Grameen Bank

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Grameen Bank (GB)
Nobel prize medal.svg
Type Body Corporate (Bank Ordinance)
Founded 1983
Headquarters Dhaka, Bangladesh
Key people Muhammad Yunus, founder
Area served Bangladesh
Industry Finance
Products Financial Services
Microfinance
Revenue Green Arrow Up Darker.svg 6,335,566,324 Taka (92.3 million USD) (2006)
Operating income Green Arrow Up Darker.svg 5,959,675,013 Taka (86.9 million USD) (2006)
Employees 24,703 (Oct 2007)


Website http://www.grameen-info.org/


The Grameen Bank (Bengali: গ্রামীণ ব্যাংক) is a microfinance organization and community development bank started in Bangladesh that makes small loans (known as microcredit or "grameencredit" [1]) to the impoverished without requiring collateral. The word "Grameen," derived from the word "gram" or "village," means "of the village." The bank's system bases on the idea that the poor have skills that have been under-utilized. A group-based credit approach utilizes the peer-pressure within the group to ensure the borrowers follow credit discipline. The bank also accepts deposits, provides other services, and runs several development-oriented businesses including fabric, telephone and energy companies. Remarkably, women have been a significant majority of borrowers the bank's credit program.

The origin of Grameen Bank traces to 1976 when Professor Muhammad Yunus, a Fulbright scholar 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, government legislation transformed the Grameen Bank Project into an independent bank. The organization and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize in 2006.

Grameen Bank has sometimes been accused of charging relatively high interest rate and putting people in a debt-trap. Some have also doubted whether the business model of the bank constitutes a sustainable one without the explicit and implicit donor support that it receives. At the same time, papers often cite it as a success story in microfinance and serves as a model for institutions with similar philosophy world-wide.

History

Muhammad Yunus, the bank's founder, earned a doctorate in economics from Vanderbilt University in the United States. He the terrible Bangladesh famine of 1974 prompted him to make a small loan of USD 27 to a group of forty two 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.

Nobel Laureate, Muhammad Yunus, the bank's founder

The Grameen Bank (literally, "Bank of the Villages," in Bangla) grew out of 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 became immensely successful and the project, with support from the central Bangladesh Bank, extended in 1979 to the Tangail District (to the north of the capital, Dhaka). 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 suffered following the 1998 flood of Bangladesh before recovering again in subsequent years. By the beginning of 2005, the bank had loaned over USD 4.7 billion to the poor.

The Bank today continues to expand across the nation and still provides small loans to the rural poor. By 2006, Grameen Bank branches numbered over 2,100. Its success has inspired similar projects in more than forty countries around the world and has made World Bank to take an initiative to finance Grameen-type schemes.[4]

The bank gets its funding from different sources, and the main contributors have shifted over time. In the initial years, donor agencies used to provide the bulk of capital at extremely low rates. In the mid-1990s, the bank started to get most of its funding from the central bank of Bangladesh. More recently, Grameen has started bond sales as a source of finance. The bonds implicitly receives subsides as the Government of Bangladesh guarantees the loans and still sell above the bank rate.[5]

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.[6] The Bank also incorporates a set of values embodied in Bangladesh by the Sixteen Decisions. At every branch of Grameen Bank the borrowers recite these Decisions and vow to follow them. As a result of the Sixteen Decisions, Grameen borrowers have been encouraged to adopt positive social habits. One such habit includes educating children by sending them to school. Since the Grameen Bank embraced the Sixteen Decisions, almost all Grameen borrowers have their school-age children enrolled in regular classes. This in turn help bring about social change, and educate the next generation.[7]

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.[8]

There is no legal instrument between Grameen Bank and its borrowers, the system works based on trust.[9] To supplement the lending, Grameen Bank 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.[10]

In a country in which few women may take out loans from large commercial banks, Grameen has focused on women borrowers as 97% of its members are women.Feiner, Susan F. & Drucilla K. Barker (Nov-Dec 2006), "Microcredit and Women's Poverty", Dollar & Sense, The magazine of Economic Justice, Boston, USA: Economic Affairs Bureau, Inc.  .Retrieved July 7, 2008.</ref> 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.[11] Grameen claims that more than half of its 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.[12]

Village Phone Program

Among many different applications of microcredit by the bank, one is the Village Phone program, through which women entrepreneurs can start a business providing wireless payphone service in rural areas of Bangladesh. This program earned the bank the 2004 Petersberg Prize worth of EUR 100,000/-, for its contribution of Technology to Development.[13] In the press release announcing the prize, the Development Gateway Foundation noted that through this program:

...Grameen has created a new class of women entrepreneurs who have raised themselves from poverty. Moreover, it has improved the livelihoods of farmers and others who are provided access to critical market information and lifeline communications previously unattainable in some 28,000 villages of Bangladesh. More than 55,000 phones are currently in operation, with more than 80 million people benefiting from access to market information, news from relatives, and more.[13]

Struggling members program

In 2003, Grameen Bank started a new program, different from its traditional group-based lending, exclusively targeted to the beggars in Bangladesh. 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 and furthermore 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. Based on a paper presented in the Global Microcredit Summit in 2006 by one of the bank's managers, as of May 2006, around 73,000 beggars have taken loans of about Tk 58.32 million (approx. USD 833,150) and repaid Tk. 34.78 million (about USD 496,900).[14]

Operational statistics

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.

The bank has grown significantly between 2003-2007. As of October 2007, the total borrowers of the bank number 7.34 million, and 97% of those are women.Grameen Bank Historical Data Series 2003 (in English). Grameen Communications (2004-07-21). Retrieved 2008-07-05.</ref> Similar growth can be observed in the number of villages covered. As of October 2007, the Bank has a staff of over 24,703 employees and 2,468 branches covering 80,257 villages,

Since its inception, the bank has distributed Tk 347.75 billion (USD 6.55 billion) in loans. Out of this, Tk 313.11 billion (USD 5.87 billion) has been repaid.[15] However, many critics doubt this recovery rate and the definition that Grameen uses to come up with this rate.[16]

Nobel Peace Prize

Grameen Bank 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 13 October 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 from below."[17] The award announcement also mentions that:

From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty. Grameen Bank has been a source of ideas and models for the many institutions in the field of micro-credit that have sprung up around the world.[17]

On December 10, 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 Grameen Bank's investors and borrowers at the prize awarding ceremony held at Oslo City Hall.[18]

Grameen Bank is the only business corporation to have won a Nobel Prize. In a speech given at the presentation ceremony, Professor Ole Danbolt Mjøs, Chairman of the Norwegian Nobel Committee, mentioned that, by giving the prize to Grameen Bank and Muhammad Yunus, the Norwegian Nobel Committee wished to focus attention on dialogue with the Muslim world, on the women's perspective, and on the fight against poverty.[19]

The Nobel prize announcement was celebrated with a lot of enthusiasm in Bangladesh.[20] Some critics asserted that the award affirms neoliberalism.

Related ventures

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).

On July 11, 2005 the Grameen Mutual Fund One (GMFO), approved by the Securities and Exchange Commission of Bangladesh, was listed as an Initial Public Offering. One of the first mutual funds of its kind, GMFO will allow the over four million Grameen bank members, as well as non-members, to buy into Bangladesh's capital markets. The Bank and its constituents are together worth over USD 7.4 billion.[21]

The work of Grameen Bank in Bangladesh Inspired the creation of the Grameen Foundation, which aims to share the Grameen philosophy and accelerate the impact of microfinance on the world’s poorest people.[22] Grameen Foundation USA, which has an A-rating from Charity Watch,,[23] not only provides microloans in the USA itself (the only rich country where this is done), but also supports microfinance institutions worldwide with loan guarantees, training, and technology transfer.[24] As of 2008, Grameen Foundation supports microfinance institutions in the following regions:

Criticism

Sudhirendar Sharma, a development analyst, claims that the Grameen Bank has "landed poor communities in a perpetual debt-trap",[25] and that its ultimate benefit goes to the corporations that sell capital goods and infrastructure to the borrowers.[26] It 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."[27] Hasina touches upon one criticism of Grameen Bank: the high rate of interest that the bank demands from those seeking credit.[28] Similar to all microfinance institutes, the interest charged by Grameen Bank is higher compared to that of traditional banks, as Grameen's interest (reducing balance basis) on its main credit product is about 20%.[29] The Mises Institute's Jeffrey Tucker has criticized the Grameen Bank,[30] 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.[31] Another source of criticism is that of the Grameen's Sixteen Decisions. Critics say that the bank's Sixteen Decisions force families and borrowers to abide by the rules and regulations set forth by the bank. In response to this, the Grameen bank neither forces or instills its morals into those who do not choose to become a part of the Grameen Bank. Seeing the Grameen Bank as a vehicle out of poverty and abysmal conditions, the Sixteen Decisions are a means for which to bring about positive social changes, and to better the lives of those who live in poverty.

See also

Notes

  1. ↑ What is Microcredit?. Retrieved September 2, 2008.
  2. ↑ Anand Giridharas and Keith Bradsher (2006-10-13). Microloan Pioneer and His Bank Win Nobel Peace Prize. New York Times. Retrieved 2008-09-02.
  3. ↑ Brandon Glenn (2006-10-16). ShoreBank leaders had hand in Nobel prize. Chicago Business News. Retrieved 2008-09-02.
  4. ↑ Khandker, Shahidur R. and Baqui, M. A. & Khan Z. H. [1995]. Grameen Bank: Performance and Sustainability. World Bank Publications. ISBN 0821334638. Retrieved 2008-09-02. 
  5. ↑ *Morduch, Jonathan (October 1999). The role of subsidies in microfinance: evidence from the Grameen Bank. Journal of Development Economics 60 (1): p 240.. Retrieved July 7, 2008.
  6. ↑ Khandker, Shahidur R. and Baqui, M. A. & Khan Z. H. [1995]. Grameen Bank: Performance and Sustainability. World Bank Publications. ISBN 0821334638. Retrieved 2008-07-05. 
  7. ↑ Ghista, Garda (2004). Bangladesh:Towards Economic and Women’s Liberation Via Grameen Bank (in English). ProutWorld. Retrieved 2008-07-05.
  8. ↑ Hossain, Mahabub [February 1988]. Credit for Alleviation of Rural Poverty: The Grameen Bank in Bangladesh. Int Food Policy Res Inst IFPRI. ISBN 0896290670. Retrieved 2008-07-05. 
  9. ↑ Sinclair, Paul (2007-12-22). Grameen Micro-Credit & How to End Poverty from the Roots Up (in English). One World One People. Retrieved 2008-07-05.
  10. ↑ Khandker, Shahidur R. and Baqui, M. A. & Khan Z. H. [1995]. Grameen Bank: Performance and Sustainability. World Bank Publications. ISBN 0821334638. Retrieved 2008-07-05. 
  11. ↑ Daniel Perl, Michael M. Phillips (2001-11-27). Grameen Bank, Which Pioneered Loans For the Poor, Has Hit a Repayment Snag. Wall Street Journal. Retrieved 2008-07-05.
  12. ↑ Fraser, Ian (2007-08-03). Microfinance comes of age (in English). Cover Story. Scottish Banker magazine. Retrieved 2008-07-05.
  13. ↑ 13.0 13.1 Grameen Bank-Village Phone Wins Global Competition for Contribution of Technology to Development (in English) (pdf). Development Gateway Foundation (Washington, DC) (2004-07-27). Retrieved 2008-07-05.
  14. ↑ Barua, D. C. (2006-11-12). "Five Cents a Day: Innovative Programs for Reaching the Destitute with Microcredit, No-interest Loans, and other Instruments: The Experience of Grameen Bank". Global Microcredit Summit; Nova Scotia, Canada. URL accessed 2008-07-05.
  15. ↑ Credit delivery system (in English). Grameen Communications (2002-09-18). Retrieved 2008-07-05.
  16. ↑ Pearl, Daniel; Phillips, Michael M., "Grameen Bank, Which Pioneered Loans For the Poor, Has Hit a Repayment Snag", The Wall Street Journal, 2001-11-27. Retrieved 2008-07-05. (written in English)
  17. ↑ 17.0 17.1 The Nobel Peace Prize for 2006. The Nobel Peace Prize for 2006 (2006-10-13). Retrieved 2008-07-05.
  18. ↑ AFP, Oslo. "Yunus unveils vision to end global poverty", The Daily Star, 2006-12-11. Retrieved 2008-07-05. (written in English)
  19. ↑ Mjøs, Ole Danbolt (2006-10-13). The Nobel Peace Prize for 2006: Presentation Speech. The Nobel Peace Prize for 2006. Retrieved 2008-07-05.
  20. ↑ "Nation parties on Nobel win", The Daily Star, 2006-10-15. Retrieved 2008-07-05. (written in English)
  21. ↑ "Credit where credit is due: The banker who changed the world", The Independent, 2006-10-14. Retrieved 2008-07-05.
  22. ↑ Grameen Foundation Annual Report 2006 (in English) (pdf). Grameen Foundation, Washington, DC, USA (2007-08-01). Retrieved 2008-07-05.
  23. ↑ Top Rated Carities (in English). American Institute of Philanthropy (2008-01-15). Retrieved 2008-07-05.
  24. ↑ Grameen Foundation USA (in English). 25 entrepreneurs who are changing the world. Fast Company Monitor Grouop. Retrieved 2008-07-05.
  25. ↑ Sharma, Sudhirendar, "Is micro-credit a macro trap?", The Hindu, 2002-09-25. Retrieved 2008-07-05.
  26. ↑ Sharma, Sudhirendar, "Microcredit: Globalisation unlimited", The Hindu, 2002-01-05. Retrieved 2008-07-05.
  27. ↑ A new party for Bangladesh's fray (in English). Economist (2007-02-22). Retrieved 2008-07-05.
  28. ↑ IANS (2007-02-18). Sheikh Hasina sneers at Nobel winner Yunus's bid to enter politics (in English). Webindia123.com. Retrieved 2008-07-05.
  29. ↑ Fernando, Nimal A. (May 2006). Understanding and Dealing with High Interest Rates on Microcredit - A Note to Policy Makers in the Asia and Pacific Region. Manila, Philippines: ADB, p 8.  .Retrieved July 7, 2008.
  30. ↑ Tucker, Jeffrey (November 1995). The Micro-Credit Cult. The Free Market. Mises Institute. .Retrieved July 7, 2008.
  31. ↑ Tucker, Jeffrey (2006-11-08). Microcredit or Macrowelfare: The Myth of Grameen. Mises Institute. .Retrieved July 7, 2008.

References
ISBN links support NWE through referral fees

  • Bornstein, David. The Price of a Dream: The Story of the Grameen Bank. New York: Oxford University Press, 2005. ISBN 0195187490
  • Cockburn, Alexander, "A Nobel Peace Prize for Neoliberalism?" Counterpunch, 2006. http://www.counterpunch.org/cockburn10202006.html
  • Counts, Alex. Give Us Credit. New York: Crown, 1996. ISBN 0812924649
  • "Micro Loans for the Very Poor," New York Times, (February 16, 1997).
  • Sachs, Jeffrey. The End of Poverty: Economic Possibilities for Our Time. New York: Penguin Press, 2005. ISBN 0143036580
  • Siddiqui, Kamal. An Evaluation of the Grameen Bank Operation. Dhaka: Grameen Bank, 1984. OCLC 27300544
  • Yunus, Muhammad, and Alan Jolis. Banker to the Poor: The Autobiography of Muhammad Yunus, Founder of Grameen Bank. Karachi: Oxford University Press, 2001. ISBN 0195795377

External links

Nobel Peace Prize laureates

Kofi Annan / United Nations (2001) • Jimmy Carter (2002) • Shirin Ebadi (2003) • Wangari Maathai (2004) • International Atomic Energy Agency / Mohamed ElBaradei (2005) • Grameen Bank / Muhammad Yunus (2006) • Al Gore / Intergovernmental Panel on Climate Change (2007) • Martti Ahtisaari (2008) • Barack Obama (2009) • Liu Xiaobo (2010) • Ellen Johnson Sirleaf / Leymah Gbowee / Tawakkol Karman (2011) • European Union (2012) • Organisation for the Prohibition of Chemical Weapons (2013) • Kailash Satyarthi / Malala Yousafzai (2014) • Tunisian National Dialogue Quartet (2015) • Juan Manuel Santos (2016) • International Campaign to Abolish Nuclear Weapons (2017) • Denis Mukwege / Nadia Murad (2018) • Abiy Ahmed (2019) • World Food Programme (2020) • Maria Ressa / Dmitry Muratov (2021) • Ales Bialiatski / Memorial / Centre for Civil Liberties (2022) • Narges Mohammadi (2023)

Complete roster: 1901–1925 · 1926–1950 · 1951–1975 · 1976–2000 · 2001–2025


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