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Grameen Bank

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Grameen Bank (GB)
Company typeBody Corporate (Bank Ordinance)
IndustryFinance
Founded1983
HeadquartersDhaka, Bangladesh
Area served
Bangladesh
Key people
Muhammad Yunus, founder
ProductsFinancial Services
Microfinance
RevenueIncrease 4,746,095,835 M. Taka (2005)
Increase 5,109,093,240 M. Taka (2005)
Increase 1,000,441,986 M. Taka (2005)
Total assets$678,280,326 M. USD (2005)
Number of employees
11,855 (2003)
Websitehttp://www.grameen-info.org/

The Grameen Bank (Bangla: গ্রামীণ ব্যাংক) is a microfinance organization and community development bank started in Bangladesh that makes small loans (known as microcredit) to the impoverished without requiring collateral. The system is based on the idea that the poor have skills that are under-utilized. The bank also accepts deposits, provides other services, and runs several development-oriented businesses including fabric, telephone and energy companies. The organization and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize in 2006.[1]

History

Nobel Laureate, Muhammad Yunus, the bank's founder.

Muhammad Yunus, the bank's founder, earned a doctorate in economics from Vanderbilt University in the United States. He was inspired during the terrible Bangladesh famine of 1974 to make a small loan of $27 to a group of 42 families so that they could create small items for sale without the burdens of predatory lending.[2] Yunus believed that making such loans available to a wide population would have a positive impact on the rampant rural poverty in Bangladesh.

The Grameen Bank (literally, "Bank of the Villages", in Bangla) is the outgrowth of Muhammad Yunus' ideas. The bank began as a research project by Yunus and the Rural Economics Project at Bangladesh's University of Chittagong to test his method for providing credit and banking services to the rural poor. In 1976, the village of Jobra and other villages surrounding the University of Chittagong became the first areas eligible for service from Grameen Bank. The Bank was immensely successful and the project, with government support, was introduced in 1979 to the Tangail District (to the north of the capital, Dhaka). The bank's success continued and it soon spread to various other districts of Bangladesh and in 1983 it was transformed into an independent bank by the legislature of Bangladesh. Bankers from ShoreBank, a community development bank in Chicago, helped Yunus with the official incorporation of the bank under a grant from the Ford Foundation.[3] The bank's repayment rate was hit following the 1998 flood of Bangladesh before recovering again in recent years.

The Bank today continues to expand across the nation and still provides small loans to the rural poor. As of mid-2006, Grameen Bank branches number over 2,100.[4] Its success has inspired similar projects around the world.

Application of microcredit

16 Decisions
  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. We shall not practice child marriage.
  12. We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.
  13. We shall collectively undertake bigger investments for higher incomes.
  14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.
  15. If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline.
  16. We shall take part in all social activities collectively.
Grameen Bank Building in Dhaka

Grameen Bank is best known for its system of solidarity lending. The Bank also incorporates a set of values embodied in Bangladesh by the Sixteen Decisions.[5]

The system is the basis for the microcredit and the self-help group system now at work in over 43 countries. 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. (Mohammed Yunus) [6]

In a country in which few women may take out loans from large commercial banks, the fact that most (97%) loan recipients are women is a significant accomplishment. In other areas, Grameen's track record has also been notable, with very high payback rates—over 98 percent. However, according to the Wall Street Journal, a fifth of the bank's loans were more than a year overdue in 2001.[7] More than half of Grameen borrowers in Bangladesh (close to 50 million) have risen out of acute poverty thanks to their loan, as measured by such standards as having all children of school age in school, all household members eating three meals a day, a sanitary toilet, a rainproof house, clean drinking water and the ability to repay a 300 taka-a-week (around 4 USD) loan.

Regional Information

Grameen Bank currently (as of December 2006) serves the following regions:

Grameen also has a presence in the United States.

Ownership and other facts

One unusual feature of the Grameen Bank is that it is owned by the poor borrowers of the bank, most of whom are women. Of the total equity of the bank, the borrowers own 94%, and the remaining 6% is owned by the Government of Bangladesh. Some other facts about the bank, as of August 2006 are:[8]

  • Total number of borrowers is 6.67 million, and 97% of those are women (3,123,802 members in 2003[9])
  • The Bank has 2,247 branches (as of May, 2006) covering 72,096 villages, with a total staff of over 18,795. (43,681 villages in 2003[9])
  • Loan recovery rate is 98.85% (repayment rate was 95% in 1998[10])
  • Since inception, total loans distributed amounts to Tk 290.03 billion (US$ 5.72 billion). Out of this, Tk 258.16 billion (US$ 5.07 billion) has been repaid.

Nobel Peace Prize

On 13 October 2006, the Nobel Committee awarded Grameen Bank and founder Muhammad Yunus the 2006 Nobel Peace Prize, "for their efforts to create economic and social development from below."[11] This makes Grameen Bank the first and only business corporation to have won a Nobel Prize.

Main article: Grameen family of organizations

The Grameen Bank has grown into over two dozen enterprises represented by the Grameen Family of Enterprises. These organizations include Grameen Trust, Grameen Fund, Grameen Communications, Grameen Shakti (Grameen Energy), Grameen Telecom, Grameen Shikkha (Grameen Education), Grameen Motsho (Grameen Fisheries), Grameen Baybosa Bikash (Grameen Business Development), Grameen Phone, Grameen Software Limited, Grameen CyberNet Limited, Grameen Knitwear Limited, and Grameen Uddog (owner of the brand Grameen Check).[12]

By November 2004 it had loaned over US$4.4bn to the poor. Along with bringing energy to rural residents and expanding employment, the Grameen family of enterprises has also branched out into rural pond management by Grameen Motsho or the Fisheries Foundation, seeking to preserve the broad diversity of fish in Bangladesh fisheries ponds.[13]

On July 11, 2005 the Grameen Mutual Fund One, approved by the SEC of Bangladesh, went IPO. One of the first mutual funds of its kind, GMFO will allow the 4+ million Grameen members as well as non-members, to buy into Bangladesh's capital markets. The Bank and its constituents are together worth over US$7 billion.[14]

Grameen Foundation USA collects donations in a US not-for-profit organization for distribution worldwide to microcredit organizations.[15] Grameen Foundation USA has an A rating from Charity Watch.[16]

Social improvement programs

Besides extending microcredit loans to the poor people, Grameen Bank has taken several innovative programs for poverty eradication.

Struggling members program

This program is focused on distributing small loans to beggars. The existing rules of banking are not applied:

  • The loans are completely interest-free.
  • The repayment period can be arbitrarily long, for example, a beggar taking a small loan of around 100 taka (about US $1.50) can pay only 2.00 taka (about 3.4 US cents) per week.
  • The borrower is covered under life insurance free of cost.

The bank does not force borrowers to give up begging; rather it encourages them to use the loans for generating income by selling low-priced items. 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).[17]

Rural telephone programme

Bangladesh has one of the lowest telephone densities of the world. Of its more than 85,000 villages, many are not covered under the land-phone network offered by the government-owned telecom company. To alleviate this situation, Grameen Bank has taken a programme to bring telephones to distant villages. Grameen Phone, a sister company of the bank, is already the largest mobile telephone provider of the country. Using their nationwide network, Grameen Telecom, another sister company of Grameen Bank, brought radio-telephones and mobile phones to almost half of the villages of Bangladesh. The bank also 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. This programme is commonly known as Polli Phone (the Village Phone) in Bangladesh.

Criticism

Sudhirendar Sharma, a development analyst, claims that it has "landed poor communities in a perpetual debt-trap,"[18] and that its ultimate benefit goes to the corporations that sell capital goods and infrastructure to the borrowers.[19] He has also attracted criticism from the former Prime Minister of Bangladesh, Sheikh Hasina, who commented "There is no difference between usurers [Yunus] and corrupt people"[20] although it should be noted that this opinion is likely influenced by Islamic banking principles, which forbid interest-bearing investments in accordance with Islamic Law. The Mises Institute's Jeffrey Tucker has criticized the Grameen Bank,[21] asserting that the Grameen Bank and others based on the Grameen model are not economically viable and depend on subsidies in order to operate, thus essentially becoming another example of welfare.[22] Abdul Barkat of the University of Dhaka claims that instead of alleviating poverty, Grameen Bank has put 80% of the female beneficiaries in debt traps. [23]

Microfinance organisations increasingly rely on commercial money borrowed at interest. However, the proponents of binary economics argue that organisations like Grameen could receive interest-free loans from the Bangladesh central bank and then repay the loans. In this way the borrowers would only be paying for Grameen's administrative costs and so could have a great reduction in the cost of the money they borrow.

See also

References

Notes

  1. ^ "The Nobel Prize for 2006". The Nobel Peace Prize for 2006. 2006-10-13. Retrieved 2006-10-13.
  2. ^ Anand Giridharas and Keith Bradsher (2006-10-13). "Microloan Pioneer and His Bank Win Nobel Peace Prize". New York Times. Retrieved 2006-10-13. {{cite web}}: Italic or bold markup not allowed in: |publisher= (help)
  3. ^ Brandon Glenn (Oct 16 2006). "ShoreBank leaders had hand in Nobel prize". Chicago Business News. Retrieved 2007-05-15. {{cite web}}: Check date values in: |year= (help)CS1 maint: year (link)
  4. ^ http://www.grameen-info.org/bank/GBGlance.htm
  5. ^ Sixteen Decisions on Grameen Bank Official Site
  6. ^ [1]
  7. ^ Patrick Bond (2006-10-19). "A Nobel loan shark?". Retrieved 2006-10-23.
  8. ^ Grameen Bank At a Glance
  9. ^ a b Grameen Bank Historical Data Series 2003
  10. ^ Credit delivery system Grameen Bank
  11. ^ "The Nobel Peace Prize for 2006". The Nobel Peace Prize for 2006. 2006-10-13. Retrieved 2006-10-13.
  12. ^ Grameen Family of Enterprises
  13. ^ Grameen Motsho
  14. ^ Grameen Bank Audit Report
  15. ^ Grameen Foundation USA
  16. ^ Charity Watch
  17. ^ Grameen Bank at a Glance
  18. ^ Sharma, Sudhirendar (2002-09-25). "Is micro-credit a macro trap?". The Hindu. Retrieved 2006-12-02.
  19. ^ Sharma, Sudhirendar (2002-01-05). "Microcredit: Globalisation unlimited". The Hindu. Retrieved 2006-12-02.
  20. ^ The Economist: A new party for Bangladesh's fray
  21. ^ Tucker, Jeffrey. "The Micro-Credit Cult." The Free Market. Mises Institute. November 1995. [2]
  22. ^ Tucker, Jeffrey. "Microcredit or Macrowelfare: The Myth of Grameen." Mises.org. 8 November 2006. [3]
  23. ^ [4]

Interview with PBS NOW

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