GRAMEEN BANK

Introduction

• Founded by Professor Mohammed Yunus in 1976

• Dr. Yunus is the winner of the 1994 World Food Prize
• The largest rural finance institution in Bangladesh
 2,431 branches
 78,659 villages (more than 94% of total villages in Bangladesh)
 7.21 million borrowers
 97% women
• Loan size 318 bn T
• Default Rate < 2%
• Interest rate : 20% (declining basis) for income generating
loans, 8% for housing loans, 5% for student loans, and 0%
(interest-free) loans for Struggling Members (beggars)
 What is Grameen Bank ?
“Grameen” bank, means the “rural” or the “village” bank
• It provides credit and financial services :
• Exclusively to the rural poor in Bangladesh.
• Without any collateral for creating self employment opportunities
to quickly increase their income and empower the poor
• Banking system based on mutual trust, accountability,
participation and creativity
• Serves as a catalyst in the over all
development of socio-economic
conditions of the poor
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
• 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”
 GRAMEEN
BANK

Covers almost the

Whole Country
 Organization Structure

Each Centre
made up of
8 Group of
Head Office 5 borrowers
each
Group

18 Zonal Office 2,431 Branch Office 50-60 Centres per

Branch

7.21 million borrowers

123 Area Office
 Loans Programme

• Basic Loan

• Housing Loan

• Higher Education Loan

Microcredit : An Overview
• Extension of very small loans (microloans) to the
unemployed, to poor entrepreneurs and to others
living in poverty

• Typically borrowers are people not considered

bankable

• 7,000 microfinance institutions, serving some 16

million poor people in developing countries (World
Bank estimates)

• 500 million households benefit from these small loans

• Examples: Grameen Bank, SKS India, Women’s World

Banking
 Basic Loan

Flexible Loan
 Social Collateral Approach:
Peer Group of Borrowers 
Collateral

Social Collateral approach: Traditional credit approach:

• Small borrowers self- • Individual finds others to

select into group
• Information
• Diversification
• Peer pressure ensures
repayment
co-sign or guarantee
• Banker must screen
• Diversification is banker’s
responsibility
• Banker monitors borrower
for repayment
Key Features
of Social Collateral Approach

1.Peer pressure
2. Information transfer
3. Mutual insurance
4. Cooperation
Peer Pressure

Joint liability: every member of the peer

group is in default if any member is.
If peers can/will impose social penalties on
each other, this adds an additional
incentive not to default on one’s portion.
=> reduces moral hazard
reduces the riskiness of the loans
increases likelihood of obtaining the loan
 Information Transfer

Borrowers self-select into groups with people

they know and trust.
reduces incidence of adverse selection
new or low income entrepreneurs more
welcome
increased value of the group loan as an asset
(to the lender)
Mutual Insurance

• The group is a safety net against default

and its consequences for each borrower
and the lender.
Members effectively insure each other
across project-specific downside risks.

=> Less credit risk.

=>Applications rates rise.
=> Loan approval rates can rise.
 Cooperation

Cooperation allows for bundling of too small loans

into one reasonable size loan.
Cooperation = coordination to simultaneously open
the right mix of interdependent businesses.

enhances lending efficiency

enhances value of pre-existing collateral
borrower group is self-diversified
The 4 Principles of
Grameen Bank

• Discipline
• Unity
• Courage
• Workers
The 16 Decisions of
Grameen Bank
• To respect the four principles of the
Grameen Bank
• To provide good living standards for
families
• To repair dilapidated houses and work to
build new ones.
• To cultivate vegetables the whole year
round and sell the surplus.
• To pick out seedlings during the season for
planting,
• To have small families, reduce expenses to
a minimum and take care of health.
The 16 Decisions of
Grameen Bank
• To educate children and ensure their
earning capability
• To ensure cleanliness of children and
homes
• To build latrines and use them.
• To only drink water drawn from a well. If
not, boil the water or use alum.
• To not accept a marriage dowry for sons
and not give one to daughters at their
marriage.
The 16 Decisions of
Grameen Bank
• To cause harm to no one and to not
tolerate anyone who should do us harm.
• To make important investments in
common to increase our income
• To be always ready to help each other.
• To help and restore order if we learn that
discipline is not respected in a centre
• To introduce physical culture in all
centres and to take part in all social
events
 Indicators of Poverty Level

A Grameen Bank borrower is said to have

moved out of poverty if the family satisfies
the following criteria:

– The family lives in a house worth at least Tk.

25,000 or a house with a tin roof, and each
member of the family is able to sleep on a bed
instead of on the floor.
– Family members drink pure water of tube-wells,
boiled water or water purified by using alum,
arsenic-free, purifying tablets or pitcher filters.
– All children in the family over six years of age are
all going to school or finished primary school.
 Indicators of Poverty Level

• Minimum weekly loan installment of the

borrower is Tk. 200 or more.
• Family uses sanitary latrine.
• Family members have adequate clothing for
every day use, warm clothing for winter,
such as shawls, sweaters, blankets, etc, and
mosquito-nets to protect themselves from
mosquitoes.
• Family has sources of additional income,
such as vegetable garden, fruit-bearing
trees, etc, so that they are able to fall back
on these sources of income when they need
additional money.
 Indicators of Poverty Level

• The borrower maintains an average annual

balance of Tk. 5,000 in her savings accounts.
• Family experiences no difficulty in having
three square meals a day throughout the
year, i. e. no member of the family goes
hungry any time of the year.
• Family can take care of the health. If any
member of the family falls ill, family can
afford to take all necessary steps to seek
adequate healthcare.
 The Credit Delivery System
• Exclusive focus on the poorest of the poor
– Clear eligibility criteria for targeted clientele
– Priority for credit increasingly given to women
– Delivery system in sync with the socio-economic needs of the poor

• Borrowers organised into small homogeneous groups

– Primary groups of 5 members which are federated into centres
– Centres functionally linked to the Grameen Bank
– Centre meetings for workers every week
– Facilitate group solidarity and participatory interaction

• Special loan conditionalities suited for the poor

– Small loan amounts without collateral
– Repayment in weekly installments spread over a year
– Loan eligibility depends on past credit history
– Individual, self-chosen, quick income generating activities
– Close supervision of credit
– Transparency in bank transactions
The Credit Delivery System
• Simultaneous undertaking of social development
agenda
– Raise social and political consciousness of the newly organized groups
– Increasing focus on poor women
– Encourage and monitor social and physical infrastructure projects

• Design and development of organization and

management systems
– Special training needed for highly motivated staff
– Gradually decentralized decision-making and operational authority

• Expansion of loan portfolio to meet the needs of

the poor
– Credit for building latrines
– Credit for installing tube-wells
– Credit for seasonal cultivation
– Credit for joint enterprises of the group and the centre
– Finance projects undertaken by fmily of borrower
 Loans paid off at death
• Loan insurance program to cover for death
• Each time a loan is given 3% of the loan amount is
deposited in loan insurance fund
• This amount transferred from special savings account
• If current balance in the insurance savings account is
more than/ equal to 3% no deposit required
• Loan insurance is extended to husbands with
additional deposits
• Outstanding amount of loan paid-off if husband dies
Loan insurance statistics

• Total deposits in loan insurance

savings account USD 55.68 milion
• Upto date 64480 insured borrowers
died
• Total outstanding loans and interest
of USD 6.72 million paid-off by bank
• Families of deceased not required to
pay the loans
 Life insurance
• Borrowers are automatically insuerd by being
shareholders of the bank
• Borrowers not required to pay any premuim
• Life insurance benefits of USD 0.12 to 0.14
million paid each year
• Total of 94216 insured borrowers have died
so far
• Total insurance amount worth USD 3.72
million has been paid
 Pension fund for borrowers
• Pension fund introduced for the old aged
• Borrowers required to save USD 0.72 per
month for 10 years
• At maturity the borrower gets twice the
money she deposited
• Current balance under this account is USD
212.66 miion with USD 56.73 added in past
year
 Loan loss reserve

• Loan not paid on time is converted into

flexible loan with 50% provisioning done at
first annual closing
• 100% provisioning done at end of second year
• At end of third year full loan amount written
off even if loan repayment continues
• Loan reserves worth USD 40.49 million and
writen off amount USD 24.6 million
Retirement benefits paid out

• Any staff can retire after 10 years of

service
• Gets retirement benefits in cash worth avg
USD 10040
• Paid within one month of retirement
• 6421 staff members have retired
• Total mount worth USD 64.47 million paid
 Vicious cycle of poverty

• Formation of group of 5 people to provide

mutual moral group guarantees
• At first 2 members of group given loan
• Depending on their performance next two
borrowers can apply
• Women given access to credit proved to be
good borrowers and astute entrepreneurs
• Today over 90% of customers are women
 Vicious cycle of poverty

• Intensive discipline, supervision & servicing

are carried out by bicycle bankers with
considerable delegated authority
• Rigorous selection of borrowers and projects
and powerful peer pressure used
• Repayment scheme based on 50 weekly
installments
• Savings are encouraged
 Objections overcome

• Poor would not be able to find

remunerative occupations
• Poor would not be able to repay
• Poor women not bankable
• Poor cannot save
• Rural power structures would ensure
that the bank failed
 Method of action

• A credit system must be based on a survey of the social

background rather than on a pre-established banking
technique
• Development is a long-term process which depends on the
aspirations and commitment of the economic operators
• Make sure that the credit system serves the poor, credit
officers visit the villages, enabling them to get to know the
borrowers.
• Serve the most poverty-stricken people needing investment
resources.
• At the beginning, restrict credit to income-generating
production operations, freely selected by the borrower.
Make it possible for the borrower to be able to repay the
loan.
Method of action
Lean on solidarity groups: small informal groups consisting of
co-opted members coming from the same background and
trusting each other.
• Associate savings with credit without it being necessarily a
prerequisite.
• Combine close monitoring of borrowers with procedures
which are simple and standardized as possible.
• Do everything possible to ensure the system's financial
balance.
• Invest in human resources: training leaders will provide
them with real development ethics based on rigour,
creativity, understanding and respect for the rural
environment.
Is Grameen Bank Sustainable?

• In order to be sustainable, the bank must

– Promote its organizational development within

given costs for its institutional viability
– Operate efficiently, given the program design
and institutional framework, to attain financial
and economic viability
– Help generate sustainable benefits for its
members to reduce their poverty and achieve
borrower viability
Is Grameen Bank Sustainable?

• Financial & Economic Viability

– Reduced dependency on Subsidies
• Since economies of scale exist in branch
operation, Grameen Bank has the potential to
eliminate subsidies through expanding its
membership and lending
• Through increased membership and lending, the
Bank has reduced its subsidy dependency to 0%
from 23 % of subsidy per Taka lending in 1987
– Profitability of Branches
• Majority of its 2431 branches are now operating
with profits. It takes about five years of
operation for a branch to realize a profit.
Is Grameen Bank Sustainable?

• Institutional Viability
– Grameen Bank has institutionalized a decentralized
management structure with a cadre of dedicated
professionals that is operating without much of Prof.
Muhammad Yunus ’ involvement

• Borrower Viability
– Low drop-out rates: 15%
– 40% annual growth rate in savings
– Grameen Bank has recorded exceptionally high recovery
rates (about 98 %), highest among DFI’s
 Challenges in Sustainability

• Expansion depends on the entrepreneurial ability

of borrowers and market opportunities

• Continued support of traditional non-farm

activities may not prove self- sustaining as
Grameen Bank expands.

• The Bank must be able to expand lending in more

growth-oriented activities for its survival in the
long run.
 Poverty Reduction Strategy : The
Grameen Bank Experience
• Targets and mobilizes the poor
– Creates social and financial conditions
so that they receive credit by
identifying a source of self-
employment in familiar rural non-farm
activities
• Targets women more than men
– women are more likely to reinvest
their earnings in the business and
improve the living standards of their
families
• Offers support services
– Offers business advice and counseling,
while clients provide peer support for
each other through solidarity circles
• Recycling of funds
– continual reinvestment of repaid loans
multiplies the impact of each dollar
loaned.
 Struggling members programme
• Focuses on distributing small loans to
beggars
• The existing rules of banking are not
applied:
– The loans are completely collateral-
free and interest free.
– The repayment period can be
arbitrarily long
– The borrower is covered under life
insurance free of cost.
– The struggling members (beggars) are
not required to form any micro credit
group.
• The bank does not force borrowers to
give up begging
– Rather encourages them to use the
loans for generating income by selling
low-priced items.
Struggling members programme
• The goal of the programme is not only to economically
empower but also to boost the morale and dignity of the
beggars

– The bank treats its struggling members with the same respect
and attention as regular members and refrains from using the
term “beggar.
– They are given identity badges with the bank’s logo as physical
evidence of the Bank’s support behind them
– The bank has arrangements with local shops to give the
members a credit line up to a given amount to pick-up any
merchandise from the store and sell in the village
– The regular group members act as mentors to the struggling
members, providing guidance and support to them

• 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).
– A total of 786 members have already quit begging
 Rural telephone programme

• A programme to bring telephones to

distant villages
• Using the nationwide network of
Grameen phone, Grameen Telecom,
brought radio-telephones and mobile
phones to almost half of the villages of
Bangladesh
• The bank 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.
GRAMEEN
BANK-II
BACKGROUND

• Existing Repayment crises

• Floods in 1998 caused widespread havoc
• Grameen Bank conceptualizes
Rehabilitation Program
– Fresh loans to start income generation and
repair of houses
• Installment sizes exceed borrower’s
capacity
– Led to repayment crisis
– Borrowers demanded refund of “group tax”
– Snowballing effect: one defaulter prompted
other borrowers not to repay
Grameen Bank-II

Back to the Drawing Board

• Design of a new methodology
• Incorporating all lessons learnt
• Design pilot tested in certain regions
• After repeated fine-tuning and
testing, the new system (GGS) was
ready for implementation
The Transition

• Intensive staff training program

– Introduction to GGS
– Quelled any resistance from staff
• Mammoth task of transition from GCS
to GGS across 1175 branches
• Transition took more than a year and
GGS was in place by august 2002.
Grameen Bank-II
• Changes Galore….
– No general/seasonal/family loans
– No branch-wise, zone-wise ceiling
– No Fixed weekly installment
• However, underlying assumption is
the same
– “Poor people always pay back their
loans”
Grameen Generalized System

• Based on one prime product

– The basic loan
• In addition two loan products
– Housing Loan
– Higher education loan
• Borrowers on the verge of default are
given an alternative route
– Flexible loan
• Involves re-negotiation to arrive at a fresh
repayment schedule
Flexible Loan
• Just a Re-scheduled loan
• Does not imply that the borrower would not
repay
• Acts as a cushion for the borrower and helps him
to get back on the “credit highway”
• Normal flexi-loan period ranges from 6 months to
2 years
• Bank has to provide for the flexi-loan during this
period
– An additional cost for the bank
• Cost is minimized by creatively designing the
Basic Loan
• Removes tension from both the bank and
borrower
Default under Flexi-Loan

• Willing Defaulter
– Unable to repay
– Takes flexi-loan repeatedly
– Still unable to repay
• Unwilling Defaulter
– Unable to repay
– Not willing to take the flexi-loan
Advantages of GGS

• Custom-made micro-credit
• Encourages staff to be creative
• Pension fund promotes self-reliance
• Loan Insurance is a borrower friendly
measure
• Loan Ceiling grows with the borrower
What has GGS achieved??

• Enthusiastic staff
– Urge to create five-star branches
• Repayment rate of 98%
• Put borrowers out of poverty
• Happy and growing borrower base
GRAMEEN BANK
REPLICATION
Grameen Bank Replication
Program (GBRP)
• As a response to growing demand
• Grameen Trust (GT) supports all
replication projects
• Promising individuals are invited to
Grameen Bank branches and trained
• Highly committed project leads are chosen
• Financial, technical and information
support are provided
REPLICATORS

• Savings program in operation for at

least 2 years
• Reached at least 500 homes
• Cumulative repayment rate of 95% or
more
• Mobilized borrower saving of 10% of
loans
Replications
• Grameen Bank replications in 30 countries,
including the United States
• The most well-established is ACCION International
– Originally founded in 1961 to aid Latin America
– Has opened six associate organizations in the United
States
– Follows the basic Grameen model and has similar
objectives
• Others replications
– Full City Fund, Chicago
– Good Faith Fund, Arkansas
– Lakota Fund, South Dakota
– Small Enterprise Foundation, South Africa
Grameen Bank Outreach

• Simple, Universal Concept

• Far Reaching Impact
• Easily adaptable to different
countries
– Adapted in the US, Australia, Costa Rica
and many more countries
• Attracts the poorest of the poor
Outreach…….

• Some projects that have adopted the

Grameen approach:
– Amanah Iktiar, Malaysia
– Projek Usahmaju, Malaysia
– Project Dungganon, Negros, Philippines
– Ahon sa Hirap, Laguna, Philippines
– Karya Usaha Mandin, Indonesia
– Savecred, Sri Lanka