Introduction
Grameen Bank was initiated in 1976 by Professor Muhammad Yunus as an action research project of Chittagong University. In a village near the university called Jobra, he found that the poor did not have access to small amounts of capital to engage or build on their tiny livelihood activities. The only source of capital were loans from money-lenders at exorbitant rates of interest. As an experiment, he began a project to provide small loans to poor women in Jobra to engage in income generating activities. In all cases, the poor women took loans from the project, invested their money and generated enough income to pay back their loans and keep a profit.
This experience in Jobra challenged the conventional wisdom that the poor were not bankable. Critics believed that this could not be replicated in other areas of Bangladesh. However, the project expanded to other areas in Chittagong and then eventually to other districts of Bangladesh with the same result — poor people across the country were taking and repaying loans for self-employment, improving their living conditions in the process. In 1983, Grameen Bank was established as an independent specialized bank to provide collateral-free loans to the poor as way to reduce poverty.
Grameen Bank operates on the premise that the poor remain poor not because they do not have skills or do not work hard, but because the institutions created around them keep them poor. Charity is not a solution to poverty, but rather fosters dependency, so perpetuating poverty. All human beings are born with unlimited potential, and merely require an opportunity to unleash that potential. Professor Yunus argues that credit provides the much-needed opportunity and should, therefore, be considered a human right.
Conventional banks, however, do not lend to the poor. Banks require collateral and have complicated procedures that the poor cannot satisfy. The poor are therefore exploited by money-lenders and traders who operate a system of usury in villages which is equivalent to bonded labor and slavery.
Grameen Bank has been effective because it has been designed to be supportive of the needs of the poor. Grameen Bank does not require its members to be literate and its rules are simple. Each loan is disbursed without collateral with a collection of principal, interest and savings on a weekly basis, to make payments easy and manageable. A group mechanism ensures that each member is part of a system of peer support. Center meetings take place at which members gather in their own neighbourhood to repay their loans and discuss their projects. The meetings help create an inter-linking network for the members and ensure an accountable and transparent system.
In 1976, Professor Yunus lent US$ 27 in loans to 42 women in Jobra. At the end of February 2006, Grameen Bank had cumulatively disbursed more than US$ 5.3 billion to 5.77 million borrowers, 96% of whom are women, in nearly 62,089 villages across Bangladesh. Of this amount, US$ 4.7 billion has been paid back. GB lends out US$ 60 million every month as new loans, and the amount of loans outstanding currently is US$ 438 million. The recovery rate is 98%. The Grameen Bank is owned by the poor people themselves and works exclusively for them. Borrowers of Grameen Bank at present own 93 per cent of the total equity of the bank, while the remaining 7 percent is owned by the government.
Grameen Bank has come a long way since it began in 1976. It is a dynamic organization that has modified itself according to the various challenges that it faced over the years. In recent years, it has introduced custom made credit services so that the duration of loan and size of weekly installments can be varied, according to the members’ activities. Borrowers can pay more during peak business season, and pay less during lean period. These innovations have contributed to the growing self reliance of both members and the bank itself.
The Sixteen DecisionsWhile providing small loans to the poor is an economic intervention, a Grameen Bank loan begins a process of deep transformation in the lives of its members. The poor women work hard to bring a host of positive changes in their lives as their economic condition improves. The aspirations of the members became incorporated into Grameen Bank’s Sixteen Decisions, a social charter which the members themselves developed, encompassing issue such as keeping family size small, sending children to school, eating green vegetables, drinking clean water and keeping the environment clean.
Today, all the children of Grameen Bank members are in school. Studies show that Grameen Bank members have lower birth rate than non members. Their housing is better and the use of sanitary latrines is higher than non-members. Their participation in social and political activities is higher than that of non members, and all reflect how seriously the members implement these decisions.
Housing and Education
Grameen Bank has tried to support its members in achieving the Sixteen Decisions, particularly in the area of housing and education. Recognizing early on that a poor family remained vulnerable when houses were built of poor materials, GB began providing housing loans to the poor in 1984. Since then more than 629,000 houses have been built with housing loans from GB, covering the costs of simple but sturdy building materials and sanitary latrines, to its borrowers. The homes, serve not only as their abode, but also their workplace. They are stronger and help resist external shocks of rain and storms that can destroy the livelihoods of the poor, which has had a positive effect on the health of members and their families.
Grameen has also tried to support education in the families of its members. In 2000, Grameen introduced education loans for higher education of borrowers’ children. Students who succeeded in reaching the tertiary level of education are given higher education loans, covering tuition, maintenance, and other school expenses. Upto the end of February 2006, GB had provided loans totaling about US$ 4 million to 9,474 students.
In addition, scholarships are given to the children of Grameen members, with priority for girls, to encourage them to get better grades in schools. By the start of this year, 23,976 boys and girls have received scholarships, 13,891 of whom are girls at various levels of school education.
Credit for the Bottom Poor — Banking with the Beggars
To explode the myth that microcredit is not useful for the poorest of the poor, Grameen Bank began in 2004 a program to give loans exclusively to beggars. When GB invites beggars to join the program, it does not discourage them from begging, instead offers them the option of carrying popular consumer items, financed by Grameen Bank, when they go out from house to house. They may choose to beg or sell the items at their convenience. If they find that their selling activity picks up, they may give up begging and focus on selling instead. Upto the end of 2006, nearly 70,000 beggars had joined the program. A typical loan to a beggar is about US$ 10, with no fixed terms of repayment.
Village Phone Program
Professor Yunus has long argued that information and communications technology (ICT) has the potential to bring unprecendented employment opportunities for the poor. GB’s Village Phone Project is an extraordinary example of how powerful ICT can be in the hands of the poor. A Grameen borrower receives a handset with Grameen Bank financing and becomes the telephone-lady of the village, selling telephone services to the villagers, usually in places where fixed lines did previously not exist. In the process, she makes an income, which on average is more than twice the national per capita income. While Grameen Phone provides the network coverage, Grameen Telecom provides technical support services to the telephone ladies. Upto the end of this year, Grameen had provided more than 194,551 poor women from amongst GB members, with mobile phones for income generation in villages across Bangladesh.
Pension Fund and Other Savings
In recent years Grameen Bank has a introduced a range of attractive new savings products for borrowers. The personal and special savings accounts of old remain, but have been made more flexible in terms of facilities available to them. GB has also introduced a pension deposit fund which enables the members to receive, after a ten year period, a guaranteed amount which is almost double the amount she has put in over that time.
Upto February 2006, GB’s deposits totalled US$ 495 million, of which US$ 315 million represent members’ deposits. The savings products of Grameen Bank are enabling not only its members to become self reliant but has paved the way for Grameen Bank’s own self reliance.
Self-Reliance for GB
In 1995, GB decided not to take any more donor funds. It has not requested any fresh funds from donors since then. The last instalment of donor funds which was in the pipeline was received in 1998.
Today, Grameen Bank’s amount of total outstanding loans is approximately US$ 438 million. Deposits as a percentage of outstanding loans is 113%. If it takes into account its own resources as well as deposits, this percentage is 135%. Since Grameen Bank came into being, it has earned profits every year except in 1983, 1991, and 1992. GB does not foresee having to take any more donor money or even take new loans from internal or external sources in future. GB’s growing deposits will be more than sufficient to repay its existing loans, and expand its credit program.
Grameen in Other Countries
As a result of the success of the Grameen approach in Bangladesh, Grameen Trust, a sister organization, was established in 1989, to promote Grameen replication programs in other countries. Up to the end of February 2006, the Grameen Trust supported 137 Grameen Bank replication programs in 37 countries, either supporting local NGOs or implementing microcredit programs directly on the ground. GT’s partners have provided US$ 1.44 billion to 2.86 million families worldwide, in countries as diverse as the Philippines, Kosovo, Nigeria and Bolivia. The Microcredit Summit campaign estimates more than 67 million poorest families around the world were being reached with microcredit at the end of December 2004.
Conclusion
A study by World Bank economist Shahid Khandker in 2005, suggests that microfinance contributes to poverty reduction, especially for female participants, and to overall poverty reduction at the village level in Bangladesh. Microfinance thus helps not only poor participants, but also the local economy. Grameen Bank’s own internal survey based on 10 objective indicators, shows that 55% of its members have already crossed the poverty line.
Not only does Grameen Bank and microcredit programs like it result in positive socioeconomic change in the lives of the poor, but other development interventions, for example ICT for the poor, are made more effective when microcredit is available. What ultimately makes microcredit so powerful is that it can be done on a sustainable basis, and does not need to rely on unending subsidies or donor funding. The fact that the basics of Grameen approach are replicable in widely varying contexts, makes it a compelling tool for development practitioners around the world. In particular, microcredit can play a significant role in achieving the boldest of the Millennium Development Goals set by the United Nations, that of halving world poverty by 2015.
