Our Voice

ABOUT GRAMEEN BANK

You’re no doubt familiar with the financial rhetoric about the ‘risk’ involved in lending money to low income individuals without the requisite assets to guarantee their loan, or a credit rating over a particular level. However, Grameen Bank in Bangladesh has turned the conventional banking model on its head by removing the need for collateral and in doing so created a banking system based on mutual trust, accountability, participation and creativity.

If you’ve never heard of Grameen Bank, here’s an overview of the way they operate:

• Grameen provides credit to the poorest of the poor in rural Bangladesh, without any collateral.
• Grameen uses credit as a cost-effective weapon to fight poverty and it serves as a catalyst in the overall development of the socio-economic conditions of the poor, who have been locked out of the banking system on the basis that they are poor (and hence not bankable).

Professor Muhammad Yunus, the founder of Grameen Bank, launched the organisation based on the vision and belief that financial resources CAN be made available to poor people on terms and conditions that are appropriate to, and reasonable for, exactly those people.

Professor Yunus built Grameen Bank because he believes that “these millions of small people with their millions of small pursuits can add up to create the biggest development wonder.”

THE GRAMEEN BANK BUSINESS MODEL

The Grameen Bank business model 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.

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, as well as storage and marketing and transport services.

Women were initially given equal access to the schemes (which historically would have only been offered to men), and proved to be not only reliable borrowers, but astute entrepreneurs. As a result, they have raised their status, lessened their dependency on their husbands, improved their homes and raised the nutritional standards of their children. Today over 90 percent of Grameen’s borrowers are women.

Intensive discipline, supervision, and servicing characterise the operations of 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 employees, coupled with the powerful peer pressure exerted on these individuals by the groups, and the repayment scheme based on 50 weekly instalments, contribute to operational viability to the rural banking system designed for the poor. Savings have also been encouraged amongst borrowers.

The success of this approach shows that a number of objections (ideas perpetuated by the status quo) about lending to the poor can be overcome if careful supervision, a collaborative model and good management are provided.

GRAMEEN BANK’S ACTIONS REFLECT THEIR VALUES

Grameen is aligned in words and actions to create an organisation that benefits the poorest, most marginalised members of society in a way that has generated extraordinary benefit. That benefit doesn’t just serve the individual, it also benefits their families, their communities and society as a whole. Grameen does this through strict adherence to 10 actions, which define their organisation:

1. Start with the problem rather than the solution: a credit system must be based on a survey of the social background rather than on a pre-established banking technique.
2. Adopt a progressive attitude: development is a long-term process which depends on the aspirations and commitment of the economic operators.
3. Make sure that the credit system serves the poor, and not vice-versa: credit officers visit the villages, enabling them to get to know the borrowers.
4. Establish priorities for action vis-à-vis the target population: serve the most poverty-stricken people needing investment resources, who have no access to credit.
5. 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.
6. Lean on solidarity groups: small informal groups consisting of co-opted members coming from the same background and trusting each other.
7. Associate savings with credit: without it being necessarily a prerequisite.
8. Combine close monitoring of borrowers: with procedures which are simple and as standardised as possible.
9. Do everything possible: to ensure the system’s financial balance.
10. Invest in human resources: training leaders will provide them with real development ethics based on rigour, creativity, understanding and respect for the rural environment.

GRAMEEN BANK’S CREDIT DELIVERY SYSTEM

Grameen Bank’s credit delivery system is dramatically different to what we’re used to in the West. There is an exclusive focus on the poorest of the poor. This meant designing processes that work to serve their customers, not methods of sales and distribution that solely suit the lender. It is also predicated on clearly establishing the eligibility criteria for a selection of targeted clientele and adopting practical measures to screen out those who do not meet them. This is has evolved, based on the initial results of Grameen’s lending, into delivering credit to women as a priority. Finally, the delivery system is geared to meet the diverse socio-economic development needs of the poor.

Grameen’s practices are based on the following 5 principles:

1. Borrowers are organised into small homogeneous groups.
2. Special loan conditionalities which are particularly suitable for the poor. These include:
   1. Loans given without any collateral.
   2. Loans repayable in weekly instalments spread over a year.
   3. Eligibility for a subsequent loan depends upon repayment of first loan.
   4. Individual, self chosen, quick income generating activities which employ the skills that borrowers already posses.
   5. Close supervision of credit by the group as well as the bank staff.
   6. Stress on credit discipline and peer support solidarity.
   7. Special safeguards through savings, to minimise the risks that the poor confront.
   8. Transparency in all bank transactions, most of which take place at centre meetings.

3. Simultaneous undertaking of a social development agenda addressing the most basic needs of the clientele. This is reflected in the “sixteen decisions” adopted by Grameen borrowers. This helps to:
   1. Raise the social and political consciousness of the newly organised groups.
   2. Focus increasingly on women from the poorest households, whose urge for survival has a far greater bearing on the development of the family.
   3. Encourage their monitoring of social and physical infrastructure projects – housing, sanitation, drinking water, education, family planning, etc.

4. Design and development of organszation and management systems capable of delivering programme resources to targeted clientele.
5. Expansion of loan portfolio to meet diverse development needs of the poor. As the general credit programme gathers momentum and the borrowers become familiar with credit discipline, other loan programmes are introduced to meet growing social and economic development needs of the clientele. Besides housing, such programmes include:
   1. Credit for building sanitary latrines.
   2. Credit for installation of tubewells that supply drinking water and irrigation for kitchen gardens.
   3. Credit for seasonal cultivation to buy agricultural inputs.
   4. Loans for leasing equipment and machinery, ie., cell phones purchased by Grameen Bank members.
   5. Finance projects undertaken by the entire family of a seasoned borrower.

As mentioned, Grameen Bank’s relationships with their customers are guided by strict principles that form the foundation everything they do for their customers.

1. We shall follow and advance the four principles of Grameen Bank: Discipline, Unity, Courage and Hard work – in all walks of our lives.
2. Prosperity we shall bring to our families.
3. We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest.
4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.
5. During the plantation seasons, we shall plant as many seedlings as possible.
6. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.
7. We shall educate our children and ensure that they can earn to pay for their education.
8. We shall always keep our children and the environment clean.
9. We shall build and use pit-latrines.
10. We shall drink water from tubewells. If it is not available, we shall boil water or use alum.
11. We shall not take any dowry at our sons' weddings, neither shall we give any dowry at our daughter’s wedding. We shall keep our centre free from the curse of dowry.
12. We shall not practice child marriage.
13. We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.
14. We shall collectively undertake bigger investments for higher incomes.
15. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.
16. If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline.
17. We shall take part in all social activities collectively.

THE POSITIVE IMPACT OF GRAMEEN BANK’S LENDING PROCESS

It is estimated that the average household income of Grameen Bank members is about 50 percent higher than the target group in the control village, and 25 percent higher than the target group non-members in Grameen Bank villages. The landless have benefited most, followed by marginal landowners. This has resulted in a sharp reduction in the number of Grameen Bank members living below the poverty line, 20 percent compared to 56 percent for comparable non-Grameen Bank members.

There has also been a shift from agricultural wage labour (considered to be socially inferior) to self-employment in petty trading. Such a shift in occupational patterns has an indirect positive effect on the employment and wages of other agricultural waged labourers. What started as an innovative local initiative, “a small bubble of hope”, has thus grown to the point where it has made an impact on poverty alleviation at the national level “.

Grameen Bank’s operations illustrate beautifully the difference between historical beliefs and assumptions about the poor, particularly poor women. They also completely debunk the myths that the finance industry likes to perpetuate.

• For example, it had earlier been thought that the poor would not be able to find remunerative occupations.
  • In fact, Grameen borrowers have successfully done so.
• It was thought that the poor would not be able to repay.
  • In fact, repayment rates reached 97 percent.
• It was thought that poor rural women in particular were not bankable:
  • In fact, they accounted for 94 percent of borrowers in early 1992.
• It was also thought that the poor cannot save:
  • In fact, group savings have proven as successful.
• It was thought that rural power structures would make sure that such a bank failed:
  • The Grameen Bank has been able to expand rapidly.

The statistics related to the expansion of the bank’s operations fly in the face of what most of us would assume is possible:

• From fewer than 15,000 borrowers in 1980, the membership had grown to nearly 100,000 by mid-1984.
• By the end of 1998, the number of branches in operation was 1128, with 2.34 million members (2.24 million of them women) in 38,957 villages.
• There are 66,581 centres of groups, of which 33,126 are women.
• Group savings have reached 7,853 million taka (approximately USD 162 million), out of which 7300 million taka (approximately USD 152 million) are saved by women.
• As of December, 2015, Grameen had 8.81 million borrowers, 97 percent of whom are women. With 2,568 branches, the bank provides services in 81,392 villages, covering more than 97 percent of the total villages in Bangladesh.

Grameen Bank’s positive impact on its poor and formerly poor borrowers has been significant. We hope that this story serves to remind us all to think outside the box. This inspirational business has been built on a firm foundation that is values based and serves to uplift some of the poorest women in the world. It also illustrates that with the right type of support, understanding and commitment, it IS possible to empower those who find themselves in difficult life circumstances, to completely transform their lives for the better.

If you are inspired and would like to join the revolutionary movement that we are creating, you can request to join our Facebook group The Wolfpack, to share ideas and learn from other like-minded women.