GRAMEEN BANK

Grameen Bank (GB) has reversed conventional banking practice by removing the need for
collateral and created a banking system based on mutual trust, accountability, participation and
creativity. GB provides credit to the poorest of the poor in rural Bangladesh, without any
collateral. At GB, credit is a cost effective weapon to fight poverty and it serves as a catalyst in
the over all development of socio-economic conditions of the poor who have been kept outside
the banking orbit on the ground that they are poor and hence not bankable. Professor Muhammad
Yunus, the founder of "Grameen Bank" and its Managing Director, reasoned that if financial
resources can be made available to the poor people on terms and conditions that are appropriate
and reasonable, "these millions of small people with their millions of small pursuits can add up to
create the biggest development wonder." 
  
As of October, 2010, it has 8.33 million borrowers, 97 percent of whom are women. With 2,565
branches, GB provides services in 81,373 villages, covering more than 97 percent of the total
villages in Bangladesh. 

Grameen 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 Grameen Bank (Bengali: গ্রামীণ বাংক) is a microfinance organization and community development

bank started in Bangladesh that makes small loans (known as microcredit or "grameencredit"[4]) to the
impoverished without requiring collateral. The word "Grameen" is derived from the word "gram" and
means "rural" or "village" in Bangla language[5].

The system of this bank is based on the idea that the poor have skills that are under-utilized. 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. Another distinctive feature of the bank's credit program
is that the overwhelming majority (98%) of its borrowers are women.

The origin of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus, a Fulbright
scholar at Vanderbilt Universityand 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 Grameen Bank Project was transformed into an independent bank by
government legislation. The organization and its founder, Muhammad Yunus, were jointly awarded
the Nobel Peace Prize in 2006;[6]the organisation's Low-cost Housing Programme won a World Habitat
Award in 1998.

History
Muhammad Yunus, the bank's founder, earned a doctorate in economics from Vanderbilt University in the
United States. He was inspired during the terrible Bangladesh famine of 1974 to make a small loan of
US$27.00 to a group of 42 families so that they could create small items for sale without the burdens
of predatory lending.[7] 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) is the outgrowth 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.[8]The Bank was immensely successful and the project, with support from
the central Bangladesh Bank, was introduced in 1979 to the Tangail District (to the north of the
capital, Dhaka).[8] The bank's success continued and it soon spread to various other districts of
Bangladesh. By a Bangladeshi government ordinance on October 2, 1983, the project was transformed
into an independent bank.[8] Bankers Ron Grzywinski and Mary Houghton ofShoreBank, a community
development bank in Chicago, helped Yunus with the official incorporation of the bank under a grant from
the Ford Foundation.[9] The bank's repayment rate was hit 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[10] and by the end of 2008, USD 7.6 billion[11] 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.[12] Its success has inspired similar projects in more
than 40 countries around the world and has made World Bank to take an initiative to finance Grameen-
type schemes.[13]

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 very cheap 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 are implicitly subsidised as they are guaranteed by
the Government of Bangladesh and still they are sold above the bank rate.[14]

Application of microcredit
Grameen Bank is best known for its system of solidarity lending.[13] The Bank also incorporates a set of
values embodied in Bangladesh by the Sixteen Decisions.[16] 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 helps bring
about social change, and educate the next generation.[17]

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.
[18]

There is no legal instrument (no written contract) between Grameen Bank and its borrowers, the system
works based on trust.[19] 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.[13]

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.[3] While a World Bank study has concluded that
women's access to microcredit empowers them through greater access to resources and control over
decision making, some other economists argue that the relationship between microcredit and women-
empowerment is less straight-forward.[20] 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.[21] 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.[22]

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 Petersburg Prize worth of EUR 100,000/-, for its
contribution of Technology to Development.[23] 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.[23]

[edit]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.[24] 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).
[25]
[edit]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.[3]

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.[3] The number of borrowers has more than
doubled since 2003, when the bank had only 3.12 million members.[26] 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,[3] up from 43,681 villages covered in 2003.[26] 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.[3] The bank claims a loan recovery rate of 98.35%, up from the 95%
recovery rate claimed in 1998.[27] The Wall Street Journal, in November, 2001, published an article
expressing doubt about the 95% recovery rate from 1996 and the accounting practices that Grameen
used to determine this rate.[21]

[edit]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 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 from below."[28] 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.[28]

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.[29]

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.[30]
The Nobel prize announcement was celebrated with a lot of enthusiasm in Bangladesh.[31] Some critics
asserted that the award affirms neoliberalism.[20]

[edit]Related ventures
Main article:  Grameen family of organizations

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 brandGrameen Check).[32]

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.[33]

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.[34] Grameen Foundation, which has an A-rating from Charity Watch,[35] not only provides
microloans in the USA itself (the only developed country where this is done), but also supports
microfinance institutions worldwide with loan guarantees, training, and technology transfer.[36] As of 2008,
Grameen Foundation supports microfinance institutions in the following regions:[37]

 Asia-Pacific: Bangladesh, China, East
Timor, Indonesia, India, Lebanon, Pakistan, Philippines, Saudi Arabia, Yemen
 Americas: Bolivia, Dominican Republic, El Salvador, Haiti, Honduras, Mexico, Peru, USA
 Africa: Cameroon, Egypt, Ethiopia, Ghana, Morocco, Nigeria, Rwanda, Tunisia, Uganda

Premiering at the 2010 Sundance Film Festival, the film To Catch a Dollar documents the process of
establishing Grameen America programs in Queens, New York in 2008. The documentary is expected to
open in September 2010.

[edit]Criticism

Sudhirendar Sharma, a development analyst, claims the Bank has "landed poor communities in a
perpetual debt-trap",[38] and that its ultimate benefit goes to the corporations that sell capital goods and
infrastructure to the borrowers.[39] It has attracted criticism from the former Prime
Minister of Bangladesh, Sheikh Hasina, who commented, "There is no difference between usurers
[Yunus] and corrupt people."[40]

Hasina touches upon one criticism of Grameen Bank: the high rate of interest it demands from those
seeking credit.[41] Similar to all microfinance institutes, the interest charged by Grameen Bank is high
compared to that of traditional banks, as Grameen's interest (reducing balance basis) on its main credit
product is about 20%.[42] The Mises Institute's Jeffrey Tucker has criticized the Bank,[43] asserting it 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. They disregard Yunus' claims that he is
working against subsidized economy, giving borrowers the opportunity to make business. Another source
of criticism is that of the Grameen's Sixteen Decisions.[44] Critics[who?] say the bank's Sixteen Decisions
force families and borrowers to abide by the rules and regulations set forth by the bank. However, they do
not make clear why the leading principles (unity, courage, discipline and hard work; and some additional
rules that are set up by the bank, like living in healthy houses in good repair, not drinking unsafe water or
refusing to give dowries for daughters) can be bad for borrowers. They mostly object to the requisite of
having to make a borrower club to cover defaults, which they disqualify as a totalitarian tool, instead of a
community building strategy. David Roodman[45] and Jonathan Morduch[46] disagreed with a statistic once
often cited by Yunus, that “5% of the Grameen borrowers get out of poverty every year.” Reanalyzing the
underlying study, they obtained opposite results. But they did not interpret these to imply that lending to
women made families poorer. Rather, the negative causality may go the other way: women in richer
families may borrow less.[47] Maulana Ibrahim, a reactionary Imam in Bangladesh attacked the Grameen
bank in 1993 in a leaflet and a Inquilab newspaper article for promoting "promiscuity" amongst women
and fostering "unislamic ways" . It was alleged that women were chanting slogans taking a vow not to
obey their husbands and not to live in poverty anymore ! [48

Microfinance is the provision of financial services to low-income clients or solidarity lending groups

including consumers and theself-employed, who traditionally lack access to banking and related services.

More broadly, it is a movement whose object is "a world in which as many poor and near-poor
households as possible have permanent access to an appropriate range of high quality financial services,
including not just credit but also savings, insurance, and fund transfers."[1] Those who promote
microfinance generally believe that such access will help poor people out of poverty.

Microfinance is a broad category of services, which include microcredit. Microcredit can be defined as the
provision of credit services to poor clients. Although microcredit by definition can achieve only a small
portion of the goals of microfinance, conflation of the two terms is endemic in public discourse. In other
words, critics attack microcredit while referring to it indiscriminately as either 'microcredit' or
'microfinance'. Due to the broad range of microfinance services, it is difficult to assess impact, and no
studies to date have done so.