Grameen Bank: Taking

Capitalism to the Poor 2004

Executive Summary
Grameen Bank’s origins, structure, culture,
performance and efforts to expand and
broaden the microfinance agenda.
 The authors evaluate Grameen’s success in

implementing Yunus’s vision in the light of

various challenges and conclude that the
short-run effects of microcredit have been
positive and that microfinance will continue
to make important contributions to poverty
reduction.
The social benefits in terms of the
empowerment of women and its positive
impact on human capital—must question
whether such an institution will ever generate
sufficient returns to profit-driven
shareholders to attract the sort of capital
required to enable it to reach all segments of
the poor.
 The legacy of Grameen Bank will ultimately

be not what it has done for shareholders, but

how it has impacted society.
Introduction: The Origins of Grameen
Bank
 The story behind the first concerted effort to make
financing accessible to the world’s poorest is the stuff
of folklore.
 Befitting the goal of poverty alleviation, the setting for
this early experiment was a time of great tragedy in
Bangladesh, one of the poorest countries in the world.
 A small country in the Indian subcontinent with a
population of 130 million, a gross national product
(GNP) per capita of about $300 and a literacy rate of
only 38 percent for those over 15 years of age,1
Bangladesh experienced drought and famine in 1974
that killed 1.5 million people (Macfarlane 2002).
Credit Delivery System
 Targets the Poorest of the Poorand Is Owned
by the Poor
 Group Lending
 Risk Management
 Compensation/Recognition
 Growth
Culture: The 16 Decisions
 Borrowers need to abide by a set of paternalistic
rules central to Grameen Bank’s culture and its
success—and that members reportedly recite with
pride.
 These guidelines range from an adherence to
Grameen principles—discipline, unity, courage, hard
work through the building of family prosperity—to
encouragement to repair and improve houses, grow
vegetables year-round, plant seedlings each year,
build and repair pit-latrines, introduce physical
exercise in centers and neither request nor offer
dowries.
 The guidelines also insist on self-reliance,
liberating borrowers from the victim
mentality and stressing that the whole
community (of 8–10 groups) must not allow
anyone to fall behind.
 These are effective in a society in which the

infant-mortality rate is high, disease spreads

quickly due to poor sanitation and ravages
communities, natural disasters are common
and educational attainment is low.
Coping with Crises
 1) 1995 Boycott Movement
In 1995, Grameen Bank experienced its first major
operational crisis. 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.
This boycott movement explicitly challenged
Grameen Bank to eliminate a charge imposed on
borrowers who chose to leave a borrowing group.
 2) 1998 Floods
 The bank was still emerging from the challenge of
the boycott movement when in 1998 floods
ravaged the country, leaving much of the
population without homes and business.
 The bank went into the bond markets and received
a Tk 1 billion loan from the Central Bank of
Bangladesh and a Tk 2 billion loan from
commercial banks in Bangladesh to cover massive
defaults and to disburse new loans to borrowers
who had been made destitute.
 3) Issues of Transparency and Credibility
 These incidents provided Grameen’s
management with important information about
weaknesses due to rigidity in the loan process.

 This approach left individuals with loans in arrears

with few options, as they lacked access to credit
and savings to meet fixed interest and principal
payments and reenterthe loan process.
Grameen Bank II
 Grameen Bank underwent a major
restructuring by which it refocused on a
central tenet of the bank’s original philosophy.
 The poor always pay back. From this
restructuring process emerged Grameen Bank
II, which was conceived in 1999 and
implemented from 2000 to 2003.
 The main changes to the classic Grameen
system included simplifying loan
classifications and offering greater flexibility
for loan repayments.
 Grameen Bank II include the Grameen Pension
fund and Grameen Loan Insurance.
 Grameen had offered more than a dozen kinds of
loans, including seasonal, family and general loans.
 In order to avoid the confusion and needless
redundancy resulting from this breadth of
offerings, Grameen II starts all first-time borrowers
with a Basic Loan in one of only three loan
categories that correspond to three different annual
interest rates: development or entrepreneurship (20
percent), housing (8 percent) or education (5
percent).
 The Grameen Bank II loan program is described as a
highway, on which women that remain within the
system and meet all terms of their loans graduate
to progressively larger loans.
Diversifying Grameen
 Grameen Bank has also helped establish a number
of related organizations to support its mission,
although it has chosen to support them with debt
financing rather than assumed equity stakes.
 These organizations are separate legal entities that
began as projects and were later spun off. Grameen
Bank made loans into a trust fund (the Grameen
Fund) from which disbursements were made to the
companies.
 The companies were then expected to pay back
the loans at a later stage.
 One of the organizations that expanded and
diversified the bank’s activities was the Grameen
Krishi Foundation (GKF), which focuses on
agriculture and provides loans to groups of farmers
owning between 0.5 and 3 acres of land. Since
Grameen Bank itself does not loan money for
agricultural production, through GKF it is able to
do so.
 Grameen Bank also has helped found 17 Grameen
Network companies, which provide basic services
that many Grameen Bank borrowers require. They
are independent companies that have not received
any loans from Grameen Bank and pay regular
taxes and duties.
Summary of Grameen Bank’s Strategy, Risk Management, Growth and
Compensation

 Strategy
 Target a unique client base—largely rural women.
 Integrate social and financial goals and create lasting partnerships with the
microfinance community to grow the global base of microfinance.
 Lobby governmental organizations to increase visibility of microfinance initiatives.
 Growth

 No donor funds since 1995.

 90% of loans funded through income and deposits.
 Started Grameen-branded businesses but limited its risk to small loan.
commitments; organizations are left to run as independent entities.
 Risk Management
 First line of risk management is the loan group of women from the same village.
 Women put pressure on one another because default affects the ability of each
member in the group to take loans.
 This is the most important factor in keeping defaults low.
 Next line of defense is surprise internal audits.
 Quarterly monitoring and evaluation.
 Surprise center visits by branch managers.
 Compensation
 Managed and operated by savers and borrowers
Exporting the Model and Building
Lasting Financial Institutions
 Grameen Bank Replication Program -The success of
Grameen Bank has spawned a rash of not-for-profit and for-profit
organizations attempting to mimic the model.
 In 1999, the Grameen Foundation, and offshoot of Grameen Bank
established as a not-for-profit entity to spread the Grameen Bank
mission, established the Grameen Bank Replication Program (GBRP)
to provide financial and technical resources to help launch new
microfinance programs.

The Consultative Group to Assist the Poorest (CGAP), a consortium

of 28 development organizations dedicated to expanding access to
financial services for the poor, has been instrumental in
establishing guidelines, best practices, regulation and
measurement techniques for assessing the effectiveness of
organizations in the field of microfinance.
 For-Profit Microcredit Models-
The not-for-profit model, several for-profit
corporations have embraced microfinance either as
a stand-alone business model or as an operating
unit of the corporation.
The largest of these corporations, in terms of total
assets, is Bank Rakyat of Indonesia (BRI).
BRI has more than $3 billion in total assets devoted
to microfinance,21 which accounts for one-third of
its total lending. 22 BRI went public at the end of
2003 in the largest IPO in Indonesia since the Asian
financial crisis.
 Microcredit Summit Campaign and
Sustainability of Microcredit-
 Grameen Bank’s influence extends well beyond its own
organization. For example, the bank was instrumental in
setting up the Microcredit Summit Campaign (MSC) in
1997.
 At the inaugural meeting, 2,900 people from 1,500
microcredit organizations and137 countries united to
launch a campaign to provide financing to 100 million
of the world’s poorest by 2005.
 Beyond defining its target clientele, the MSC established
four main goals:
 •Reaching the poorest.
 •Reaching and empowering women.
 •Building financially self-sufficient institutions.
 •Ensuring a positive, measurable impact on the lives of
clients and their families.
Evaluating Grameen Bank
 Grameen Bank’s success must be measured in
terms of both social and financial standards.
Furthermore, one must first ask whether the bank
is a successful social program before turning to its
performance as a financial institution. Grameen
Bank is a successful social program that combats
poverty by addressing the specific needs of the
neediest in society, with a particular emphasis on
women.
 Women’s increased empowerment may explain the
fundamentalist Islamic Party’s loss of 14 of its 17
parliamentary seats in the June 1996 Bangladeshi
elections after it expressed opposition to
microcredit and women’s rights. In those elections,
for the first time in Bangladeshi history more
women than men voted.
Conclusions
 Grameen Bank has become one of the largest enterprises in
Bangladesh and has lifted millions of people—mostly women
and their families—out of poverty. Given Khandker’s findings
(1998) that “as much as 5 per cent of program-participating
households should be able to lift their families out of poverty
every year,” the 4.2 million women already reached through
BRAC and Grameen Bank in Bangladesh translate into 21
million family members.
 Grameen Bank and microcredit as a whole, despite the
respectable performance of both. Grameen Bank has adjusted
in response to many of the criticisms surrounding reporting,
openness and sustainability and has reduced its reliance on
public funds and private donors. Still, returns on equity and
assets remain too low to attract serious investment, and the
authors believe this reality is unlikely to change unless
Grameen adopts a different, less socially oriented model.
THANKING YOU-
 PRESENTED BY-
 ALINA JAVED 15/IMB/009
 ANJALI RATHI 15/IMB/013
 ANANT MITTAL 15/IMB/011
 AMAN SINGH 15/IMB/010
 ADITYA BHATI 15/IMB/008
 ANKUR 15/IMB/014