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Gramen

In: Business and Management

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Grameen Bank

Voluntary Social Systems in action

Bangladesh
Population:
145 million
Capital:
Dhaka (11 million)

More than half the population is landless After the war, returned to
Bangladesh

Ph. D. in
Economics
Vanderbilt Univ
Nashville, TN

Tried working in the Govt, resigned in two months.

Taught at Tenesse
State and in
Colorado

Chairman of Dept of Economics,
Chittagong
University
Dr. Mohammed Yunus

Motivation

“I felt extremely ashamed of myself being part of a society which could not provide $26 to forty-two able, skilled human beings who were trying to make a living.”
Dr. Yunus, testifying before the U. S. Congress Select Committee on Hunger, in a hearing devoted to microcredit

Target Customers
The Landless
No Collateral
No Guarantee
Customers are never taken to court for default

Target Customers
The Landless
Villagers whose
No Collateral families were
“functionally
No Guarantee landless,” didn’t own enough land to live off for most of the year.
Customers are never taken
0.4 acres upper limit.

court for default

to

Ownership

Owned by Borrowers (94%)
Govt (6%)

Money Disbursed

$5.25 billion Disbursed
$4.64 billion Repaid
$425.15 million in 2005
$585 million Projected in 2006

Loan Recovery Rate

99.01%

In 1996, Grameen’s repayment rate of 97% was considered comparable to Chase Manhattan’s rate.

Borrowers

5.58 million
96% women

Rani’s husband: “If the bank lent money to men, they wouldn’t get it back so conscientously.
Women have the discipline to manage such things.” “That’s why the Grameen Bank is made up of women,” Rani added
“Why?” I asked.
“Because they profit by it.”

Source of Funds
100% from borrower’s deposits
No Donor Money, No Loans (since 95)

Profits
Made profit every year except 83, 91 and 92.
Audited by two internationally reputed audit firms. Audit reports available online.

Interest Rate
Govt cap at 11% flat rate for microcredit operations.
Amounts to 22% at declining basis.
Grameen’s rate is lower than Govt. rate. 4 types:
1) 20% declining basis (income generating loans)
2) 8% for housing loans
3) 5% for student loans
4) 0% loans for struggling members (beggars)

Death of Member
In case of death a borrower, all loans are paid off under Loan Insurance Programme.
Loan Insurance Programme
Insurance fund created by the interest generated in a savings account created by deposits of the borrowers made for loan insurance purpose, at the time of receiving loans. Each time, an amount equal to 3% is deposited into this account.

Death of Member
Life Insurance
Total of 81,750 Grameen Bank borrowers have died so far. Their families collectively received
$3.55 million.
Borrowers are not required to pay any premium for this life insurance. Borrowers come under this insurance coverage by being a shareholder of the bank. Pension Fund
Popular program.
Borrowers are required to save $0.86 each month for a period of 10 years. The depositor gets almost twice the amount she saved, at the end of this period.
Dec 2005 balance in this account - $147.66 million Telephone Ladies
Provided loans to 187,000 borrowers to buy mobile phones and provide telecommunications services in villages.
Telephone ladies generate revenue for Grameen
Phone, the country’s largest telephone company.

Computerization
Accounting and information management of nearly all branches computerized (1455 out of
1735). 15 zones out of 21 connected through a corporate intranet.

Crossing the
Poverty Line
55% of Grameen borrower families have crossed the poverty line. Remaining are moving steadily up.

Mechanics
Based on Community
Upto 6 groups of 5 form a center. Each center elects a chief and deputy.
All loans collected at weekly center meetings

People Should Not Go to the
Bank
The Bank should go to the people. When a villager is asked to come to an office, it becomes a symbol of terror. You are put in a line, you don’t know the rules. Somebody says, “You go there.” Somebody else says, “You better go there.” Somebody says,
“Where are your papers?” and, “No, you come next time.” The people at the bottom are terribly scared of this kind of situation. They would rather not deal with you.
Dr. Mohammed Yunus, in a 1991 speech

Mechanics
“Other banks assume that you are a potential cheat. That’s how they tie you up [with collateral]. We assume that you are the best person ever. And there are margins of error in both cases. But if their repayment is 98 percent and so is ours, they’re wrong in 98 percent of the cases and we’re right in 98 percent of the cases.”
Dr. Mohammed Yunus

Workshops & Center Schools
In 1980, Grameen began organizing workshops and center schools, and providing members with items such as iodized salt, vegetable seeds, saplings, water-purification crystals, and textbooks. The bank always charged a small fee for these items, even if it was just a token amount, because Yunus was adamant that
Grameen not be perceived by members as another giveaway program. Bangladesh had far too many.

Social Subtext

Bank meetings are held five days a week, two per morning. So, at each designated time, about 6,000 centers are gathering, each containing thirty to forty borrowers. An hour and a half before,
200,000 villagers had assembled, and now another
200,000 were preparing for a second round.
Imagine the range of problems that might arise in these meetings. Bangladeshi villages are split along clan, class, religious, and in some cases, caste lines. The anxiety produced by extreme poverty leads inevitably to hostile competition among different factions.

Villagers fight over control of land and water. It is not uncommon for a family to split apart over a land feud, or for a strong brother to steal the inheritance of a weak one. Centers are by no means insulated from the tensions in their communities.
Almost every one of the two dozen centers I visited had at least one major division that ran through it like a geological fault.

Admirers of the Grameen Bank are fond of retelling stories about centers that have united to protest injustices. Indeed, the image of forty village women confronting a wife beater is inspiring. But such moments are the exceptions.
More compelling is how well Grameen’s system operates under normal conditions: how it compensates for a lack of goodwill, and how its rules act as a tight web around the center – ensuring that villagers are brought together frequently in a setting where they are forced to answer for their actions before all eyes.

Depsite the great potential for anarchy, most of the time things do not fall apart. The center holds – and it holds by means of a powerful social pressure that was described two centuries ago by Adam Smith.

“In the middling and inferior stations of life,” wrote Smith in The Theory of Moral Sentiments, personal success “almost always depends upon the favor and good opinion of.. neighbors and equals; and without a tolerably regular conduct these can very seldom be obtained. .. in such situations, therefore, we may generally expect a considerable degree of virtue; and, fortunately for the good morals of society, these are the situations of by far the greater part of mankind.”

Questions?

The Sixteen Decisions

We shall follow and advance the four principles of Grameen
Bank --- Discipline, Unity, Courage and Hard work – in all walks of our lives.

Prosperity we shall bring to our families. We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.

During the plantation seasons, we shall plant as many seedlings as possible. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.

We shall educate our children and ensure that they can earn to pay for their education. We shall always keep our children and the environment clean. We shall build and use pitlatrines.

We shall drink water from tubewells. If it is not available, we shall boil water or use alum.

We shall not take any dowry at our sons' weddings, neither shall we give any dowry at our daughters wedding. We shall keep our centre free from the curse of dowry. We shall not practice child marriage.

We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.

We shall collectively undertake bigger investments for higher incomes. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.

If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline.

We shall take part in all social activities collectively.…...

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