Grameen Bank – A case study

Ashraf Vazeer
Veera Raghava Reddy
Ajeya Simha H
Table of Contents

Table of Contents....................................................................................................... 2
Introduction to Grameen bank....................................................................................3
How a Conventional Bank works ................................................................................3
Grameen bank mission...............................................................................................4
Problems faced by Grameen bank..............................................................................6
Grameen bank II.........................................................................................................6
Financial details of Grameen bank:............................................................................6
Profit and loss account for Grameen bank...............................................................6
Bank funds.............................................................................................................. 7
Awards for Grameen bank..........................................................................................8
Summary....................................................................................................................8
References..................................................................................................................9

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Introduction to Grameen bank

Grameen Bank is a microfinance organization and community development bank. It was

founded by Muhammad Yonus in Bangladesh. It was started in 1976 as a project and
transformed into an independent bank in October 1983. Below are some of the details
of the Grameen Bank.

• As on November, 2009

– Borrowers : 7.95 million [97 percent of whom are women]

– Branches : 2,562

– Coverage : 83,458 villages [100 % of the total villages in Bangladesh]

• Profit/Loss (Million USD) :

– 1983 [-0.0059]

– 2008 [18.99]

How a Conventional Bank works

It collect deposits, borrow funds from other lending institutions, provides loans, services
like cheque book, pay-order, demand-draft, money transfer, foreign exchange, demat
account etc.

The sources of income for banks are from interest charged on Loans and fees collected
for providing services

Conventional Banks compete by offering lower interest rates, accessibility of branches,

ATMs, Online banking, phone banking, Customer support, Quick processing,
Concession in service charges

Customers of a Conventional Bank are salaried employees from Government, Public

and Private Companies, self employed, farmers, Industries, Factories

Loan processing in a typical Bank is by customer approaching a bank for loan with
collateral/security. Loans are approved based on the customer’s financial track record.
Customers repay loan in installments and customer need to pay fine if there is a

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delayed in repayment. Default loans will be recovered using collateral/security. Legal
actions will be taken against loan defaulters

Grameen bank mission

Its mission is to help the poor families to help themselves to overcome poverty. It is
targeted at the poor, particularly poor women. It promotes credit as a human right. It is
not based on any collateral or legally enforceable contracts. It is based on "trust", not on
legal procedures and system. It is offered for creating self-employment for income-
generating activities and housing for the poor, as opposed to consumption.

How is Grameen bank methodology different from Conventional Banking?

 Conventional banking is based on collateral, i.e. if you have little or nothing, you
get nothing. As a result, more than half the population of the world is deprived of the
financial services of the conventional banks.

Grameen Bank is collateral- free. Grameen Bank starts with the belief that credit
should be accepted as a human right, and builds a system where one who does not
possess anything gets the highest priority in getting a loan. Grameen Bank
methodology is not based on assessing the material possession of a person; it is
based on the potential of a person.

 Overarching objective of the conventional banks is to maximize profit.

Grameen Bank's objective is to bring financial services to the poor, particularly

women. About 97% of borrowers are women. Grameen bank helps them to fight
poverty, stay profitable and financially sound.

 Conventional banks try to locate themselves as close as possible to the business

districts and urban centers

Grameen Bank branches are located in the rural areas. First principle of Grameen
banking is that the clients should not go to the bank; it is the bank which should go
to the people instead. Grameen Bank's 23,252 staff meets 7.94 million borrowers at
their door-step in 84,787 villages and deliver bank's service. Doing business this
way means a lot of work for the bank, but it is a lot convenient for the borrowers

 Conventional Bank can take the client to the court of law to recover the loan.

In Grameen Bank, there is no legal instrument between the lender and the borrower.
There is no provision to enforce a contract by any external intervention.

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 Conventional banks go into 'punishment' mode when a borrower is taking more
time in repaying the loan than it was agreed upon - "defaulters".

Grameen Bank allows such borrowers to reschedule their loans.

 When a client gets into difficulty, conventional banks make all efforts to recover
the money, including taking over the collateral.

Grameen Bank, in such cases, works extra hard to assist the borrower in difficulty,
and makes all efforts to help her regain her strength and overcome her difficulties.

 In conventional banks, charging interest does not stop unless specific exception
is made to a particular defaulted loan. Interest charged on a loan can be multiple of
the principal, depending on the length of the loan period.

In Grameen Bank, under no circumstances total interest on a loan can exceed the
amount of the loan, no matter how long the loan remains un-repaid. No interest is
charged after the interest amount equals the principal.

 Interest on conventional bank loans are generally compounded quarterly

All interests are simple interests in Grameen Bank.

 In Grameen Bank even a beggar gets special attention. A beggar comes under a
campaign from Grameen Bank which is designed to persuade him/her to join
Grameen programme. The bank explains to her how she can carry some
merchandise with her when she goes out to beg from door to door and earn money,
or she can display some merchandise by her side when she is begging in a fixed
place. Grameen's idea is to graduate her to a dignified livelihood rather than
continue with begging.

Such a programme would not be a part of a conventional bank's work.

The Grameen system encourages the borrowers to adopt some goals in social,
educational and health areas. These are known as "Sixteen Decisions" (no dowry,
education for children, sanitary latrine, planting trees, clean drinking water, etc.)

Conventional banks do not see this as their business.

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Problems faced by Grameen bank

 1995 Boycott Movement - Men in the communities joined local politicians who
disapproved of the bank’s mission of turning women into entrepreneurs and
pressured borrowers to stop repaying loans.

 1998 Floods - Floods ravaged the country, leaving much of the population without
homes and businesses; Resulting in lower repayment rates and some dropouts

 Transparency and Credibility Issues - Under the classic Grameen Bank model
borrowers who were late in their loan payments were banned from the loan process
until they had repaid in full. Critics accused Grameen Bank of unwillingness to fully
disclose the impact of these crises on its financial position.

Grameen bank II

 Group Fund replaced with Individual loans

 Flexible loan – Fixed annual terms to variable duration

 Loan Loss Provisioning and Write-off Policy - If a borrower fails to repay her
installment for ten consecutive installments or six month period, provision is made
for writing off the un-repaid principal and interest.

 Computerization of Grameen Accounting and Monitoring System

Financial details of Grameen bank:

Profit and loss account for Grameen bank

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Profit for the year 2007 has decreased from the preceding year due to adverse affects
of

• devastating flood for two times

• devastation caused by cyclone Sidr

• fierce competition among the mobile phone operators in the country leading
to significant reduction in mobile phone income.

Bank funds

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Awards for Grameen bank

– SWITZERLAND : Aga Khan Award For Architecture : 1989

– BELGIUM : King Baudouin International Development Prize : 1993

– BANGLADESH : Independence Day Award : 1994

– MALAYSIA : Tun Abdul Razak Award : 1994

– UNITED KINGDOM : World Habitat Award : 1997

– INDIA : Gandhi Peace Prize : 2000

– U.S.A : Petersberg Prize : 2004

– Norway : Nobel Peace Prize : 2006

Summary

In Grameen, we see the poor people as human "bonsai". If a healthy seed of a giant
tree is planted in a flower-pot, the tree that will grow will be a miniature version of the

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giant tree. It is not because of any fault in the seed, because there is no fault in the
seed. It is only because the seed has been denied of the real base to grow on.

People are poor because society has denied them the real social and economic base to
grow on. They are given only the "flower-pots" to grow on.

Grameen's effort is to move them from the "flower-pot" to the real soil of the society. If
we can succeed in doing that there will be no human "bonsai" in the world. We'll have a
poverty-free world.

References

Grameen bank Official Site – http://www.grameen-info.org

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