Grameen Bank - Banking for the Poor

                

                  

Introduction

In March 1974, Bangladesh was hit by one of the worst famine of  recent times. This was mainly caused by massive flooding along the Brahmaputra river resulting in high mortality. Not to forget the devastation caused by 1970s war with Pakistan. Moved by this catastrophe in his homeland, Professor Muhammad Yunus (in picture), Head of the Rural Economics Program at the University  of Chittagong, 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, without the burdens of high interest under predatory lending. Mr.Yunus believed that making such loans available to a larger population could stimulate businesses and reduce the widespread rural poverty in Bangladesh. As of today, this small act of Mr.Yunus has grown into well established micro-credit system called THE GRAMEEN BANK benefiting thousands of rural poor in whole of Bangladesh. The main objective of the Grameen Bank is to promote and facilitate microfinance banking model among people. More specifically speaking it leverages microcredit concept to realize the benefits of microfinance.

Micro Credit

The word "microcredit" did not exist before the seventies. Now it has become a buzz-word among the development practitioners. In the process, the word has been imputed to mean everything to everybody. No one now gets shocked if somebody uses the term "microcredit" to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from the savings and loan associations, or from credit unions, or from money lenders.

Three C's of Credit:

Character: means how a person has handled past debt obligations: From credit history and personal background, honesty and reliability of the borrower to pay credit debts is determined.

Capacity: means how much debt a borrower can comfortably handle. Income streams are analyzed and any legal obligations looked into, which could interfere in repayment.

Capital: means current available assets of the borrower, such as real estate , savings or investment that could be used to repay debt if income should be unavailable.

How is Grameen Bank different from other conventional banks.

How Grameen Bank functions?

The Grameen Bank is based on the voluntary formation of small groups of five people to provide mutual, morally binding group guarantees in lieu of the collateral required by conventional banks. At first only two members of a group are allowed to apply for a loan. Depending on their performance in repayment the next two borrowers can then apply and, subsequently, the fifth member as well.

 

The assumption is that if individual borrowers are given access to credit, they will be able to identify and engage in viable income-generating activities - simple processing such as paddy husking, lime-making, manufacturing such as pottery, weaving, and garment sewing, storage and marketing and transport services. Women were initially given equal access to the schemes, and proved not only reliable borrowers but astute enterpreneurs. As a result, they have raised their status, lessened their dependency on their husbands and improved their homes and the nutritional standards of their children. Today over 90 percent of borrowers are women.

 

Intensive discipline, supervision, and servicing characterize the operations of the Grameen Bank, which are carried out by "Bicycle bankers" in branch units with considerable delegated authority. The rigorous selection of borrowers and their projects by these bank workers, the powerful peer pressure exerted on these individuals by the groups, and the repayment scheme based on 50 weekly installments, contribute to operational viability to the rural banking system designed for the poor. Savings have also been encouraged. Under the scheme, there is provision for 5 percent of loans to be credited to a group find and Tk 5 is credited every week to the fund. 

Sources

http://www.grameen-info.org