GRAMEEN BANK: A NAME OF HOPE AND SUCCESS

SUBMITTED TO Md. Maksudur Rahman Sarkar Professor, Dept. of A&IS University of Dhaka

Submitted by Name Md. Abdul Alim Sohel Md. Monirul Islam Jubair Ahmed Md. Maruf Hossain Shakil Roll No 13027 13029 13043 13052 13141

Date of submission: July 21, 2012

INTRODUCTION All over the world, poor people have trouble borrowing money from banks. Why? Because banks want to make sure you can pay back the loan, so they want to know you already own something before they lend you money to buy more. Poor people don't own much, so they don't have this security or "collateral" to get a loan. Whether you live in a rich country like Australia or a poor country like Bangladesh, it's almost impossible for you to get a loan from a commercial bank if you're poor. Yet a very small loan can make all the difference to a poor person. The Grameen Bank in Bangladesh is helping millions of poor people, especially poor rural women, with tiny loans ("microcredit") so they can start small, create self-employment and improve their lives. SMALL START The idea for the Grameen Bank (Grameen means "village" in Bengali) started in 1976 when an Economics professor, Professor Muhammad Yunus, met a local village woman, 22 yearold Sophia Khatoon, who worked seven days a week making finely woven bamboo furniture. As Sophia had no money to buy the raw material, a local trader gave her the bamboo on credit, provided she sold the finished product to him at a price he set. The result was that she was making almost nothing despite her skills and hard work. She lived in abject poverty and looked twice her age. Professor Yunus calculated Sophia was paying 10% a day - that's 3,000% a year- in interest to the trader. If she just had the money to buy the bamboo, she could sell to whoever would give her a fair price and keep the profit herself. All the capital she needed was 50 taka which is less than $2.00. Professor Yunus lent Sophia the money and within a few months she had increased her income seven fold and repaid the loan. Professor Yunus found that there were many other poor people who could benefit from small loans just as Sophia had. He successfully provided loans to others and tried to convince bankers that the poor were credit-worthy and should be given loans. Bankers were still not interested, so Professor Yunus himself founded the Grameen Bank in 1983. BIG GROWTH The Grameen Bank currently has around two million borrowers, 95% of whom are women. It has 1,000 branches operating in nearly 40,000 villages and employs 12,000 workers. Each month, it lends approximately US$40 million in many of tiny loans. 98% of the loans get paid on time. In terms of loan repayment, this poor people's bank outperforms all other banks in Bangladesh and most banks around the world. Grameen believes that women are better borrowers than men and better managers of the money, using it in ways that benefit their families. OUT OF POVERTY The Grameen Bank operates very differently from a mainstream bank. A woman cannot get a loan on her own. She joins with four others and the members of the group guarantee each

others' loans. Most of the loans are used for self-employment activities that suit women such as milk cow raising, seasonal crop trading, weaving, sewing and operating grocery shops. The women meet weekly to make their loan repayments, including interest, and discuss new loan proposals. At these meetings, the bank workers and the women discuss other issues such as health and hygiene, family planning and child immunisation. It is estimated that a third of Grameen borrowers have crossed the poverty line, and another third are close to crossing it. Professor Yunus says: "Poor women recognise that loans from Grameen are a chance to lift themselves out of extreme poverty. They are so proud to be trusted to repay on time. It's amazing how such small sums can change people's lives." One of the Bank's directors, Manjira Khatum, was destitute when she received her first loan. Now she runs a tailoring shop. "We may be poor, but we are not poor in mind," she says. SUCCESS STORIES Before borrowing from Grameen, Fatima had no land and was living with her brother in law and his family. She couldn't afford regular meals for her family. She has been a borrower for 11 years. She now owns land, livestock, a house with a tin roof and she can provide regular meals for the family and send her children to school. Maleakea Begum could afford only one or two meals a day as she relied on her husband's low wage as a labourer. After 10 years of loans from Grameen, she provides regular meals for her three children, supports her son's studies in Dhaka, owns land, livestock, a large fishpond (to breed fish for food) and a house with a tin roof. And what of Sophia Khatoon who started it all? By 1989 Sophia's income was $US500 a year, twice the national average of Bangladesh. She had a tin roof house and her two children were in school. She had enough savings and assets to keep her above the poverty line. "All the poor anywhere need is a decent chance," says Professor Yunus. Nobel Peace Prize, 2006 October 13, 2006 was the happiest day for Bangladesh. It was a great moment for the whole nation. Announcement came on that day that Grameen Bank and I received the Nobel Peace Prize, 2006. It was a sudden explosion of pride and joy for every Bangladeshi. All Bangladeshi's felt as if each of them received the Nobel Peace Prize. We were happy that the world has given recognition through this prize, that poverty is a threat to peace. Grameen Bank, and the concept and methodology of micro-credit that it has elaborated through its 30 years of work, have contributed to enhancing the chances of peace by reducing poverty. Bangladesh is happy that it could contribute to the world a concept and an institution which can help bring peace to the world. Owned by the Poor Grameen Bank Project was born in the village of Jobra, Bangladesh, in 1976. In 1983 it was transformed into a formal bank under a special law passed for its creation. It is owned by the poor borrowers of the bank who are mostly women. It works exclusively for them. Borrowers

of Grameen Bank at present own 95 percent of the total equity of the bank. Remaining 5 per cent is owned by the government. No Collateral, No Legal Instrument, No Group-Guarantee or Joint Liability Grameen Bank does not require any collateral against its micro-loans. Since the bank does not wish to take any borrower to the court of law in case of non-repayment, it does not require the borrowers to sign any legal instrument. 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 repayment problem. There is no form of joint liability, i.e. group members are not responsible to pay on behalf of a defaulting member. Over Tk 684 billion Disbursed Total number of borrowers is 8.35 million, 96 per cent of them are women. Grameen Bank has 2,565 branches. It works in 81,379 villages. Total staff is 22,124. Total amount of loan disbursed by Grameen Bank, since inception, is Tk 684.13 billion (US $ 11.35 billion). Out of this, Tk 610.81 billion (US $ 10.11 billion) has been repaid. Current amount of outstanding loans stands at TK 73.32 billion ( US $ 968.31 million). During the past 12 months ( from November10 to October'11) Grameen Bank disbursed Tk. 107.30 billion (US $ 1480.53 million). Monthly average loan disbursement over the past 12 month was Tk 8.94 billion (US $ 123.38 million). Projected disbursement for year 2011 is Tk 110.00 billion (US$ 1557.63 million), i.e. monthly disbursement of Tk 9.17 billion (US $ 129.80 million). End of the year outstanding loan is projected to be at Tk. 78.00 billion (US $ 1105 million). Loan recovery rate is 96.67 per cent. 100 per cent Loans Financed From Banks Deposits Grameen Bank finances 100 per cent of its outstanding loan from its deposits. Over 56 per cent of its deposits come from banks own borrowers. Deposits amount to 145 per cent of the outstanding loans. If we combine both deposits and own resources it becomes 160 per cent of loans outstanding. Borrower-Deposits Keep Growing Besides building financial strength of the poor women by encouraging them to build up significant amount of personal savings, borrower deposit is also a very important element in Grameen Bank. Forty-two per cent of the branches have borrower deposits equal to 75 per cent or more of outstanding loans of the branches. One-fifth of the branches have more borrower-deposits than the amount of loans outstanding. In some branches borrower-deposits are as high as 50 per cent above the outstanding loans. In eight zones, out of forty, borrower deposits are equal or more than the outstanding loans in zones. No Donor Money, No Loans

In 1995, GB decided not to receive any more donor funds. Since then, it has not requested any fresh funds from donors. Last installment of donor fund, which was in the pipeline, was received in 1998. GB does not see any need to take any donor money or even take loans from local or external sources in future. GB's growing amount of deposits will be more than enough to run and expand its credit programme and repay its existing loans. Low Interest Rates Government of Bangladesh has fixed interest rate for government-run microcredit programmes at 11 per cent at flat rate. It amounts to about 22 per cent at declining basis. Grameen Bank's interest rate is lower than government rate. Recently MRA has fixed the maximum interest rate for microcredit at 27% on declining balance method and instructed the NGO-MFIs to implement this capped interest rate within June 2011.MRA found in a recent survey the effective interest rate of NGO-MFIs on General Loan ranges from 25% to 33% and the modal value is 29%.On the contrary Grameen Bank's highest interest rate is 20%. Microfinance Transparency an internationally reputed pricing certification agency also verified the pricing of Grameen Bank loan products and found that GB actually charges the same interest as it publicly claims. There are four interest rates for loans from Grameen Bank : 20% for income generating loans, 8% for housingloans, 5% for student loans, and 0% (interest-free) loans for Struggling Members (beggars). All interests are simple interest, calculated on declining balance method. This means, if a borrower takes an income-generating loan of say, Tk 1,000, and pays back the entire amount within a year in weekly instalments, she'll pay a total amount of Tk 1,100, i.e. Tk 1,000 as principal, plus Tk 100 as interest for the year, equivalent to 10% flat rate. Crossing the Poverty-Line According to a recent internal survey, 68 per cent of Grameen borrowers' families of Grameen borrowers have crossed the poverty line. The remaining families are moving steadily towards the poverty line from below. Performances Grameen Bank provides colour-coded stars to branches and staff for 100 percent achievement of a specific task. A branch (or a staff) having five-stars indicate the highest level of performance. At the end of June'2011, branches showed the following result. 929 branches, out of total 2,565 branches, received stars (green) for maintaining 100 per cent repayment record. 19,93 branches received stars (blue) for earning profit. (Grameen Bank as a whole earns profit because the total profit of the profit-earning branches exceeds the total loss of the lossincurring branches.)

1,869 branches earned stars (violet) by meeting all their financing out of their earned income and deposits. These branches not only carry out their business with their own funds, but also contribute their surpluses to meet the fund requirement of deficit branches. 324 branches have applied for stars (brown) for ensuring education for 100% of the children of Grameen families. After the completion of the verification processes their stars will be Performance 2000 2001 Indicator Cumulative Disbursement 130559 146538 (All Loans) Disbursement During the Year 13961 15979 (All Loans) Year-end Outstanding 10435 11068 Amount Housing Loan Disbursement 73.29 56 During the Year Number of Houses Built 533041 545121 cum Total Deposits 6611 7697 (Balance) Deposits of GB Members 5243 3827 (Balance) GB Members' Deposit as % of 79 50 Total Deposit Number of 503001 504651 Groups Number of 237860 2378356 Members 1 Percentage of 95 95 Female Members Number of 40225 4047 Villages covered Number of 1160 1173 Branches Profit/Loss (For 11.14 58.45 the Year) 2002 2003 2004 2005 2006 2007 2008 2009

162286 183575

209166 3248163 306368 356798 418903 498311 25591.4 38996 3 18874.6 27357 4 282.05 187.08

15748 21289

49732

58902.10 62104.85 79408

11395 15086

32941

36336.3 44396.63 54714

120.62 177.66

138.19

96.02

152.31

168.40

558055 578532 59424 14715.75 7305 9972.15

607415 627058

641096 650839 665568 679577

20717.7 31659.56 44274.47 51918.71 64177.25 82953.62 9 13793.1 20138.37 27298.19 29533.51 34923.62 44823.49 4 67 64 62 57 54 54

78

68

513141 577886

685083 877142

1086744 1168840 1210343 1253160

248300 405963 3123802 5579399 6908704 7411229 7670203 7970616 6 2 95 95 96 48472 1358 96 59912 1735 97 74462 2319 97 80678 2481 97 83566 2539 97 83458 2562

41636 43681 1178 59.67 1195 357.52

422.13 1000.44

1398.15 106.91

1305.00 371.57

Source: www.grameen-info.org

confirmed. 65 branches have applied for stars (red) indicating branches those have succeeded in taking all its borrowers' families (usually 3,000 families per branch) over the poverty line. The star will be confirmed only after the verification procedure is completed. Each month branches are coming closer to achieving new stars. Grameen staff look forward to transforming all the branches of Grameen Bank into five star branches. Questions: 1. What are the key factors behind the high market growth of Grameen Bank? 2. Based on its strength whatare the some other sttratagies Grameen bank can use to achieve their target? 3. What can be the major threat in upcoming future for a bank like Grameen bank? 4. What was the motive behind establishing Grameen Bank as a microfinance institution? 5. What are the programs taken by Grameen Bank for the poverty reduction? 6. What are the successes of Grameen Bank? 7. Whati is the focusing point of the case?