3 Case Study Grameen Bank

Grameen Bank - Bangladesh

Since 1976. Formally chartered in 1983.

The Grameen Bank is a Microfinance Institution (MFI)
Bangladesh from famine > hope
Yunus (founder) wanted to get credit to the poor (to give them the opportunity to get
themselves out of poverty) without collateral ().
Today, 6 million borrowers.
2, 400 branches in Bangladesh
Works in 78, 000 villages
Yunus given Nobel Peace Prize in 2006

'All human beings are born entreprenuers... All human beings have the survival skill. Just support this
and see how they choose to use it.' Yunus.

Initially loans were given to individuals but this took too much time. Now usually groups of 5.

Who? What do people use the money for?

Beginning or upgrading their small businesses.

97% borrowers are women.
50% women unemployed when they came to the bank, 7% of men.
Credit for women has a positive effect on health of children, but credit for men had no
comparable effect (Pitt).
Representatives of the bank go door to door telling people about the Bank, as many in rural
areas are illiterate.
94% of the bank is owned by its borrowers, the rest by the government.
livestock and poultry raising
light manufacturing
trading and shop keeping
cattle raising
almost no loans to finance crop activities. Agricultural workers represent 60% of its target
group but only 20% of its borrowers.

Repayments?

working capital loans: 20% declining rate

student loans: 5%
home loans: 8%
interest free for beggars.
High repayment rates as people tend to join with members of the groups who they know will
be able to pay back the loan. Far higher repayment rate than national bank loans.
Incentives for repayments: can increase borrowings by 10%, and another 5% for 100%
attendance of all group members. Peer pressure plays a role here!
If she is unable to repay her loan, it is restructured at a slower repayment rate.

Training
 The bank train borrowers to understand the loan systems, how to invest best, the repayment
systems and even how to write their signature.
Enables borrowers to make decisions based on understanding, not just be told what to do.
Bank's 16 principles including refusal to assist in backaward dowry demands, committment to
hard work and the upkeep of hygiene. Others: improving housing, restrict family size, growing
vegetables and keeping children and environment clean.

Is it and should it be subsidized?

Some aregue that subisides should be decreased so that as many full loans can be repaid >
higher profit
others that the poorest of the poor cannot afford unsubsidiesed rates.
There have been subsidies but it is unclear how many remain. As a bank they're not massively
keen on them.
The more a loan is subsidised, the fewer subsidised loans can be made.
But justified by loans effect on absolute poverty alleviation and positive externalities (good
effect on others outside of the direct beneficiaries).

The Grameen Phone ladies

Give the poorest woman in each village a cellular phone > "anyone who wants to make a call
will have to come to her!" Yunus 1995
Makes phone usage possible for more than 1, 000 villagers > more than a quarter of the rural
pop.
$60 profit per month > double the country's monthly per capita income.
Need to know how to do accounts etc and the poorest don't know. Need at least one
educated person in the village > left it up to the centers to decide who should have the phone.
Grameen phone now the largest phone company in Bangladesh.
Some women choose phone calls for bad news to be free but have premium rates for good
news.
As the market grows, competitors will enter, lowering costs which is good all round.
Also responding to other opportunities that would produce complementarities such as internet
and renewable energy.

Challenges

Men feel as if women are challenging cultural roles and rules.

Say that Grameen bank is trying to eradicate Islam through women and children through
providing them with their own money.
Flooding is common in Bangladesh and can udo all the positive work tht has been done.
been cases of divorce over women taking loans > husbands don't like their lack of reliance.
Gives them less control.