Grameen Bank
Background and values
“ Mission: By providing comprehensive financial services, empowering the poor to realise their potential and break out of the vicious cycle of poverty.”
The story of Grameen Bank is the stuff of legend and is closely intertwined with the history of the idea of microfinance itself.
Grameen is the Bengali word for “Village”.
It is founded on the premise that it is not the poor who are unworthy of the banks but the other way around. Grameen / Yunus believe that the banks are unworthy of the poor and that they – poor Bangladeshis – are good credit risks if the business is managed with their needs at the core. The other fundamental belief underpinning the Grameen philosophy is that charity is no long-term answer to the needs of poor people but rather what they require is a financial ladder of small loans that enables them to work their way out of poverty rather than rely on grants and donations.
Until the late nineties, Grameen itself was reliant upon grants and donations from outside the country to make the enterprise stack up. The last tranche of free money was used in 1998 and the business has run unsubsidized since then.
Grameen Bank publishes its financial performance monthly on its website at www. grameen.com and is subject to the audit and reporting obligations laid down by the Bangladeshi government.
The goals and values Grameen and its legions of borrowers are framed by the 16 Decisions and 10 Indicators (see below for both).
The Decisions lay out the behaviours and actions to which they commit. They are, typically, very specific. Number 5, for example, states that: “During the plantation seasons, we shall plant as many seedlings as possible”, whilst Number 15 exhorts: “If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline.”
The 10 Indicators cumulatively describe what being lifted out of poverty actually looks like: “The family lives in a house worth at least Tk. 25,000 (twenty five thousand) or a house with a tin roof, and each member of the family is able to sleep on bed instead of on the floor… Family members have adequate clothing for every day use, warm clothing for winter, such as shawls, sweaters, blankets, etc, and mosquito-nets to protect themselves from mosquitoes.”
Culture and business model
“Grameen methodology is the reverse of conventional thinking. Conventional banking is based on the principle that the more you have, the more you can get. If you have nothing you get nothing.”
At the heart of Grameen is the claim that if you lend a small amount of money to a woman within a framework of community group meetings – and the social pressure this creates – she will repay the loan with interest and over time work her way out of poverty and bring her family with her.
The Grameen branch managers live in the community – often above the bank building – and have a close knowledge of the borrowers. “The clients should not go to the bank,” argues Yunus, “it is the bank which should go to the people instead”. Managers oversee a rigid structure of group meetings involving chants and salutes to ensure the discipline of paying is maintained. Grameen claims that the group structure and solidarity it generates helps to overcome the isolation and community atomisation which extreme poverty causes. Grameen places as high a value on the accumulation of social capital as it does financial. This social contract needs to be strong because there are no legal loan contracts between Grameen and its borrowers and they are not asked to put up any collateral.
The Grameen micro credit movement – founded in 1976 – targets women from the poorest households. Today, its branches reach into more than 80,000 villages (more than 90% of Bangladesh) and it has nearly 8 million borrowers the vast majority of whom are village women.
The Bangladesh government has capped micro finance interest rates at 22% APR. The highest rate Grameen offers is 20%.
Depositors are offered interest rates between 8.5 to 12%.
Insurance
In the case of the death of a borrower, all outstanding loans are paid off under Grameen’s Loan Insurance Programme. Under this programme, an insurance fund is created by the interest generated in a savings account created by deposits of the borrowers at the time of receiving loans. Each time an amount equal to 3 per cent of the loan amount is deposited in this account this amount is transferred from the Special Savings account. If the current balance in the insurance savings account is equal or more than the 3 per cent of the loan amount, the borrower does not need to add any more money in this account. If it is less than 3 per cent of the loan amount, she has to deposit enough money to make it equal.
Coverage of the loan insurance programme has also been extended to the husbands with additional deposits in the loan insurance deposit account. A borrower can get the outstanding amount of loan paid off by insurance if her husband dies. She can continue to borrow as if she has paid off the loan.
The families of deceased borrowers do not inherit any debt.
Telephone Ladies
Grameen Bank provided loans to 364,000 borrowers to buy mobile phones and offer telecommunication services in nearly half of the villages of Bangladesh.
This part of their business has come under intense pressure as mobile handsets have dropped in price and are more widely available to the population. Part of the response has been to attempt to include the women in the broader strategy of Grameen Phone – Yunus’ troubled partnership with Norwegian communications business Telenor.
Product diversification
In 1984 a housing loan was introduced which won the Aga Khan International Award for Architecture in 1989. The maximum loan given is US $20 which is repaid over five years and just over US$200 million has been disbursed. Interest is charged at 8%.
Grameen bank also provides enterprise loans to help grassroots entrepreneurs build their businesses. Averaging US$ 365, a total of US$760 million has been lent. Power tillers, irrigation equipment and boats for transportation and fishing are popular purchases using enterprise loans.
In 2002 Grameen established its Struggling Members category which offers interest free loans to beggars and over 100,000 have been involved in the scheme. Grameen has disbursed some US$20 million and claims that nearly 19,000 people have stopped begging and are now making a living as door-to-door salespeople.
92,000 children have benefitted from the bank’s scholarship programme for the children – especially girls – of Grameen borrowers and 38,000 young people have been funded into higher education with many studying medicine and engineering. The money to fund such education costs 5%.
In the late nineties Grameen had become bureaucratic and lost its innovative edge. The ratio of deposit to loans was weak. Five years ago, the Yunus-led organisation launched a program called Grameen 2, which aimed to improve the performance of the bank and its affiliates. According to spokesman for the Bank, “Grameen totally took apart its lending methodology and put it back together again and re-invented itself,” while roughly tripling its loan portfolio.
Grameen outside Bangladesh
The Grameen microfinance model has been exported to many other countries around the world and is promoted through the Grameen Foundation. A Grameen micro finance initiative was launched recently in New York City and there are plans to open in Glasgow in the United Kingdom.
In October 2009, USAID announced a collaboration with the Grameen Foundation that will make up to $162.5 million in local currency financing available to microfinance institutions (MFIs) throughout the developing world.
The twelve-year programme is the largest credit guarantee to date under USAID’s Development Credit Authority and also marks the first time that a non-governmental organisation has been approved to serve as facilitator. Grameen Foundation will manage the credit risk of the pool and vet the microfinance institutions that would like to access the funding, while both organisations will issue joint guarantees together.
The Grameen Group
The success of the Grameen Bank has The success of the Grameen Bank has enabled Yunus and his team to diversify into other markets to create goods and services to serve the poor. Today the Grameen Group is made up of 18 companies – most chaired by Yunus and much smaller than the bank– operating in markets as diverse as mobile phone networks, clothes retail, education, healthcare and FMCG. Some are wholly owned subsidiaries of the bank, others – such as Danone Grameen Foods – are joint venture social businesses.
Yunus’ relationship with Telenor, the Norwegian telecoms company, his partner in Grameen Phone has been problematic. Grameen owns 40% of the business and things did not go as planned. In 2008, Yunus threatened to sue Telenor for allegedly reneging on a pledge to ensure that the business would be locally owned by Bangladeshis. “The people do not understand,” said Yunus, “ that Telenor runs the company and that Grameen Telecom hardly has any effective say in the company operation.” The dispute continues.
Following the interest created by Yunus’s books on social business, the number of partnerships with multi-nationals is developing. Business is live – with varying degrees of success – with Danone and Veolia, BASF and Intel and a pilot with Reebok to produce $1 pair of shoes is under way.
10 Indicators
Muhammad Yunus
Every year GB staff evaluate their work and check whether the socio-economic situation of GB members is improving. GB evaluates poverty level of the borrowers using ten indicators.
A member is considered to have moved out of poverty if her family fulfills the following criteria:
1. The family lives in a house worth at least Tk. 25,000 (twenty five thousand) or a house with a tin roof, and each member of the family is able to sleep on bed instead of on the floor.
2. Family members drink pure water of tube-wells, boiled water or water purified by using alum, arsenic-free, purifying tablets or pitcher filters.
3. All children in the family over six years of age are all going to school or finished primary school.
4. Minimum weekly loan installment of the borrower is Tk. 200 or more.
5. Family uses sanitary latrine.
6. Family members have adequate clothing for every day use, warm clothing for winter, such as shawls, sweaters, blankets, etc, and mosquito-nets to protect themselves from mosquitoes.
7. Family has sources of additional income, such as vegetable garden, fruit-bearing trees, etc, so that they are able to fall back on these sources of income when they need additional money.
8. The borrower maintains an average annual balance of Tk. 5,000 in her savings accounts.
9. Family experiences no difficulty in having three square meals a day throughout the year, i. e. no member of the family goes hungry any time of the year.
10. Family can take care of the health. If any member of the family falls ill, family can afford to take all necessary steps to seek adequate healthcare.
For the 16 decisions click here