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