Grameen Bank

QuickTime and aﾪ decompressor

are needed to see this picture.

๏ Micro-creditMicro-credit: programs that : programs that extend small loans or wider range extend small loans or wider range of financial services to poor people of financial services to poor people to to foster self-employmentfoster self-employment and and income generationsincome generations and and improve improve their living standardstheir living standards..

๏ Micro-financeMicro-finance: programs that : programs that provide credit for self-employment provide credit for self-employment and other business and financial and other business and financial services, includes both credit and services, includes both credit and savings aspects of the program.savings aspects of the program.

What is Micro-credit…What is Micro-credit…

Main features of micro-Main features of micro-credit…credit…

๏ Micro-credit generally involves :Micro-credit generally involves :

๏ Small loans, for both working capital and assetsSmall loans, for both working capital and assets

๏ Collateral free, substituted by group guarantee Collateral free, substituted by group guarantee or compensatory savingsor compensatory savings

๏ Access to repeat and larger loansAccess to repeat and larger loans

๏ Intensive supervision and close monitoringIntensive supervision and close monitoring

๏ Loan period generally for one year, may go up to Loan period generally for one year, may go up to 3 years3 years

๏ Options available for weekly/monthly installment Options available for weekly/monthly installment paymentpayment

๏ Can combine social development with financial Can combine social development with financial intermediation intermediation

Professor Muhammad Yunus, founder of the globally renowned Grameen Bank and architect of Grameen Model. Joint winner of 2006 Nobel Prize Winner for Peace

Architect of Grameen Group Model

About Muhammad Yunus

๏ He was born in an obscure village in Chittagong in June, 1940

๏ In 1974, he was the head of the Economics Dept. at Chittagong University

๏ At that time, there was a famine, and he established a rural economic program

๏ In 1975, he also began a Gram Sarkar Programme, it acted as a fourth layer to the government, however it had to be shut as it was declared illegal and unconstitutional

Yunus, was unable to convince bank managers to lend money to the rural poor without collateral security.

In 1976 he launched an action research project to examine the possibility of designing a credit delivery system to provide banking services targeted at the rural poor.

QuickTime and aﾪ decompressor

are needed to see this picture.

๏ extend banking facilities to poor

๏ eliminate the exploitation of the poor by money lenders

๏ create opportunities for self-employment

๏ bring the disadvantaged, mostly the women from the poorest

๏ households, within the fold of an organizational format

๏ 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

The Project Objectives were:

๏Designing credit delivery system to provide Banking Services targeted at the rural poor who were capable of self sustenance (initially started with funding women initiatives)

๏Organizing the un-organized sector largely dominated by the corrupt money lenders

๏Bring the disadvantaged, mostly the women from the poorest into the financial umbrella

๏Year 1976-79: Started with a pilot project in District Jobara, Bangladesh

๏He made his first loan of $27 to 42 women so that they could expand their bamboo business

๏Year 1980-83: Spread across the country with the help of Central Bank and the Nationalized Banks

๏ Year 1983: Transformed into an Independent Bank by the Government Legislation

Opportunity Identified

Grameen Bank Grameen Bank vsvs Conventional Conventional Banks Banks

๏ To bring economic and social To bring economic and social change to the poor.change to the poor.

๏ Based on trustBased on trust

๏ Looks at what the borrower can Looks at what the borrower can havehave

๏ Located in rural areasLocated in rural areas

๏ The bank goes to the customerThe bank goes to the customer

๏ Flexible payment schemeFlexible payment scheme

๏ Most owners and borrowers are Most owners and borrowers are poor womenpoor women

๏ Loans are for productive activity, Loans are for productive activity, not consumptionnot consumption

๏ To make profitTo make profit

๏ Based on collateralBased on collateral

๏ Looks at what the borrower Looks at what the borrower already hasalready has

๏ Located in urban areasLocated in urban areas

๏ Customers have to go to the Customers have to go to the bankbank

๏ Strict payment schemeStrict payment scheme

๏ Most owners and borrowers are Most owners and borrowers are wealthy menwealthy men

๏ Loans could be used for Loans could be used for consumption or other activities.consumption or other activities.

Structure of Grameen Bank Head Office

Zonal Offices

Area Offices

Branches

Centers

Groups In Villages

1 ZO for 8 Area Offices

1 AO for 8 10-12 Branches

1 Branch for 50-60 Centers

1 Center for 6-8 Groups

Each Group will have 5 members

How it functions๏ 5 member group is formed, they must be neighbors

but not relatives.

๏ Group approves all loan requests, but liability lies with the individual.

๏ 8 Groups to a Center.

๏ Lending is in the order of 2:2:1 (leader being the last).

๏ Close supervision of credit by the group as well as the bank staff.

๏ Group meets once in a week to plan out loan repayment.

๏ Stress on credit discipline and collective borrower responsibility or peer pressure.

๏ Very small loans given without any collateral, no legal instrument, no joint group guarantee or joint liability

๏ Loans repayable in weekly installments spread over a year .

๏ Eligibility for a subsequent loan depends upon repayment of first loan

๏ Loans are given to Individual for quick income generating activities which employ the skills that borrowers already posses.

๏ Interest rate varies between 15-24 % p.a. on flat basis and on a weekly basis.

How it functions (contd)

Savings Programme

๏ It is compulsory for every member to save one Taka per week which is accumulated in the Group Fund.

๏ This account is managed by the group on a consensual basis, thus providing the members with an essential experience in the collective management of finances.

๏ The amount in the Fund is deposited with Grameen Bank and earns interest.

๏ A member can borrow from this fund for consumption, sickness, social ceremony or even for investment (if allowed by all group members).

For what purposes loans are granted

๏ Average loan size is $120 and must be used for business venture

๏ Self Employment- Income generating activities.

๏ Credit for building sanitary latrines

๏ Credit for installation of tube wells that supply drinking water and irrigation for kitchen gardens

๏ Credit for seasonal cultivation to buy agricultural inputs

๏ Loan for leasing equipment / machinery, i.e cell phones purchased by Grameen Bank members

๏ Finance projects undertaken by the entire family of a seasoned borrower.

๏Eliminate the exploitation of the poor by money lenders by alternative financing facilities ๏Create opportunities for self-employment ๏Households, within the fold of an organizational

format ๏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

Value Creation & Impact

Members : 6.83 million – 96 % are women, 1,086,744 groups

Area Coverage : 73,609 villages through 121,755 centres, 2283 branches and 20,233 staff

Deposits: Tk 41.22 b – 62 % from members , rates 8.5 to 12.0%

Loans: Cumulative disbursement - Tk 301.72 bLoan Outstanding – Tk 32.66 b

Annual disbursement – Tk – 49.46 b

Vital Statistics

Data as of Nov 2006. Source- Grameen Foundation

Loan Recovery Rate : 98.91 per cent

ROI on loans – Income generating activities – 20 % Housing Purposes – 8 %

Student loan – 5 %

All interest rate are simple interest & applied on declining basis. Interest collected not to exceed

Principal

After 1995 the Bank had decided not to receive anymore donor funds. It has become self reliant.

Sustainability

16 Discipline

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 daughters 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.

10 Indicators of measuring social impact• Family lives in a house with a tin roof

• Family members drink pure water

1.All children in the family over 6 years go to school

• Minimum weekly loan installment in Tk 200 or more

• Family uses sanitary latrine

• Family members have adequate clothing for everyday use

• The borrower maintains an average balance of 5000 Tk

1.Family can take care of health

• Family has no difficulty having 3 square meals a day

• Family has sources of additional income

Replication

Two forms of replication

•Extension of existing organization

•Setting up new organization

Primary requirements of replication and scaling up:

1. Requirement of the service provided by the bank

2. Availability of required financial and governmental backing

3. Sustainability of the model

Advantages of scaling up of the same organization

1. With the growth of the organization its capacity to give loans of higher amount increases

2. The bank can employ better fund management techniques

3. The bank can employ the use of technology in its operations

4. The bank can diversify its operations into other areas that are of social importance (eg. The gramin family of organizations)

5. The bank can utilise the government policies

in a more effective way 

Requirement of setting up new organizations

1. Faster replication

2. world reach

3. Customization of policies according to the specific needs of the people of the country

4. More flexibility than one single organization

5. As the main aim is social welfare, too much power in the hands of a single organization is dangerous

Specific requirements for scaling up through setting up new organizations

1. Sufficient space of operations

2. Trust in the model

3. Availability if entrepreneurs to take the cause further

4. Is the model sustainable for organizations having smaller operation

Therefore actual scenario:

•As of 31 December 2005: 3133 micro credit institutions are reaching 113.26 million clients. 68.99 million are women.

•The Micro Credit Summit, held in 1997, adopted the goal of reaching 100 million families by the year 2005.

•2006 summit goal à to reach 175 million people by 2015.

Some Grameen Replicators in India

• Share Micro Fin Ltd, Hyderabad

• Spandana, Guntur

• Swyam Krishi Sangam, Hyderabad

• Cashpor Micro Credit, Varanasi

• Grameen Koota, Bangalore

Grameen family of enterprises

Grameen started to diversify in 1980 and these interests grown into separate organizations-:

• Grameen Communications- not for profit IT company.

• Grameen Shakti- promote and develop renewable energy technology.

• Grameen Telecom

• Grameen phone- GSM based cellular operator

• Grameen Fund- to provide capital to SMEs

• Grameen Trust- Aid in replication of the model internationally

1.Grameen Fisheries

• Grameen Danone Foods -joint venture between Grameen Bank and French food company

QuickTime and aﾪ decompressor

are needed to see this picture.

QuickTime and aﾪ decompressor

are needed to see this picture.

““It’s not people who aren’t credit-It’s not people who aren’t credit-worthy. It’s banks that aren’t people worthy. It’s banks that aren’t people

worthy.”worthy.”Muhammad Yunus

Governance of Grameen Bank

Governance: Managed by 13 Member Board comprising 9 Members from borrower shareholders, 3 nominees of Government, and 0ne Managing Director