GRAMEEN BANK-BANKING FOR THE POOR (A REVOLUTIONARY BANKING SYSTEM)

"WE WILL CREATE A POVERTY MUSEUM BY 2030, WE WILL START FROM BANGLADESH" DR. MUHAMMAD YUNUS, NOBEL PEACE PRIZE WINNER 2006

MULAZIM ALI KHOKHAR
Research Analyst
, PAGE
Apr 28 - May 11, 2008

INTRODUCTION

The Grameen Bank is the successful result of a research project with objective of designing a credit delivery system to the rural poor through banks. The project's main objectives were to provide the poor with capital to exploit their own skills and earn for the same, and to eliminate their manipulation by lenders and most importantly to reverse the vicious circle of "low income deprived of profit making", into virtuous circle of "low income, injection of credit, investment, more income, more savings, more investment, more income".

The project was launched with the help of central and some nationalized banks, by Professor Muhammad Yunus (Nobel Peace Prize winner in 2006), then Head of the Rural Economics Program at the University of Chittagong. The research proved to be very successful and initially such independent projects were launched in different villages of the country, and then in 1983 the project was turned into a Grameen Bank by Government legislation.

Today Grameen Bank is owned by the poor borrowers with 94% of its shares, mostly women, while Government owns only 6%. Out of total borrowers of about 7.46 millions, 97% are women. It has helped eliminate begging, poverty and unemployment in Bangladesh

WORKING PHILOSOPHY

(No Collateral, No Legal Instrument, No Group-Guarantee or Joint Liability)

The bank's philosophy is to render credit to the poorest that needs the most and it negates the commercial banks' philosophy where one who owns more gets more of the credit. The bank mostly loans to women, organize them in groups to exploit their skills and decision making so that they can work (cross supervising) for the mutual betterment of their families. The bank loans without any collateral, repayable in weekly installments spread over a year and the successful repayment earns a further loan eligibility.

GRAMEEN BANK'S PERFORMANCE

The bank's has mostly managed to earn decent profits which are distributed and retained for the prosperity of the poor borrower owners. Her net profits have increased at CAGR of about 80% while, 10 year average growth rate of the net profits stand at 5.5%. Her net profits in 2006 reached 20% to sales amounting to Takkas 1398 million (US $ 20.00 million), while it was 15.2% in 2005. Entire profits are transferred to a Rehabilitation Fund, as per Government regulations for exemption of income tax, to cope with disastrous poverty situations.

Its capital adequacy ratio has mostly been in double digit, representing highly sustainable organizational performance and on the other hand is evident of the strong beliefs and the poors' commitment to growth.

The bank works at the operating and financial self sufficiency of more than 100% on average and return on equity of about 11% on average. Her recovery rates are very impressive standing firm at 98% of total disbursements.

Her total revenues in 2006 were Takkas 9.43 billion (US $ 134.90 million) and total expenditures were Takkas 8.03 billion (US $ 114.90 million). Interest payment on deposits of Takkas 3.47 billion (US $ 35.35 million) was the largest component of expenditure (43 per cent). Second Largest chunk of expenditures represent salary, allowances, pension benefits amounting to Takkas 2.03 billion (US $ 28.97 million) about 25% of total expenditures.

Number of Members

6,908,704

Percent of women members

97%

Number of centres

121,755

Number of villages covered

74,462

Number of branches

2,319

Number of areas

238

Number of zones

36

Cumulative amount disbursed since inception

306,368.63 (Million Taka)

Amount disbursed during 2006

49,871.23 (Million Taka)

Amount of loans outstanding

33,235.46 (Million Taka)

Balance of deposits

27,298.19 (Million Taka)

16,976.28 (Million Taka)

Portfolio growth rate

18.82%

The Grameen Bank has 2,504 branches, works in 81,574 villages and her total staff is 25,156. The bank has managed to bring revolution where several street baggers have turned into small business entrepreneurs and on the bigger picture helped the economy to boost. About 102,157 beggars have already joined the program and they have been sanctioned loans of about Takkas 110.86 million of which Takkas 77.52 million have already been recovered.

Grameen Bank's deposit rates range from 8.5% to 12%%. Due to these attractive interest rates her total deposits have reached to Takkas 52.45 billion (US$ 764.82 million) by the end of March, 2008. Member deposit constituted 56 per cent of the total deposits. Balance of member deposits has increased at a monthly average rate of 0.50 percent during the last 12 months. The bank does not accept any donations and its works on the philosophy of hard work and competition (apna kamao apna khao).

The loan disbursements have increased at CAGR of 16%, and the cumulative disbursements (since inception) have stretch to US $ 6,900.61 millions out of which US $ 6160.06 millions have been repaid. During March 2008, the bank loaned out US $ 76.54 millions up by 16.85% as compared to US $ 65.5 millions.

The Bank's deposit to loan ratio has continuously been increasing owning to its increasing popularity and respect. The deposit to loan ratio for 2007 is expected to mark above 100%, while it was 133% in 2006 and 113% in 2005.

The loans and other disbursements are provided for the categories of Basic, Flexible, Housing and other loans. There are huge numbers of entrepreneurial loans and bagger category loans disbursed which have brought huge change in poverty.

CONTRIBUTION TO BANGLADESHI ECONOMY

According to a recent internal survey, 65 per cent of Grameen borrowers' families have crossed the poverty line. The remaining families are moving steadily towards the poverty line from below. With the advent of new small business entrepreneurial activities, their contribution to the Bangal's GDP is also increasing. Grameen Bank's value addition in the GDP stood at 1.1% in 1997 and it's been increasing since then as the number of small business entrepreneurs are increasing.

LESSONS TO LEARN

The Grameen Bank is a complete synopsis of lessons along with detailed analysis and field work for Pakistan and its economist and Bankers especially.

We are no better than Bangladesh as our poverty rates quite high at 25% of the population living below the poverty line. Here, the inflation especially food inflation is touching skies which is increasing at the double digit rates, and living for the poor in getting miserably difficult. The average house hold size in Pakistan is 6-7 people per family while only 2.07 persons are employed. Unemployment rates in Pakistan are more than 6%.

It is very necessary to increase the trends of self employment through small scale manufacturing or other entrepreneurial loans so that total available workforce in the country can be utilized properly and the country can again come on the lasting track of growth and prosperity.