GRAMEEN BANK

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Aug
1 - 7, 2011

 

The Grameen Bank (GB) is a microfinance institution and community development bank of Bangladesh that provides small loans to low-income people without collaterals.

The system of this bank is based on the idea that the poor people have skills that are underutilized. A group-based credit approach is applied which utilizes the peer-pressure within the group to ensure the borrowers follow through and use caution in conducting their financial affairs with strict discipline, ensuring repayment eventually and allowing the borrowers to develop good credit standing.

The bank also accepts deposits, provides other services, and runs several development-oriented businesses including fabric, telephone and energy companies.

The origin of GB can be traced back to 1976 when professor Muhammad Yunus, a Fulbright scholar at Vanderbilt University and professor at University of Chittagong, launched a research project to examine the possibility of designing a credit delivery system to provide banking services targeted to the rural poor.

In October 1983, the GB project was transformed into an independent bank by government legislation. GB 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).

One unusual feature of the GB 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 per cent, and the remaining 6 per cent is owned by the government of Bangladesh.

As of June, 2011, it has 8.37 million borrowers, 97 per cent of whom are women. With 2,565 branches, GB provides services in 81,379 villages, covering more than 97 per cent of the total villages in Bangladesh.

The bank's positive impact on its poor and formerly poor borrowers has been documented in many independent studies carried out by external agencies including the World Bank, the International Food Research Policy Institute (IFPRI) and the Bangladesh Institute of Development Studies (BIDS).

The bank is the best known for its system of solidarity lending. The bank also incorporates a set of values embodied in Bangladesh by the sixteen decisions. At every branch of GB, the borrowers recite these decisions and vow to follow them. As a result of these decisions, bank borrowers have been encouraged to adopt positive social habits.

One such habit includes educating children by sending them to schools. Since the bank embraced the sixteen decisions, almost all Grameen borrowers have their school-age children enrolled in regular classes. This in turn helps bring about social change, and educate the next generation.

Solidarity lending is a cornerstone of microcredit and the system is 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 a repayment problem.

There is no form of joint liability, i.e. group members are not obliged to pay on behalf of a defaulting member. However, in practice the group members often contribute the defaulted amount with an intention of collecting the money from the defaulted member at a later time. Such behavior is facilitated by Grameen's policy of not extending any further credit to a group in which a member defaults.

There is no legal instrument (no written contract) between GB and its borrowing the system works on trust. To supplement the lending, GB also requires the borrowing members to save very small amounts regularly in a number of funds like emergency fund, group fund etc. These savings help serve as an insurance against contingencies.

Furthermore, the bank has received several prestigious awards including the highest civilian award in Bangladesh, the Independence Day award, in 1994. However, the greatest recognition of the bank's achievements came on October 13, 2006, when the Nobel Committee awarded Grameen bank and its founder, Muhammad Yunus, the 2006 Nobel Peace Prize for their efforts to create economic and social development.

In 2006, Mosammat Taslima Begum, who used her first 16-euro (20-dollar) loan from the bank in 1992 to buy a goat and subsequently became a successful entrepreneur and one of the elected board members of the bank, accepted the Nobel Prize on behalf of GB's investors and borrowers at the prize awarding ceremony held at Oslo city hall.

Grameen bank has been a source of ideas and models for many around the world to open up microcredit institutions.

GRAMEEN BANK

FINANCIAL PERFORMANCE AS ON DEC 31, MILLION US$

INDICATORS 2007 2008 2009
Cash in Hand 99,093 55,278 16,201
Balance with other Banks 13,547,042 19,276,189 18,745,464
Investment 356,540,508 418,077,768 546,320,284
Loans and Advances 547,165,254 666,282,856 815,615,470
Other Assets 71,269,223 84,279,874 90,668,957
Deposits and other Funds 810,853,326 994,096,656 1,263,067,360
Borrowings from Banks and Foreign Institutions 26,133,437 25,192,353 24,155,725
Other Liabilities 82,392,658 91,948,840 105,856,152