Grameen Bank has come a long way since it began its journey in the village of Jobra in 1976. During this quarter of a century it has faced many operational and organisational problems, gained a lot of experience through its successes and failures. It incorporated many new features in its methodology to address various crises and problems, or utilise new opportunities; discarded and modified the features which became unnecessary or less effective. There were a number of major natural disasters in Bangladesh during the life span of Grameen Bank. The 1998 flood was the worst of all.
Half of the country was under flood-water for ten long weeks. Water flowed over the roof-tops for a prolonged period. Grameen borrowers, like many other people of Bangladesh, lost most of their possessions including their houses because of the flood. Grameen Bank, which is owned by the borrowers, decided to take up a huge rehabilitation program by issuing fresh loans for restarting income-generating activities and to repair or rebuild their houses. Soon borrowers started to feel the burden of accumulated loans. They found the new installment sizes exceeded their capacity to repay.
They gradually started to stay away from weekly centre meetings. Grameen Bank repayment started to show quick decline. We tried to improve the situation, but it did not produce desired result. Impact of the post-flood repayment crisis was compounded by its overlap with a recovery problem from an earlier crisis. In 1995, a large number of our borrowers stayed away from centre meetings and stopped paying loan installments. Husbands of the borrowers, inspired and supported by local politicians, organised this, demanding a change in Grameen Bank rules to allow withdrawal of “group tax” component of “group fund” at the time of leaving the bank.
It continued for months. At the end we resolved the problem by creating some opening in our rules, but Grameen’s repayment rate had gone down in the mean time. Many borrowers continued to abstain from repaying their loans even after the matter was resolved. These external factors reinforced the internal weaknesses in the system. The system consisted of a set of well-defined standardised rules. No departure from these rules was allowed. Once a borrower fell off the track, she found it very difficult to move back on, since the rules which allowed her to return, were not easy for her to fulfill.
More and more borrowers fell off the track. Then there was the multiplier effect. If one borrower stopped payments, it encouraged others to follow. The origin of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus, Head of the Rural Economics Program at the University of Chittagong, launched an action research project to examine the possibility of designing a credit delivery system to provide banking services targeted at the rural poor. The Grameen Bank Project (Grameen means “rural” or “village” in Bangla language) came into operation with the following objectives:
Extend banking facilities to poor men and women; eliminate the exploitation of the poor by money lenders; create opportunities for self-employment for the vast multitude of unemployed people in rural Bangladesh; bring the disadvantaged, mostly the women from the poorest households, within the fold of an organizational format which they can understand and manage by themselves; and reverse the age-old vicious circle of “low income, low saving & low investment”, into virtuous circle of “low income, injection of credit, investment, more income, more savings, more investment, more income”.
The action research demonstrated its strength in Jobra (a village adjacent to Chittagong University) and some of the neighboring villages during 1976-1979. With the sponsorship of the central bank of the country and support of the nationalized commercial banks, the project was extended to Tangail district (a district north of Dhaka, the capital city of Bangladesh) in 1979. With the success in Tangail, the project was extended to several other districts in the country. In October 1983, the Grameen Bank Project was transformed into an independent bank by government legislation.
Today Grameen Bank is owned by the rural poor whom it serves. Borrowers of the Bank own 90% of its shares, while the remaining 10% is owned by the government. 2. Nobel Laureate, Muhammad Yunus, the bank’s founder: The Norwegian Nobel Committee has decided to award the Nobel Peace Prize for 2006, divided into two equal parts, to Muhammad Yunus and Grameen Bank for their efforts to create economic and social development from below. Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means.
Development from below also serves to advance democracy and human rights. Muhammad Yunus has shown himself to be a leader who has managed to translate visions into practical action for the benefit of millions of people, not only in Bangladesh, but also in many other countries. Loans to poor people without any financial security had appeared to be an impossible idea. From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty.
Grameen Bank has been a source of ideas and models for the many institutions in the field of micro-credit that have sprung up around the world. Every single individual on earth has both the potential and the right to live a decent life. Across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development. Micro-credit has proved to be an important liberating force in societies where women in particular have to struggle against repressive social and economic conditions.
Economic growth and political democracy can not achieve their full potential unless the female half of humanity participates on an equal footing with the male. Yunus’s long-term vision is to eliminate poverty in the world. That vision can not be realised by means of micro-credit alone. But Muhammad Yunus and Grameen Bank have shown that, in the continuing efforts to achieve it, micro-credit must play a major part. 3. Application of Microcredit: 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. When someone claims microcredit has a thousand year history, or a hundred year history, nobody finds it as an exciting piece of historical information. This is creating a lot of misunderstanding and confusion in the discussion about microcredit. We really don’t know who is talking about what.
I am proposing that we put labels to various types of microcredit so that we can clarify at the beginning of our discussion which microcredit we are talking about. This is very important for arriving at clear conclusions, formulating right policies, designing appropriate institutions and methodologies. Instead of just saying “microcredit” we should specify which category of microcredit. a broad classification of microcredit : • Traditional informal microcredit (such as, moneylender’s credit, pawn shops, loans from friends and relatives, consumer credit in informal market, etc.
) • Microcredit based on traditional informal groups (such as, tontin, su su, ROSCA, etc. ) • Activity-based microcredit through conventional or specialised banks (such as, agricultural credit, livestock credit, fisheries credit, handloom credit, etc. ) • Rural credi Cooperative microcredit (cooperative credit, credit union, savings and loan associations, savings banks, etc. ) t through specialised banks. • Consumer microcredit. • Bank-NGO partnership based microcredit. • Grameen type microcredit or Grameencredit.
• Other types of NGO microcredit. • Other types of non-NGO non-collateralized microcredit. • This is a very quick attempt at classification of microcredit just to make a point. The point is — every time we use the word “microcredit” we should make it clear which type (or cluster of types) of microcredit we are talking about. Otherwise we’ll continue to create endless confusion in our discussion. Needless to say that the classification I have suggested is only tentative. We can refine this to allow better understanding and better policy decisions.
Classification can also be made in the context of the issue under discussion. I am arguing that we must discontinue using the term “microcredit” or “microfinance” without identifying its category. • • Microcredit data are compiled and published by different organizations. We find them useful. I propose that while publishing these data we identify the category or categories of microcredit each organization provides. Then we can prepare another set of important information ? number of poor borrowers, and their gender composition, loan disbursed, loan outstanding, balance of savings, etc.
under each of these categories, countrywise, regionwise, and globally. • • These sets of information will tell us which category of microcredit is serving how many poor borrowers, their gender break-up, their growth during a year or a period, loans disbursed, loans outstanding, savings, etc. The categories which are doing better, more support can go in their direction. The categories which are doing poorly may be helped to improve their performance. For policy-maters this will be enormously helpful. For analysis purpose this will make a world of difference. •
• I urge Microcredit Summit Campaign secretariat to present the information that they already collect on number of clients, number of the poorest among them, number of poorest clients that are women, number of clients that have crossed the poverty line ? broken down for each of the categories of microcredit. This will help donors to select the categories they would like to support. This sorting out is very important for the donors, as well as the policymakers. Grameen credit: Whenever I use the word “microcredit” I actually have in mind Grameen type microcredit or Grameencredit.
But if the person I am talking to understands it as some other category of microcredit my arguments will not make any sense to him. Let me list below the distinguishing features of Grameencredit. This is an exhaustive list of such features. Not every Grameen type programme has all these features present in the programme. Some programmes are strong in some of the features, while others are strong in some other features. But on the whole they display a general convergence to some basic features on the basis of which they introduce themselves as Grameen replication programmes or Grameen type programmes. 4. General features of Grameencredit are :
1. It promotes credit as a human right. 2. Its mission is to help the poor families to help themselves to overcome poverty. It is targeted to the poor, particularly poor women. 3. Most distinctive feature of Grameencredit is that it is not based on any collateral, or legally enforceable contracts. It is based on “trust”, not on legal procedures and system. 4. It is offered for creating self-employment for income-generating activities and housing for the poor, as opposed to consumption. 5. It was initiated as a challenge to the conventional banking which rejected the poor by classifying them to be “not creditworthy”.
As a result it rejected the basic methodology of the conventional banking and created its own methodology. 6. It provides service at the door-step of the poor based on the principle that the people should not go to the bank, bank should go to the people. 7. In order to obtain loans a borrower must join a group of borrowers. 8. Loans can be received in a continuous sequence. New loan becomes available to a borrower if her previous loan is repaid. 9. All loans are to be paid back in instalments (weekly, or bi-weekly). 10. Simultaneously more than one loan can be received by a borrower. 11.
It comes with both obligatory and voluntary savings programmes for the borrowers. 12. Generally these loans are given through non-profit organizations or through institutions owned primarily by the borrowers. If it is done through for-profit institutions not owned by the borrowers, efforts are made to keep the interest rate at a level which is close to a level commensurate with sustainability of the programme rather than bringing attractive return for the investors. Grameencredit’s thumb-rule is to keep the interest rate as close to the market rate, prevailing in the commercial banking sector, as possible, without sacrificing sustain-ability.
In fixing the interest rate market interest rate is taken as the reference rate, rather than the moneylenders’ rate. Reaching the poor is its non-negotiable mission. Reaching sustainability is a directional goal. It must reach sustainability as soon as possible, so that it can expand its outreach without fund constraints. 13. Grameencredit gives high priority on building social capital. It is promoted through formation of groups and centres, developing leadership quality through annual election of group and centre leaders, electing board members when the institution is owned by the borrowers.
To develop a social agenda owned by the borrowers, something similar to the “sixteen decisions”, it undertakes a process of intensive discussion among the borrowers, and encourage them to take these decisions seriously and implement them. It gives special emphasis on the formation of human capital and concern for protecting environment. It monitors children’s education, provides scholarships and student loans for higher education. For formation of human capital it makes efforts to bring technology, like mobile phones, solar power, and promote mechanical power to replace manual power. 5.
No Collateral, No Legal Instrument,No Group-Guarantee or Joint Liability : Grameen Bank does not require any collateral against its micro-loans. Since the bank does not wish to take any borrower to the court of law in case of non-repayment, it does not require the borrowers to sign any legal instrument. Although each borrower must belong to a five-member group, the group is not required to give any guarantee for a loan to its member. Repayment responsibility solely rests on the individual borrower, while the group and the centre oversee that everyone behaves in a responsible way and none gets into repayment problem.
There is no form of joint liability, i. e. group members are not responsible to pay on behalf of a defaulting member. 97 per cent Women: Total number of borrowers is 7. 90 million, 97 per cent of them are women. Branches: Grameen Bank has 2,557 branches. It works in 84,487 villages. Total staff is 23,323. Over Tk 458 billion Disbursed: Total amount of loan disbursed by Grameen Bank, since inception, is Tk 458. 61 billion (US $ 8. 17 billion). Out of this, Tk 407. 90 billion (US $ 7. 25 billion) has been repaid. Current amount of outstanding loans stands at TK 50. 71 billion (US $ 734. 65 million).
During the past 12 months (from July’08 to June’09) Grameen Bank disbursed Tk. 71. 85 billion (US $ 1044. 59 million). Monthly average loan disbursement over the past 12 month was Tk 5. 99 billion (US $ 87. 05million). Projected disbursement for year 2009 is Tk 75. 00 billion (US $1091 million), i. e. monthly disbursement of Tk 6. 25 billion (US $ 90. 92 million). End of the year outstanding loan is projected to be at Tk. 55. 00 billion (US $ 800 million). Loan recovery rate is 97. 81 per cent. Grameen Bank finances 100 per cent of its outstanding loan from its deposits. Over 54 per cent of its deposits come from bank’s own borrowers.
Deposits amount to 137 per cent of the outstanding loans. If we combine both deposits and own resources it becomes 149 per cent of loans outstanding. In 1995, GB decided not to receive any more donor funds. Since then, it has not requested any fresh funds from donors. Last installment of donor fund, which was in the pipeline, was received in 1998. GB does not see any need to take any donor money or even take loans from local or external sources in future. GB’s growing amount of deposits will be more than enough to run and expand its credit programme and repay its existing loans.
Ever since Grameen Bank came into being, it has made profit every year except in 1983, 1991, and 1992. It has published its audited balance-sheet every year, audited by two internationally reputed audit firms of the country. All these reports are available on CD, and some on our web-site : www. grameen. com. 6. Revenue and Expenditure: Total revenue generated by Grameen Bank in 2008 was Tk 12. 00 billion (US $ 174. 61 million). Total expenditure was Tk 10. 69 billion (US $ 155. 62 million). Interest payment on deposits of Tk 5. 46 billion (US $ 79. 41 million) was the largest component of expenditure (51 per cent).
Expenditure on salary, allowances, pension benefits amounted to Tk 2. 96 billion (US $ 43. 00 million), which was the second largest component of the total expenditure (28 per cent). Grameen Bank made a profit of Tk 1305. 00 million (US $ 18. 99 million) in 2008. Grameen bank has declared 30% cash dividend for the year 2008. This is the highest cash dividend declared by any bank in Bangladesh in 2008. Highest record of dividend declared by Grameen Bank was in 2006. It was 100%. The bank has also created a Dividend Equalization Fund to ensure distribution of dividends without much fluctuation in successive years .
Receiving of dividends each year greatly inspires our shareholders, 96% of whom are our borrowers. Government of Bangladesh has fixed interest rate for government-run microcredit programmes at 11 per cent at flat rate. It amounts to about 22 per cent at declining basis. Grameen Bank’s interest rate is lower than government rate. There are four interest rates for loans from Grameen Bank : 20% for income generating loans, 8% for housing loans, 5% for student loans, and 0% (interest-free) loans for Struggling Members (beggars). All interests are simple interest, calculated on declining balance method.
This means, if a borrower takes an income-generating loan of say, Tk 1,000, and pays back the entire amount within a year in weekly instalments, she’ll pay a total amount of Tk 1,100, i. e. Tk 1,000 as principal, plus Tk 100 as interest for the year, equivalent to 10% flat rate. Grameen Bank offers very attractive rates for deposits. Minimum interest offered is 8. 5 per cent. Maximum rate is 12 per cent. Begging is the last resort for survival for a poor person, unless he/she turns into crime or other forms of illegal activities.
Among the beggars there are disabled, blind, and retarded people, as well as old people with ill health. Grameen Bank has taken up a special programme, called Struggling Members Programme, to reach out to the beggars. About 111,611 beggars have already joined the programme. Total amount disbursed stands at Tk. 135. 14 million. Of that amount of Tk. 100. 91 million has already been paid off. 7. Basic features of the programme are: • Existing rules of Grameen Bank do not apply to beggar members; they make up their own rules. • All loans are interest-free.
Loans can be for very long term, to make repayment instalments very small. For example, for a loan to buy a quilt or a mosquito-net, or an • umbrella, many borrowers are paying Tk 2. 00 (3. 4 cents US) per week. • Beggar members are covered under life insurance and loan insurance programmes without paying any cost. • Groups and centres are encouraged to become patrons of the beggar members. • Each member receives an identity badge with Grameen Bank logo. She can display this as she goes about her daily life, to let everybody know that she is a Grameen Bank member and this national institution stands behind her.
• Members are not required to give up begging, but are encouraged to take up an additional income-generating activity like selling popular consumer items door to door, or at the place of begging. Objective of the programme is to provide financial services to the beggars to help them find a dignified livelihood, send their children to school and graduate into becoming regular Grameen Bank members. We wish to make sure that no one in the Grameen Bank villages has to beg for survival. 8. Housing For the Poor: Grameen Bank introduced housing loan in 1984. It became a very attractive programme for the borrowers.
This programme was awarded Aga Khan International Award for Architecture in 1989. Maximum amount given for housing loan is Tk 15,000 (US $ 218) to be repaid over a period of 5 years in weekly instalments. Interest rate is 8 per cent. 673,573 houses have been constructed with the housing loans averaging Tk 13,097 (US $ 190). A total amount of Tk 8. 82 billion (US $ 208. 48 million) has been disbursed for housing loans. During the past 12 months (from July’08 to June09) 16,678 houses have been built with housing loans amounting to Tk 193. 24 million (US $2. 80 million). 9. Micro-enterprise Loans:
Many borrowers are moving ahead in businesses faster than others for many favourable reasons, such as, proximity to the market, presence of experienced male members in the family, etc. Grameen Bank provides larger loans, called micro-enterprise loans, for these fast moving members. There is no restriction on the loan size. So far 1,900028 members took micro-enterprise loans. A total of Tk 47. 13 billion (US $ 709. 91 million) has been disbursed under this category of loans. Average loan size is Tk 24,807 (US $ 359. 37), maximum loan taken so far is Tk 1. 6 million (US $ 23,209).
This was used in purchasing a truck which is operated by the husband of the borrower. Power-tiller, irrigation pump, transport vehicle, and river-craft for transportation and fishing are popular items for micro-enterprise loans. 10. Grameen Network: Grameen Bank does not own any share of the following companies in the Grameen network. Nor has it given any loan or received any loan from any of these companies. They are all independent companies, registered under Companies Act of Bangladesh, with obligation to pay all taxes and duties, just like any other company in the country.