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Grameen Bank

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The Grameen Bank (Bangla: গ্রামীণ ব্যাংক) is a microfinance organization started in Bangladesh that makes small loans (known as microcredit) to the impoverished without requiring collateral. The system is based on the idea that the poor have skills that are under-utilized. The bank also accepts deposits, provides other services, and runs several development-oriented businesses including fabric, telephone and energy companies.

Contents

History

Muhammad Yunus, the bank's founder, earned a doctorate in economics from Vanderbilt University. He was inspired during the terrible Bangladesh famine of 1974 to make a small loan to a group of families so that they could create small items for sale. Yunus believed that making such loans available to a wide population could ameliorate the rampant rural poverty in Bangladesh.

The Grameen Bank (literally, Bank of the villages, in Bangla) is the outgrowth of Muhammad Yunus' ideas. The bank began as a research project by Yunus and the Rural Economics Project at the University of Chittagong, Bangladesh to test his method for providing credit and banking services to the rural poor. In 1976, the village of Jobra and other villages surrounding the University of Chittagong became the first areas eligible for service from Grameen Bank. The Bank was immensely successful and the project, with government support, was introduced in 1979 to the Tangail District (to the north of the capital, Dhaka). The bank's success continued and it soon spread to various other districts of Bangladesh and in 1983, it was transformed into an independent bank by the legislature of Bangladesh. The bank's stellar repayment rate was broken in 1995 by a religious fundamentalist boycott by certain sections of society who objected to the bank's focus on improving the status of women. The boycott soon folded, but the bank's repayment rate was again hit following the 1998 flood of Bangladesh before recovering again in recent years.

The Bank today continues to expand across the nation and still provides small loans to the rural poor. As of mid-2005, Grameen Bank branches number over 1,500. Its success has inspired similar projects around the world.

Ownership and other facts

One unusual feature of the Grameen Bank is that it is owned by the poor borrowers of the bank, most of whom are women. Of the total equity of the bank, the borrowers own 94%, and the remaining 6% is owned by the Government of Bangladesh.

Some other facts about the bank, as of February, 2006 are:[link]

Application of microcredit

The system incorporates a set of values into the banking system, embodied in Bangladesh by the [Sixteen Decisions].

The system is the basis for the microcredit and the self-help group system now at work in over 43 countries. Each group of five individuals are loaned money, but the whole group is denied further credit if one person defaults. This creates economic incentives for the group to act responsibly, increasing Grameen's economic viability.

In a country in which few women may take out loans from large commercial banks, the fact that most (96%) loan recipients are women is an amazing accomplishment. In other areas, Grameen's track record has been equally astonishing, with very high payback rates—over 98 percent. More than half of Grameen borrowers in Bangladesh (close to 50 million) have risen out of acute poverty thanks to their loan, as measured by such standards as having all children of school age in school, all household members eating three meals a day, a sanitary toilet, a rainproof house, clean drinking water and the ability to repay a 300 taka-a-week (US$8) loan.

Related ventures

The Grameen Bank has grown into over two dozen enterprises represented by the Grameen Family of Enterprises including: As of November 2004 it had passed the mark of loaning over US$4.4bn to the poor. Along with bringing energy to rural residents and expanding employment, the Grameen family of enterprises has also branched out into rural pond management by Grameen Motsho or the Fisheries Foundation, seeking to preserve the broad diversity of fish in Bangladesh fisheries ponds.

On July 11, 2005 the Grameen Mutual Fund One, approved by the SEC, went IPO. One of the first mutual funds of its kind, GMFO will allow the 4+ million Grameen members as well as non-members, to buy into Bangladesh's capital markets. The Bank and its constituents are together worth over US$ 7 billion.

Social improvement programmes

Besides extending microcredit loans to the poor people, Grameen Bank has taken several innovative programmes for poverty eradication.

Struggling members programme

This programme is focused on distributing small loans to beggars. The existing rules of banking are not applied:

The bank does not force borrowers to give up begging; rather it encourages them to use the loans for generating income by selling low-priced items. As of 2005, around 45,000 beggars have taken loans of about Tk 28.7 million (approx. US $441,538) and repaid Tk. 13.66 million (about US $210,154).

Rural telephone programme

Bangladesh has one of the lowest telephone densities of the world. Of its more than 85,000 villages, many are not covered under the land-phone network offered by the Government-owned telecom company. To alleviate this situation, Grameen Bank has taken a programme to bring telephones to distant villages. Grameen Phone, a sister company of the bank, is already the largest mobile telephone provider of the country. Using their nationwide network, Grameen Telecom, another sister company of Grameen Bank, brought radio-telephones and mobile phones to almost half of the villages of Bangladesh. The bank also distributed loans to almost 139,000 poor women in rural areas to pay for the phones. The women set up call centers in their homes where the other villagers can come and pay a small fee for using the phone. This programme is commonly known as Polli Phone(the Village Phone) in Bangladesh.

Criticism

There is, however, criticism towards the bank and similar institutions. In some cases, the NGO-based money-lending institutions are very strict in enforcing paybacks. There are even allegations that some other microfinance institutions do not consider natural calamities like floods that may prevent repayment of loans quickly. Particular examples include the large number of loan defaults following the flood in 1998. Furthermore, many critics doubt the continued sustainability of the venture, citing the need for large government investment in the program.

After the flood crisis, the bank restructured itself to allow for more flexibility in repaying overdue loans and to simplify the loan process. Additionally, measures were taken to increase the transparency of the bank's operations.

External links

Suggested Reading

Bornstein, David. The Price of a Dream. Oxford University Press, NY: 2005.
   Describes the Grameen Bank in full detail, including its origins, background information on Bangladesh, its successes, problems, and growth.

Other sources

 

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