Executive summary

The word "Grameen", derived from the word "gram" or "village", means "of the village". The Grameen Bank is a microfinance organization and community development bank started in Bangladesh that makes small loans (known as microcredit or "grameencredit") to the impoverished without requiring collateral. Grameen bank is founded by Professor Muhammad Yunus in 1976 as a project. The bank was turned to an independent bank in 1983. The main aim of the Grameen Bank is to reduce poverty from Bangladesh. Grameen has discovered Micro-finance (based on their tried and tested program) is a very effective instrument to empower the poor, particularly the poor women, in all cultures and economies of the world. Some of the key features of Grameen Credit are that borrowers don't need to prove how much wealth they have; they need to prove how poor they are and how little savings they have. Grameen bank methodology is totally different from the methodology of Conventional banking because Grameen Bank is a collateral free bank while Conventional banking needs collateral. Conventional banks are owned by the rich, generally men. Grameen Bank is owned by poor women which are 97% in the Grameen Bank. Grameen Bank branches are located in the rural areas, unlike the branches of conventional banks which try to locate themselves as close as possible to the business districts and urban centers. In 2006, Grameen bank and Dr Muhammad Yunus were awarded Noble Peace Prize. This was the moment for Dr Muhammad Yunus and people of Bangladesh. In short Grameen Bank is a bank for the poor people .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.

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013 Taka (86.383. founder Finance Financial Products services Microfinance Revenue Operating income Net income Total assets Employees 6.703 (Oct 2007) 2|P a ge .335.155.3 million USD) (2006) 5.959.728 Taka (2006) 24.Type Founded Headquarters Area served Key people Industry Body Corporate (Bank Ordinance) 1983 Dhaka. Bangladesh Bangladesh Muhammad Yunus.675.9 million USD) (2006) 1.621.566.398.3 million USD) (2006) 59.030 Taka (20.324 Taka (92.

Grameen Bank (GB) has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust. GB provides services in 84. With 2. it has 7. Professor Muhammad Yunus. derived from the word "gram" or "village". Grameen Bank's positive impact on its poor and formerly poor borrowers has been documented in many independent studies carried out by external agencies including the World Bank. 3|P a ge ." As of October. covering more than 100 percent of the total villages in Bangladesh. accountability and member participation. 2009. The word "Grameen". the International Food Research Policy Institute (IFPRI) and the Bangladesh Institute of Development Studies (BIDS). reasoned that if financial resources can be made available to the poor people on terms and conditions that are appropriate and reasonable.. credit is a cost effective weapon to fight poverty and it serves as a catalyst in the overall development of socio-economic conditions of the poor who have been kept outside the banking orbit on the ground that they are poor and hence not bankable. participation and creativity.. At GB. accountability.Introduction: The Grameen Bank is a microfinance organization and community development bank started in Bangladesh that makes small loans (known as microcredit or "grameencredit") to the impoverished without requiring collateral.94 million borrowers. 97 percent of whom are women.560 branches..787 villages. "these millions of small people with their millions of small pursuits can add up to create the biggest development wonder. without any collateral. means "of the village". the founder of "Grameen Bank" and its Managing Director. Grameen Bank operated on the principles: mutual trust. GB provides credit to the poorest of the poor in rural Bangladesh. supervision.. The system of this bank is based on the idea that the poor have skills that are under-utilized.

The bank's repayment rate was hit following the 1998 flood of Bangladesh before recovering again in subsequent years. with support from the central Bangladesh Bank. 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 today continues to expand across the nation and still provides small loans to the rural poor.History and Development: Muhammad Yunus. 1983. By the beginning of 2005. the village of Jobra and other villages surrounding the University of Chittagong became the first areas eligible for service from Grameen Bank. the bank had loaned over USD 4.6 billion to the poor. the bank's founder. earned a doctorate in economics from Vanderbilt University in the United States.100. Grameen Bank branches numbered over 2. a community development bank in Chicago. "Bank of the Villages". In 1976. Bankers from Shore Bank. was introduced in 1979 to the Tangail District (to the north of the capital. 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. The bank's success continued and it soon spread to various other districts of Bangladesh. By a Bangladeshi government ordinance on October 2. By 2006. 4|P a ge . USD 7. The Grameen Bank (literally. The Bank was immensely successful and the project. He was inspired during the terrible Bangladesh famine of 1974 to make a small loan of USD$27. helped Yunus with the official incorporation of the bank under a grant from the Ford Foundation. in Bangla) is the outgrowth of Yunus' ideas.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 project was transformed into an independent bank. Dhaka).7 billion and by the end of 2008.

Grameen succeeds or fails depending on how strong their personal relationship is with the borrowers. not with papers. The whole system works because it is the only opportunity they have to break out of their poverty. 5|P a ge .The key features of Grameen Credit: Some of the key features of Grameen Credit are that borrowers don't need to prove how much wealth they have. Rather that their personal circumstances were so hard that they could not pay back their tiny loan. they need to prove how poor they are and how little savings they have. It gives a poor person a chance to take their own destiny into their own hands and get out of poverty with their own efforts. in all cultures and economies of the world. including consumers and the self-employed. They build up a human relationship based on trust. If they fall foul of this one loan how will they survive? The poorest people are afraid of everything so they want to work hard and do a good job because they have to. They don't have a choice. sustainable and works in a business-way.28% is seen by Grameen as the cost of doing business and it also represents to them a constant reminder that they need to improve in order to success. who traditionally lack access to banking and related services. It is cost-effective. Strategies created by Grameen Bank: Microfinance: Microfinance is the provision of financial services to low-income clients. Their experience with bad debt is just 2.28%. Grameen has discovered Micro-finance (based on their tried and tested program) is a very effective instrument to empower the poor. There is no legal instrument between the lender and the borrower. Even then Grameen does not conclude that a defaulting borrower is a bad person. they don¶t have any cushion whatsoever to fall back on. Bad loans of 2. particularly the poor women. Grameen considers its relationship to be with people.

6. Microfinance also means integrating the financial needs of poor people into a country¶s mainstream financial system. 5. microfinance must pay for itself. build up assets and/or cushion themselves against external shocks. which chokes off the supply of credit.´ Subsidies from donors and government are scarce and uncertain. 2004: 1. ³The job of government is to enable financial services.´ Those who promote microfinance generally believe that such access will help poor people out of poverty Principles of Microfinance: Some principles that summarize a century and a half of development practice were encapsulated in 2004 by Consultative Group to Assist the Poor (CGAP) and endorsed by the Group of Eight leaders at the G8 Summit on June 10. It is better to provide grants to families who are destitute. Poor people need not just loans but also savings. insurance. and so to reach large numbers of poor people. ³The key bottleneck is the shortage of strong institutions and managers. Microfinance institutions should measure and disclose their performance ± both financially and socially. 3.´ Donors should focus on capacity building. 4. ³Microfinance can pay for itself. including not just credit but also savings. and fund transfers. 10. or so poor they are unlikely to be able to generate the cash flow required to repay a loan. Microfinance means building permanent local institutions. 2. not compete with it. Microfinance must be useful to poor households: helping them raise income.More broadly. 6|P a ge . Microfinance can also be distinguished from charity. insurance and money transfer services. ³Donor funds should complement private capital. This situation can occur for example. Interest rate ceilings hurt poor people by preventing microfinance institutions from covering their costs.´ 8. in a war zone or after a natural disaster.´ 7. not to provide them. 9. it is a movement whose object is ³a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services.

purchase and procurements and above all the redesigning of loan and saving products and introduction of loan insurance savings fund under the Grameen Generalized System (Grameen Bank-II). a strategic plan and a professional staff. This has made communications and data transfer easier and cheaper. each field staff is well trained to provide financial services to 500 active borrowers and each branch is required to mobilize enough deposits to meet its demand for on-lending funds. the staff has nothing to put on the document. How costs can be successfully reduced can be learnt from the innovative approaches of best practices like Grameen. serving 3.5 million borrowers. If every borrower pays according to the repayment schedule. they are now provided with preprinted repayment figures for each weekly meeting.Strategies for Reducing Costs and Improving Efficiency: For any program or organization. Only the deviations are recorded. Now the branch staff devotes more time for the borrowers rather than spending on paper work. This is only possible if it has a dedicated full-time leadership. the issues of costeffectiveness and efficiency are important. except his/her signature. It has computerized 95% of its branches (1196 branches in total). it is not desirable to shift the burden of higher costs and inefficiency to the poor clientele. Given the continuous efforts for reducing costs. The MFI management should be committed and should have the capacity to provide financial services to the poor at the least cost. increasing 7|P a ge . Fourteen zones. out of 18 are connected with each other and the head office. have contributed a lot in cost reduction of Grameen operations. In Grameen Bank. The measures thus ensure the high productivity of each staff and reduce the cost of borrowing from the head office or other sources. As an improved system. transportation and traveling. Changes in retirement policy. an efficient and effective management system. through an Intranet. Computerization of MIS and accounting system also helped Grameen in reducing its costs at all levels. It is very important for Microfinance Institutions (MFIs) as well. for instance. In MFIs. The only paper work to be done at the field level is to enter figures in the borrower¶s passbook.

To better meet its ultimate goal of social and economic development. It is evident from the experiences of successful MFIs that strategies for reducing costs and improving efficiency are not something that can be developed over night or may be implemented once for all. Grameen Bank offers guidelines to members for codes of conduct and activities aimed at improving their social and financial conditions. 8|P a ge . and those who are satisfied with the relatively small sums they can borrow and repay. and monitoring each other's activities. and childcare to generate greater demand for basic health care services.efficiency and attaining self-sufficiency. The question is whether we should reinvent the wheel for this or we should learn from the experiences of others and concentrate on improving the system through our creativity and collaborative efforts. Strategies for Poverty Reduction: Grameen Bank believes that lack of access to credit is the biggest constraint for the rural poor. the new Grameen branches are expected to reach the break-even point within first six months of their operation. they themselves best know how to increase their incomes. If the poor are provided credit on reasonable terms. It also provides training to women in maternal health. This is possible if we really believe in it and if we are committed to it. training. This is a continuous process. nutrition. Grameen Bank targets women more than men. By doing so. Grameen Bank targets and mobilizes the poor and creates social and financial conditions so that they receive credit by identifying a source of self-employment in familiar rural non-farm activities. Along with providing credit. The Bank's method of targeting the poor is effective as it mobilizes only those who are willing to bear the costs of group formation. it directly channels credit to the poorest and the least empowered and helps improve the living standards of their families.

Grameen system is collateralfree.Village Phone Program: Among many different applications of microfinance by the bank.000 phones are currently in operation. one is the Village Phone program.000/-.Grameen has created a new class of women entrepreneurs who have raised themselves from poverty. Conventional banking is based on the principle that the more you have. Grameen believes that all human beings. with more than 80 million people benefiting from access to market information. are endowed with endless potential. the Development Gateway Foundation noted that through this program: . the more you can get. Grameen Bank starts with the belief that credit should be accepted as a human right. through which women entrepreneurs can start a business providing wireless payphone service in rural areas of Bangladesh. and more. more than half the population of the world is deprived of the financial services of the conventional banks. Moreover.. As a result. if you have little or nothing. Grameen methodology is not based on assessing the material possession of a person.000 villages of Bangladesh. Is Grameen bank different? Grameen Bank methodology is almost the reverse of the conventional banking methodology. Conventional banks look at what has already been acquired by a person. and builds a system where one who does not possess anything gets the highest priority in getting a loan.. In the press release announcing the prize. 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. it is based on the potential of a person. news from relatives. for its contribution of Technology to Development. This program earned the bank the 2004 Petersburg Prize worth of EUR 100. More than 55. In other words. you get nothing. Grameen looks at the 9|P a ge . including the poorest. Conventional banking is based on collateral.

Grameen Bank is owned by poor women. There is no legal instrument between the lender and the borrower in the Grameen methodology. Overarching objective of the conventional banks is to maximize profit.787 villages spread out all over Bangladesh. Repayment of Grameen loans is also made very easy by splitting the loan amount in tiny weekly installments. There is no provision in the methodology to enforce a contract by any external intervention. generally men. Doing business this way means a lot of work for the bank. unlike the branches of conventional banks which try to locate themselves as close as possible to the business districts and urban centers.252 staff meets 7. Grameen Bank's 23.e. Grameen Bank works to raise the status of poor women in their families by giving them ownership of assets. Grameen Bank branches are located in the rural areas. but it is a lot convenient for the borrowers. it is the bank which should go to the people instead. and deliver bank's service. It makes sure that the ownership of the houses built with Grameen Bank loans remain with the borrowers. every week. 97 per cent of Grameen Bank's borrowers are women. coming out of social and economic visions. Grameen gives high priority to women. Conventional banks are owned by the rich. Grameen Bank's objective is to bring financial services to the poor. the women. 10 | P a g e ..94 million borrowers at their door-step in 84. Conventional banks focus on men. unlike in the conventional system. stay profitable and financially sound. There is no stipulation that a client will be taken to the court of law to recover the loan.potential that is waiting to be unleashed in a person. It is a composite objective. First principle of Grameen banking is that the clients should not go to the bank. i. particularly women and the poorest ² to help them fight poverty.

In case of death of a borrower. There is a built-in insurance programmer which pays off the entire outstanding amount with interest. Sheikh Hasina. a development analyst.. "There is no difference between usurers [Yunus] and corrupt people.´ They found the opposite to be true: lending to women actually makes families poorer. No liability is transferred to the family. and that its ultimate benefit goes to the corporations that sell capital goods and infrastructure to the borrowers. claims that the Grameen Bank has "landed poor communities in a perpetual debt-trap". It has also attracted criticism from the former Prime Minister of Bangladesh. Grameen system does not require the family of the deceased to pay back the loan. David Roodman and Jonathan Morduc disagreed with Muhammad Yunus's citation ³5 percent of the Grameen borrowers get out of poverty every year. Criticism: Grameen Bank is being criticized by different peoples. who commented. as Grameen's interest (reducing balance basis) on its main credit product is about 20%. According to Sudhirendar Sharma.. 11 | P a g e . the interest charged by Grameen Bank is higher compared to that of traditional banks. Similar to all microfinance institutes." Hasina touches upon one criticism of Grameen Bank: the high rate of interest that the bank demands from those seeking credit.

org/icm/grameenbank.org/index.html http://www.wikipedia.References page: http://en.org/wiki/Grameen_Bank http://www.org/wiki/Microfinance 12 | P a g e .gdrc.php?option=com_content&task=view&id=16&Itemid=112 http://www.grameeninfo.php?option=com_content&task=view&id=27&Itemid=176 http://en.org/index.grameeninfo.wikipedia.

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