Grameen Bank, BangladeshBreaking a viscious circle by providing credit
The Grameen Bank is based on the voluntary formation of small groups of about five to provide mutual, morally binding group guarantees in lieu of the collateral required by conventional banks. At first only two members of a group are allowed to apply for a loan. Depending on their performance in repayment the next two borrowers can apply and, subsequently, the fifth member as well.
The assumption is that if individual borrowers are given access to creit, they will be able to identify and engage in viable income-generating activities - simple processing such as lime-making, manufacturing such as pottery, weaving, and garment sewing, storage and marketing and transport services. WOmen were given equal access to the schemes, and proved not only reliable borrowers but astute enterpreneurs. As a result, they have raised their status, lessened their dependency on their husbands and improved their homes and the nutritional standards of their children. Today over 90 percent of borrowers are women.
Intensive discipline, supervision, and servicing characterize the operations of the Grameen Bank, which are carried out by "Bicycle bankers" in branch units with considerable delegated authority. The rigorous selection of borrowers and tehir projects by these bank workers, the powerful peer pressure exerted on these individuals by the groups, and the repayment scheme based on 50 weekly instalments2, contribute to viability. Savings have also been encouraged. Under the scheme, there is provision for 5 percent of loans to be credited to a group find, and a quarter of the active interest is credited and used in an emergency fund as an insurance against default; in addition, members save one taka every week which is credited to a savings fund. The borrowers save, in all, about 25 percent of the income generated.
The success of this approach shows that a number of objections to lending to the poor can be overcome if careful supervision and management are provided. For example, it had earlier been thought that the poor wuld not be able to find renumerative occupations.In fact, Grameen borrowers have successfully done so. It was thought that the poor would not be able to repay; in fact, repayment rates reached 97 percent. It was thought that poor rural women in particular were not bankable; in fact, they account for 93 percent of borrowers in early 1992. It was also thought that the poor cannot save; in fact, group savings have proven as successful as group lending. It was thought that rural power structures would make sure that such a bank failed; but the Grameen Bank has been able to expand rapidly. Indeed, from fewer than 15,000 borrowers in 1980, the membership had grown to nearly 100,000 by mid-1984. BY March 1991, the number of branches in operation was 854, with 910,842 members (832,782 of them women) in 21,114 villages. There are 36,300 centres of groups, of which 33,126 are women. Group savings have reached 698 million taka (approximately USD 23 million), out of which 570 million taka (approximately USD 19 million) are saved by women.
It is estimated that the average household income of Grameen Bank members is about 50 percent higher than the target group in the control village and 25 percent higher than the target group non-members in Grameen Bank villages. The landless have benefited most, followed by marginal landowners. This has resulted in a sharp reduction inthe number of Grameen Bank members living below the poverty line, 20 percent compared to 56 percent for comparable non-Grameen Bank members. There has also been a shift from agricultural waged labout (considered to be socially inferior) to self-employment in petty trading. Such a shift in occupational patterns has an indirect positive effect on the employment and wages of other agricultural waged labourers. What started as an innovative local initiative, "a smal bubble of hope", has thus grown to the point where it has made an impact on poverty alleviation at the national level.
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