families good living standards. • It also extended new loans to borrowers who had repaid around half of the loans. courage and work and we apply them to all our lives.
Pearl Daniel & Philips M.org.co. 9. Jyoti. Bangladesh’s Micro Credit: Millennium's Recipe For Poverty Alleviation. New Study Confirms Benefits Of Bangladesh's Microcredit Programs. 15. Elahi's Ray of Sunshine. 2002. Micro Finance Route To Poverty Alleviation.news.uk.co. November March 17.org. Michael.Designed to Open New Possibilities. www. 2001.bbc. Grameen Bank II .microfinancegateway. June 3. Poverty Reduction Strategy: the Grameen Bank Experience. 2000. www. www. May 9. 7. 12. 2002.gdrc.theatlantic. Asian Economic News. lives in Bangladesh. The Economist. 3. Bangladesh. 1998. Grameen Bank. Grameen Snag.com. 2002. 11. The Economist. Micro-Credit and the Wall Street Journal. Pathania M. Milner Kate. 2002. May . www.1. www. Grameen Bank. Bornstein David. Journal. 2.saag.org www. Wall 27. 2003. Street December Bank in 'strongest position ever'. Has Hit a Repayment info. July 23. 1999.org February October 24. Muhammad Yunus. 16. Indian Management. www. 2003. Fighting poverty The in 14. January 6.grameeninfo. 14. Gopalakrishnan Anirudh. Muhammad Yunus.com www. Which Pioneered Loans For the Poor. Microcredit' rebuilding houses.org. August 4. 1998 4.bbc. Bangladeshi Women and the Grameen Bank.uk. www. March 12.grameen- 10.ca. www. 5.worldbank.news. February 1994.org. www. December 1995. www.org. Pepall Jennifer.idrc. Microcredit in Bangladesh: Mr.worldbank. The Barefoot Bank with Cheek. 17. 8. 2001. 13.grameen-info. The Other Government In Bangladesh.
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