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Microfinance Assignment

Review: Grameen Bank of Bangladesh

Section B Group 18

Shruti Nadagouda (F1403) | Sukriti Dang (P36165) | Sumeet Saurav (P36166)


The paper reviews Grameen Bank of Bangladesh in three sections. The first talks about
the school of thought on which Grameen Bank was conceived. The second about the financial
analysis of the case provided and the third section is about the present state of Grameen Bank.

Grameen Bank is a Nobel Peace Prize winning micro finance organization and a
community development bank founded in Bangladesh. It was brought to life in 1976 by
Professor Muhammad Yunus. He was doing a research project at the University of Chittagong to
design a credit delivery system to provide banking services to the rural poor. The results of the
research project laid the foundation for the design of the bank. In October 1983 the Grameen
Bank was authorised by national legislation as an independent bank.

Microfinance: School of thought

Prof. Yunus was inspired during the Bangladesh famine of 1974 to make a small loan of
US$27 to a group of 42 families as start-up money so that they could make items for sale an
escape the predatory lenders i.e. not pay exorbitantly high interest rates. He believed that making
such loans available to a larger population could stimulate businesses and reduce the widespread
rural poverty in Bangladesh. His thinking can be classified under the Development school of
Microfinance. This school of thought lays emphasis on increasing outreach first, followed by
sustainability and then impact.
As the case states that the grameen bank lends only to the poorest of the poor and the
bank seeks to extends its services to the entire country subsequently, the first step of the Social
development way i.e. Outreach has been at the thrust of operations of the Bank. The image of
the bank is also that of Bankers on Bikes and 90% of the staff works at the branch level. This
is further a testament of how the bank has been working on the aspect of outreach. Further, the
members are free to use their loan for any productive activity they wish, which gives them
greater opportunities to prosper.
The bank issues loans without any collateral or legal instruments or group-guarantee or
Joint Liability. Despite this method of lending the recovery rate is 96.67%. The entire loan
amount is financed from the banks deposits. Deposits amount to 145% of the outstanding loans,
which is an achievement for a microfinance institute. The deposits have been growing in eight
zones out of the forty zones in which the bank operates. Thus the second step of the development
way i.e. sustainability has also been achieved by the bank.

This is further substantiated by the fact that in 1995, the Grameen Bank decided not to
receive anymore fresh funds from the donors. The banks existing resources combined with the
growing deposits were enough to run and expand the credit program and repay the existing loans.
Not just sustainability, Grameen Bank has also been making profits since it came into existence.
It had made profit in all years since the beginning except for three years. They have transparent
financials and their accounts are available online.

The next step in the development way is that of the impact. Grameen Bank set the record
for the highest cash dividend declared by any bank in Bangladesh. The banks interest rate is
lower than the government rate, a factor which directly works for upliftment of the members.
The bank also has beggars as its members, nearly 20000 of whom have left begging and become
door to door sales persons. The overall impact of the bank on the Bangladeshi economy has been
tremendous as stated by the following facts:

As of January 2011, the total borrowers of the bank number 8.4 million, and 97% of those
are women.

The number of borrowers has more than doubled since 2003, when the bank had
3.12 million members.

As of October 2007, the Bank has a staff of more than 24,703 employees; its 2,468
branches provide services to 80,257 villages, up from the 43,681 villages covered in

The bank has distributed BDT 1.437 trillion (USD 20.92 billion) in loans.

The Grameen Bank is 95% owned by the local poor and 5% by the government.

Thus, it is evident that Grameen Bank has been proactive in reaching out to the poor and very
poor at affordable interest rates. The scaling-up was not limited and it also gained independence
from funding agencies to achieve sustainability. To sum it up, Prof. Yunuss belief in
Developmental approach of Microfinance proves to be beneficial in efficient delivering of