image

Grameen Bank Uplifting Poor With Micro-Finance

In the 1970’s Bangladesh was only featured in global media when a natural catastrophe of alarming proportions afflicted the under-developed country, then teeming with millions living in extreme poverty. Almost all the developmental foreign aid in those years was funded for government infrastructure programs, where the majority of its poor people were socially and financially excluded from the beneficiaries list. It is against this backdrop of skewed socio-economic policies of the state, Mohammed Younis, a young economist with a doctorate from Vanderbilt University, relocated back to Bangladesh from the United States. He had realized the power of Microfinance to socially impact and uplift, the impoverished and marginalized subsistence income individuals and households in his home country. Armed with a revolutionary microcredit model targeting the poor, Grameen Bank, his brainchild started operations in Dhaka in 1983.

Grameen Bank Lending Model

Grameen means ‘Village’ in native Bangla language and consummating its tagline and mission statement, is a bank for the poor, focusing on the rural heartlands of the nation. These daily-wage earners in the villages were outside the credit mechanism of traditional financial system modeled on capitalist principles of individual creditworthiness, collaterals, bank guarantees and loan repayment histories. These stringent assessment parameters summarily removed poor people from the ambit of conventional banking instruments for raising essential finance for day-to-day activities of their small business establishments. Grameen Bank’s philosophy of advancing credit was founded not on collateral but on trust of the local community of borrowers.

Grameen Bank’s micro-credit delivery system involves a series of sequential processes. A bank unit is preliminarily set up with a Field Manager and support staff, all employees of the bank who are entrusted with a geographical jurisdiction, covering 15 to 22 villages. This team identifies potential clients who are mainly hawkers, bamboo weavers, potters, blacksmiths, tinsmiths etc. who account for the poorest of the poor in Bangladesh. Emphasis is given to women borrowers being primary touch-points of social change and women empowerment is globally acknowledged as the catalyst for poverty eradication in third world countries. Currently women borrowers constitute around 97% of all micro-credit loans disbursed by the bank.

The bank adopts a lending model called solidarity lending. Instead of lending to individuals, the Field Managers identify groups of 5 potential borrowers. Of the 5, only two will be advanced credit initially, with mandatory weekly repayments. These repayments are monitored by bank field officers over a period of 12 months. Only if the two creditors service the loan amount without defaults for the monitored term, will the other 3 eligible members of the group receive their pre-approved loan amounts. This peer pressure on the first two beneficiaries for prompt repayment acts as incentives for collective responsibility and fiscal prudence to create a win-win situation for all the members in the micro-group. Till date, statistics reveal remarkable discipline on the part of borrowers; loan repayments are almost 98%, this success rate only comparable to the conventional banking behemoth, Chase Manhattan. Solidarity lending has evolved to become the bedrock of Microfinance and this successful model is now replicated in 64 countries worldwide.

Grameen Bank As An Instrument Of Social Change

All borrowers in each of the Grameen Bank branches are encouraged to imbibe 16 value codes, which they recite on receipt of the loans. These value codes are positive confessions centered on compulsorily educating children, fiscal prudence to improve their lives, healthy lifestyle through organic farming, mobilizing resources through wealth creation and thrift, building better homes, owning collective responsibility for community welfare, consensual conflict resolution etc. Since 97% of the beneficiaries of the microfinance were women, rural societies hitherto impoverished and hopeless were radically transformed by implementing these core values. Grameen Bank was able to rediscover the zest, zeal and entrepreneurial spirit of women borrowers and more than half of them, numbering 50 million were able to lift themselves out of abject poverty. Primary school enrolments increased substantially, households now enjoy three meals a day, sanitation and hygiene standards improved tremendously, infant mortality has fallen, morbidities declined, live in rainproof houses, generate savings all while repaying their debt without defaults.

Loans Productive Than Subsidies And Grants

Mohammed Younis is an ardent proponent of welfare economics who believes that granting financial access to the bottom-of-the-pyramid should be the right strategic policy direction by governments for their social mobility. Therefore, he discourages safety nets, disbursing subsidies, grants and social security wages to the poor in backward nations as these periodic lump-sum transfers could be misused and could engender, inertia ridden population devoid of any enterprise and self-responsibility. Building security shouldn’t be at the cost of dependence.

Loans, he emphasizes, create responsible borrowers in the lowest income class, fully accountable for its redemption. The business acumen of these segment could be identified and enhanced through skilling and training programs, in collaboration with state institutions, NGO’s and other nonprofit foundations. Income generation and asset ownership through creating entrepreneurs are the twin engines that propel the poor from their blighted lives. This microcredit experiment has been empirically proved to achieve brilliant results in most developing markets with high concentrations of both urban and rural poor.

Grameen Bank Success Story

Since its inception, Grameen Bank has disbursed collateral free Microfinance loans amounting to a staggering $24 billion to more than 9 billion beneficiaries, of which 97% are women. The ownership is vested with the borrowers who own 94% equity and nominal 6% owned by the Bangladesh government. This substantial owners’ equity translates into profits being returned to the bottom-of-the-pyramid borrowers. Grameen Bank has diversified its services in its organizational life cycle, expanding to more than two dozen institutions under the umbrella of Grameen Family Enterprises. Prominent among them are low cost housing houses, completing more than 600,000 low-budget homes and Grameen Telecom, that operates wireless payphone services as part of its Village Phone Program. Grameen Phone is Bangladesh’s largest mobile phone operator with 75 million subscribers. Grameen Foundation, its non-profit arm partners with Microfinance institutions around the world, creating a global network of consultancy to nurture intellectual and management capital to eradicate poverty and empowering women using the tool of microfinance. The foundation has presence in more than 28 countries spanning Americas, Asia-Pacific and Africa. Grameen Bank Housing Program is the recipient of the World Habitat Award in 1998 and in 2006, the bank and its founder Mohammed Younis were jointly awarded the Nobel Peace Prize. The success of Grameen Bank, both financially and socio-economically, is a testimony to the power of micro-finance to effect social change and as a sustainable financial model.