Grameen Bank
Encyclopedia
The Grameen Bank is a microfinance
organization and community development bank
started in Bangladesh
that makes small loans (known as microcredit
or "grameencredit") to the impoverished without requiring collateral
. The name Grameen is derived from the word gram which means "rural" or "village" in the Bengali language
.
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 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 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; the organization's Low-cost Housing Program won a World Habitat Award in 1998.
, 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
. Yunus believed that making such loans available to a wide population would have a positive impact on the rampant rural poverty in Bangladesh.
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. 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
). 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. Bankers Ron Grzywinski
and Mary Houghton
of ShoreBank
, a community development bank in Chicago
, helped Yunus with the official incorporation of the bank under a grant from the Ford Foundation
. 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 and by the end of 2008, USD 7.6 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 40 countries around the world and has made World Bank to take an initiative to finance Grameen-type schemes.
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.
Grameen regards all human beings, including the poorest, as endowed with endless potential, and that unleashing the creativity in each individual should be the answer to poverty.
Grameen has offered credit to many poor, women, illiterate and unemployed people. It created access to credit on reasonable terms such as the group lending system and weekly-installment payment with reasonably long term of loans, enabling the poor to build on their existing skill to earn a better income in each cycle of loans.
Grameen’s objective has been to promote financial independence among the poor. Yunus encourages all borrowers to eventually become savers so that their local capital can be converted into new loans. Since 1995, Grameen has funded 90 percent of its loans with interest income and deposits collected, hence aligning the interests of its new borrowers and depositor-shareholders. Hence, Grameen distinguishes itself from such institutions by converting deposits made in villages into loans for the more needy in the villages (Yunus and Jolis 1998).
It targets the poorest of the poor, with a particular emphasis on women,
who receives 95 percent of the bank’s loans. Women represent a suitable clientele because,
given that they have less access to alternatives, such as traditional credit lines and
incomes, they are more likely to be credit constrained and they have an inequitable share of
power in household decision making. Lending to women also generates considerable
secondary effects, including empowerment of a marginalized segment of society (Yunus
and Jolis 1998). This is especially crucial as Yunus claims that in 2004, women still have difficulty getting loans as it represented less than 1 percent of borrowers from commercial banks (Yunus 2004). The interest rates charged by microfinance institutes including Grameen Bank is high compared to that of traditional banks; Grameen's interest (reducing balance basis) on its main credit product is about 20%.
Down the years, Grameen has also diversified the types of loans it makes. Among its new interests, hand-powered wells and loans to support the enterprises of Grameen members' immediate relatives. There were also seasonal agricultural loans and lease-to-own agreements for equipment and livestock. The bank also set a new goal for itself: making each of its branches free of poverty, as defined by benchmarks such as having adequate food and access to clean water and latrines.
Grameen Bank is 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 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.
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 Grameen Bank and its borrowers, the system works based on trust. 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.
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. 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. 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. 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.
100,000/-, for its contribution of Technology to Development. In the press release announcing the prize, the Development Gateway Foundation noted that through this program:
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.
The number of borrowers has more than doubled since 2003, when the bank had only 3.12 million members. 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, up from 43,681 villages covered in 2003.
Since its inception, the bank has distributed Tk 684.13 billion (USD 11.35 billion) in loans out of which Tk 610.81 billion (USD 10.11 billion) has been repaid. The bank claims a loan recovery rate of 96.67%, up from the 95% recovery rate claimed in 1998. David Roodman has critiqued the accounting practices that Grameen used to determine this rate.
, 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." The award announcement also mentions that:
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.
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.
The Nobel prize announcement was celebrated with a lot of enthusiasm in Bangladesh. Some critics asserted that the award affirms neoliberalism
.
, 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.
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. Grameen Foundation, which has an A-rating from [Charity Watch], 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. As of 2008, Grameen Foundation supports microfinance institutions in the following regions:
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.
The Mises Institute's Jeffrey Tucker
suggests that microcredit banks depend on subsidies in order to operate, thus essentially becoming another example of welfare, whereas Yunus believes that he is working against the subsidized economy, giving borrowers the opportunity to create businesses.
Maulana Ibrahim, a reactionary imam
in Bangladesh, spoke out against the Grameen Bank in 1993 for fostering "un-Islamic ways", alleging (referring to the lenders' pledge) that women were taking a vow not to obey their husbands and not to live in poverty anymore.
Grameen bank has been accused of tax evasion in a Norwegian Documentary: "Caught in Micro debt" these accusations have recently been repeated in a Spanish documentary: 'Microcredit'. The accusation is based on the unauthorised transfer of approximately 100 million USD donated by The Norwegian Agency for Development Cooperation (NORAD) from one Grameen entity to another 'Grameen Kalyan' in 1996, before the expiry of the Grameen bank's tax exemption. Muhammad Yunus denies that this is tax evasion: 'There is no question of tax evasion here. The Government has provided organizations with opportunities; we have made use of these opportunities with aim of benefitting our shareholders who are the rural poor women of Bangladesh.' The matter has since been resolved.
David Roodman and Jonathan Morduch question the statistical validity of studies of microcredit's effects on poverty, pointing to the complexity of the situations involved.
Microfinance
Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services....
organization and community development bank
Community development bank
- Community Development Banking in the United States :In the United States, community development banks are commercial banks that operate with a mission to generate economic development in low- to moderate-income geographical areas and serve residents of these communities...
started in Bangladesh
Bangladesh
Bangladesh , officially the People's Republic of Bangladesh is a sovereign state located in South Asia. It is bordered by India on all sides except for a small border with Burma to the far southeast and by the Bay of Bengal to the south...
that makes small loans (known as microcredit
Microcredit
Microcredit is the extension of very small loans to those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit...
or "grameencredit") to the impoverished without requiring collateral
Collateral (finance)
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...
. The name Grameen is derived from the word gram which means "rural" or "village" in the Bengali language
Bengali language
Bengali or Bangla is an eastern Indo-Aryan language. It is native to the region of eastern South Asia known as Bengal, which comprises present day Bangladesh, the Indian state of West Bengal, and parts of the Indian states of Tripura and Assam. It is written with the Bengali script...
.
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
Muhammad Yunus
Muhammad Yunus is a Bangladeshi economist and founder of the Grameen Bank, an institution that provides microcredit to help its clients establish creditworthiness and financial self-sufficiency. In 2006 Yunus and Grameen received the Nobel Peace Prize...
, a Fulbright scholar at Vanderbilt University
Vanderbilt University
Vanderbilt University is a private research university located in Nashville, Tennessee, United States. Founded in 1873, the university is named for shipping and rail magnate "Commodore" Cornelius Vanderbilt, who provided Vanderbilt its initial $1 million endowment despite having never been to the...
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 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
Nobel Peace Prize
The Nobel Peace Prize is one of the five Nobel Prizes bequeathed by the Swedish industrialist and inventor Alfred Nobel.-Background:According to Nobel's will, the Peace Prize shall be awarded to the person who...
in 2006; the organization's Low-cost Housing Program won a World Habitat Award in 1998.
History
Muhammad YunusMuhammad Yunus
Muhammad Yunus is a Bangladeshi economist and founder of the Grameen Bank, an institution that provides microcredit to help its clients establish creditworthiness and financial self-sufficiency. In 2006 Yunus and Grameen received the Nobel Peace Prize...
, the bank's founder, earned a doctorate in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
from Vanderbilt University
Vanderbilt University
Vanderbilt University is a private research university located in Nashville, Tennessee, United States. Founded in 1873, the university is named for shipping and rail magnate "Commodore" Cornelius Vanderbilt, who provided Vanderbilt its initial $1 million endowment despite having never been to the...
in the United States. He was inspired during the terrible Bangladesh famine of 1974
Bangladesh famine of 1974
The Bangladesh famine of 1974 refers to a period of mass starvation beginning in March 1974 and ending in about December of the same year. The famine is considered the worst in recent years; it was characterised by massive flooding along the Brahmaputra river as well as high...
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
Predatory lending
Predatory lending describes unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the office of inspector general of the FDIC broadly...
. Yunus believed that making such loans available to a wide population would have a positive impact on the rampant rural poverty in Bangladesh.
Bengali language
Bengali or Bangla is an eastern Indo-Aryan language. It is native to the region of eastern South Asia known as Bengal, which comprises present day Bangladesh, the Indian state of West Bengal, and parts of the Indian states of Tripura and Assam. It is written with the Bengali script...
) 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. The Bank was immensely successful and the project, with support from the central
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
Bangladesh Bank
Bangladesh Bank
Bangladesh Bank is the Central bank of Bangladesh and is a member of the Asian Clearing Union.-History:After the liberation war, and the eventual independence of Bangladesh, the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country,...
, was introduced in 1979 to the Tangail District
Tangail District
Tangail is a district in central region of Bangladesh. It is a part of the Dhaka division. The population of Tangail zilla is about 3.2 million and its surface area is 3,414.39 km². The main town of Tangail District is the district town Tangail...
(to the north of the capital, Dhaka
Dhaka
Dhaka is the capital of Bangladesh and the principal city of Dhaka Division. Dhaka is a megacity and one of the major cities of South Asia. Located on the banks of the Buriganga River, Dhaka, along with its metropolitan area, had a population of over 15 million in 2010, making it the largest city...
). 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. Bankers Ron Grzywinski
Ron Grzywinski
Ron Grzywinski is a community development banker from Chicago, and one of four founders of ShoreBank. In May 2010 he retired as chair of ShoreBank Corporation and took the position of Advisor to the Board of Directors of ShoreBank Corporation....
and Mary Houghton
Mary Houghton
Mary Houghton is co-founder of ShoreBank, the largest and oldest community development bank. Houghton, along with Milton Davis, James Fletcher, and Ron Grzywinski purchased what was then South Shore Bank to fight redlining in the Chicago neighborhood...
of ShoreBank
ShoreBank
ShoreBank was a community development bank founded and headquartered in Chicago. At the time of its closing it was the oldest and largest such institution, and in 2008 had $2.6 billion in assets. It was owned by ShoreBank Corporation, a regulated bank holding company.ShoreBank had branches in...
, a community development bank in Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
, helped Yunus with the official incorporation of the bank under a grant from the Ford Foundation
Ford Foundation
The Ford Foundation is a private foundation incorporated in Michigan and based in New York City created to fund programs that were chartered in 1936 by Edsel Ford and Henry Ford....
. 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 and by the end of 2008, USD 7.6 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 40 countries around the world and has made World Bank to take an initiative to finance Grameen-type schemes.
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.
Application of microcredit
Grameen believes that charity is not an answer to poverty. It only helps poverty to continue as it creates dependency and takes away individual's initiative to break through the cycle of poverty, whereas loans offer people the opportunity to take initiatives in business or agriculture, providing earnings and enabling them to pay off the debt.Grameen regards all human beings, including the poorest, as endowed with endless potential, and that unleashing the creativity in each individual should be the answer to poverty.
Grameen has offered credit to many poor, women, illiterate and unemployed people. It created access to credit on reasonable terms such as the group lending system and weekly-installment payment with reasonably long term of loans, enabling the poor to build on their existing skill to earn a better income in each cycle of loans.
Grameen’s objective has been to promote financial independence among the poor. Yunus encourages all borrowers to eventually become savers so that their local capital can be converted into new loans. Since 1995, Grameen has funded 90 percent of its loans with interest income and deposits collected, hence aligning the interests of its new borrowers and depositor-shareholders. Hence, Grameen distinguishes itself from such institutions by converting deposits made in villages into loans for the more needy in the villages (Yunus and Jolis 1998).
It targets the poorest of the poor, with a particular emphasis on women,
who receives 95 percent of the bank’s loans. Women represent a suitable clientele because,
given that they have less access to alternatives, such as traditional credit lines and
incomes, they are more likely to be credit constrained and they have an inequitable share of
power in household decision making. Lending to women also generates considerable
secondary effects, including empowerment of a marginalized segment of society (Yunus
and Jolis 1998). This is especially crucial as Yunus claims that in 2004, women still have difficulty getting loans as it represented less than 1 percent of borrowers from commercial banks (Yunus 2004). The interest rates charged by microfinance institutes including Grameen Bank is high compared to that of traditional banks; Grameen's interest (reducing balance basis) on its main credit product is about 20%.
Down the years, Grameen has also diversified the types of loans it makes. Among its new interests, hand-powered wells and loans to support the enterprises of Grameen members' immediate relatives. There were also seasonal agricultural loans and lease-to-own agreements for equipment and livestock. The bank also set a new goal for itself: making each of its branches free of poverty, as defined by benchmarks such as having adequate food and access to clean water and latrines.
Solidarity lending
Solidarity lending is a lending practice where small groups borrow collectively and group members encourage one another to repay. It is an important building block of microfinance.-How it Works:...
. The Bank also incorporates a set of values embodied in Bangladesh
Bangladesh
Bangladesh , officially the People's Republic of Bangladesh is a sovereign state located in South Asia. It is bordered by India on all sides except for a small border with Burma to the far southeast and by the Bay of Bengal to the south...
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 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
Legal instrument
Legal instrument is a legal term of art that is used for any formally executed written document that can be formally attributed to its author, records and formally expresses a legally enforceable act, process, or contractual duty, obligation, or right, and therefore evidences that act, process, or...
(no written contract) between Grameen Bank and its borrowers, the system works based on trust. 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.
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. While a World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
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. 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. 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.
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 EUREuro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
100,000/-, for its contribution of Technology to Development. 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.
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.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.
The number of borrowers has more than doubled since 2003, when the bank had only 3.12 million members. 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, up from 43,681 villages covered in 2003.
Since its inception, the bank has distributed Tk 684.13 billion (USD 11.35 billion) in loans out of which Tk 610.81 billion (USD 10.11 billion) has been repaid. The bank claims a loan recovery rate of 96.67%, up from the 95% recovery rate claimed in 1998. David Roodman has critiqued the accounting practices that Grameen used to determine this rate.
Nobel Peace Prize
Grameen Bank received several prestigious awards including the highest civilian award in Bangladesh, the Independence Day AwardIndependence Day Award
The Independence Day Award , also termed Independence Award , is the highest state award given by the government of Bangladesh. Introduced in 1977, this award is bestowed upon Bangladeshi citizens or organizations in recognition of substantial contribution to one of many fields, including the War...
, 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
Nobel Peace Prize
The Nobel Peace Prize is one of the five Nobel Prizes bequeathed by the Swedish industrialist and inventor Alfred Nobel.-Background:According to Nobel's will, the Peace Prize shall be awarded to the person who...
"for their efforts to create economic and social development from below." 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.
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
Oslo
Oslo is a municipality, as well as the capital and most populous city in Norway. As a municipality , it was established on 1 January 1838. Founded around 1048 by King Harald III of Norway, the city was largely destroyed by fire in 1624. The city was moved under the reign of Denmark–Norway's King...
City Hall.
Grameen Bank is the only business corporation to have won a Nobel Prize
Nobel Prize
The Nobel Prizes are annual international awards bestowed by Scandinavian committees in recognition of cultural and scientific advances. The will of the Swedish chemist Alfred Nobel, the inventor of dynamite, established the prizes in 1895...
. 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.
The Nobel prize announcement was celebrated with a lot of enthusiasm in Bangladesh. Some critics asserted that the award affirms neoliberalism
Neoliberalism
Neoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
.
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 FundGrameen Fund
Grameen Fund is a not-for-profit company in Bangladesh established by Muhammad Yunus to provide risk capital to small and medium enterprises beyond the scope of Grameen Bank's objectives of providing microcredit to the very poor...
, Grameen Communications, Grameen Shakti (Grameen Energy), Grameen Telecom
Grameen Telecom
Grameen Telecom is a not-for-profit company in Bangladesh established by Dr. Muhammad Yunus with a partial stake in Grameen Phone . GTC has driven the pioneering GP program of Village Phone that enables rural poor to own a cell-phone and turn it into a profit making venture...
, 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
Grameen Check
Grameen check is a type of clothing design that is very popular in Bangladesh, and is rapidly expanding to other countries as well. It mainly constitutes a pattern of squares or rectangles formed from different colors of dyed threads...
).
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.
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. Grameen Foundation, which has an A-rating from [Charity Watch], 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. As of 2008, Grameen Foundation supports microfinance institutions in the following regions:
- Asia-PacificAsia-PacificAsia-Pacific or Asia Pacific is the part of the world in or near the Western Pacific Ocean...
: BangladeshBangladeshBangladesh , officially the People's Republic of Bangladesh is a sovereign state located in South Asia. It is bordered by India on all sides except for a small border with Burma to the far southeast and by the Bay of Bengal to the south...
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Premiering at the 2010 Sundance Film Festival
Sundance Film Festival
The Sundance Film Festival is a film festival that takes place annually in Utah, in the United States. It is the largest independent cinema festival in the United States. Held in January in Park City, Salt Lake City, and Ogden, as well as at the Sundance Resort, the festival is a showcase for new...
, the film To Catch a Dollar
To Catch A Dollar
To Catch a Dollar: Muhammad Yunus Banks on America is an 2010 documentary film directed and produced by Gayle Ferraro about the 2006 Nobel Peace Prize winner's ongoing campaign against poverty around the world...
documents the process of establishing Grameen America
Grameen America
Grameen America is a 501 nonprofit microfinance organization based in New York and founded by 2006 Nobel Peace Prize recipient Muhammad Yunus. Grameen America's first branch, located in Jackson Heights, NY, opened in January 2008...
programs in Queens, New York in 2008. The documentary is expected to open in September 2010.
Criticism
Analysts have suggested that microcredit can bring communities into debt from which they cannot escape, citing situations where microloans from the Grameen Bank were linked to exploitation and pressures on poor families to sell their belongings, leading in extreme cases to humiliation and ultimately suicides.The Mises Institute's Jeffrey Tucker
Jeffrey Tucker
Jeffrey Albert Tucker is the publisher and executive editor of Laissez Faire Books. He is past editorial vice president of the Ludwig von Mises Institute and past editor for the institute's website, Mises.org...
suggests that microcredit banks depend on subsidies in order to operate, thus essentially becoming another example of welfare, whereas Yunus believes that he is working against the subsidized economy, giving borrowers the opportunity to create businesses.
Maulana Ibrahim, a reactionary imam
Imam
An imam is an Islamic leadership position, often the worship leader of a mosque and the Muslim community. Similar to spiritual leaders, the imam is the one who leads Islamic worship services. More often, the community turns to the mosque imam if they have a religious question...
in Bangladesh, spoke out against the Grameen Bank in 1993 for fostering "un-Islamic ways", alleging (referring to the lenders' pledge) that women were taking a vow not to obey their husbands and not to live in poverty anymore.
Grameen bank has been accused of tax evasion in a Norwegian Documentary: "Caught in Micro debt" these accusations have recently been repeated in a Spanish documentary: 'Microcredit'. The accusation is based on the unauthorised transfer of approximately 100 million USD donated by The Norwegian Agency for Development Cooperation (NORAD) from one Grameen entity to another 'Grameen Kalyan' in 1996, before the expiry of the Grameen bank's tax exemption. Muhammad Yunus denies that this is tax evasion: 'There is no question of tax evasion here. The Government has provided organizations with opportunities; we have made use of these opportunities with aim of benefitting our shareholders who are the rural poor women of Bangladesh.' The matter has since been resolved.
David Roodman and Jonathan Morduch question the statistical validity of studies of microcredit's effects on poverty, pointing to the complexity of the situations involved.
See also
- Accion InternationalAccion InternationalACCION International is a nonprofit organization that supports microfinance institutions in their work to provide financial services to low-income clients. ACCION provides management services, technical assistance, debt and equity investment and training to microfinance institutions and...
- Acción EmprendedoraAcción EmprendedoraAcción Emprendedora is a non-profit organization based in Santiago de Chile. AE publishes its mission statement as seeking to eradicate poverty in Latin America by training and assisting poor small business owners....
- Accion USAAccion USAACCION USA is an American microfinance organization headquartered in New York, NY.- About :ACCION USA offers microloans and other financial services to low- and moderate-income entrepreneurs in the United States who are unable to access bank credit for their small businesses...
- Cooperative bankingCooperative bankingCooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world....
- Count Me In
- Flat rate (finance)Flat rate (finance)Flat interest rate loans are often used by traditional moneylenders in the informal economy of developing countries. They are also used by many microfinance institutions. One reason for their popularity is their ease of use...
- Grama VidiyalGrama VidiyalGrama Vidiyal is a microfinance institution, operating in the Tamil Nadu area of South India. Since 1993, Grama Vidiyal, in partnership with Activists for Social Alternatives , has provided small loans to women without access to formal credit and who typically have daily incomes of less than INR...
, Indian Microfinance Bank - Grameen AmericaGrameen AmericaGrameen America is a 501 nonprofit microfinance organization based in New York and founded by 2006 Nobel Peace Prize recipient Muhammad Yunus. Grameen America's first branch, located in Jackson Heights, NY, opened in January 2008...
, Grameen's microfinance project in the United States - Islamic bankingIslamic bankingIslamic banking is banking or banking activity that is consistent with the principles of Islamic law and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees for loans of money...
- Micro credit for water supply and sanitationMicro credit for water supply and sanitationMicro credit for water supply and sanitation is an innovative application of micro credit to provide loans to small enterprises and households in order to increase access to an improved water source and sanitation in developing countries...
- MicrograntMicrograntA microgrant is a small sum of money distributed to an individual living on less than $1/day, extreme poverty, for the purpose of creating a sustainable livelihood or microenterprise...
- Opportunity InternationalOpportunity InternationalOpportunity International is an organization that provides small business loans, savings, insurance and training to more than two million people working their way out of poverty in the developing world...
- Project EnterpriseProject EnterpriseProject Enterprise is a microfinance nonprofit organization in New York City providing entrepreneurs from underserved areas with loans, business training and networking opportunities...
- Solidarity lendingSolidarity lendingSolidarity lending is a lending practice where small groups borrow collectively and group members encourage one another to repay. It is an important building block of microfinance.-How it Works:...
External links
- Grameen Bank Official Site
- gramBangla, Australian Bangladeshi Community Grameen Support Group
- Grameen Bank: Taking Capitalism to the Poor, Mainsah, E. et al., Chazen Journal of International Business, Columbia Business School, 2004 Video by Muhammad Yunus talking about Grameen Bank
- Grameen II: The First Five Years, 2001-2005; Stuart Rutherford et al. for MicroSave, February 2006.
- Grameen Bank History
- The crushing burden of microcredit F24 international report
- Grameen America - Grameen's microfinance operations in the US