Grameen Bank - Banking on the Poor
Summary Paper from
the Grameen Support Group, Australia

The opinions expressed in this Summary Paper are not necessarily those of the Grameen Bank

Sophia Khatoon, a 22 years old skilled furniture-maker in the tiny village of Jobra in Bangladesh, worked 7 long days a week, looked twice her age, and lived in abject poverty. She made stools and chairs out of bamboo, which she had to sell to a money-lender who provided the credit to buy the raw material. The price she received barely covered the costs.

Dr. Yunus, Professor of Economics at the University in the Southern port city of Chittagong who later founded the Grameen Bank - calculated that effectively Sophia was paying interest at the rate of 10% a day, more than 3,000% a year. Yunus could not reconcile the fact that a woman with such skill who worked so hard, produced such beautiful bamboo furniture and created wealth at such high rate was earning so little.

In fact the poor all over the world are trapped in such exploitation. While they work extremely hard and create enormous wealth, the middle-men, money-lenders and employers keep the fruits of their labour. The poor have no access to "institutional credit", which you and I have, because they can not provide a collateral. The system keeps them firmly trapped in debt, poverty and exploitation.

With a loan of 50 taka (a few dollars), it took Sophia only a few months to establish her own little self-employment, increase her income seven folds and repay the loan.

The Grameen Bank today

From this modest beginning, grew a bank which today employs 14,000 staff and works in 35,000 villages of Bangladesh. Last year it provided US$ 380 million in 3.62 million loans. This year it is expected to lend more than half a billion dollars. Average loan size is a little over $ 100. In the face of this astronomical growth, six basic principles involved in the first loan to Ms Khatoon were jealously guarded:

    • the bank would lend only to the poorest of the poor among the rural landless.

    • the bank would remain women-focused. 94% of its customers are women.

    • these loans would be without collateral or security.

    • the borrower - and not the bank - would decide the business activity the loan will be utilised for.

    • the bank would help and support the borrower in succeeding.

    • borrowers will pay as little or as much interest as required to keep the bank self reliant (that is, not dependent on grants or donations).
Since formally becoming a bank in 1983, Grameen has given out nearly 16 million such tiny loans, and enjoys an unparalleled customer loyalty. The on-time loan repayments exceed 98%. Defaults (bad debts) are less than one-half of one per cent. This bank of the poor thus outperforms all other banks in Bangladesh and most banks around the world.

  • Savings

    Through a set of incentives, the bank encourages its borrowers to save 5% of the loan amount, plus one taka (3 cents) per week. The accumulated saving of the borrowers, one of the indicators the bank uses to gauge its impact on poverty eradication, have grown from nothing in 1983 to 108 million US dollars today.

  • Owned by the poor

    From the very outset, Professor Yunus designed the bank such that its ownership and control should remain in the hands of the very people it lends to. As soon as a borrower accumulates sufficient saving, she buys one (and only one) share in the Bank, which costs $3. Today 92% of the Bank is owned by its borrowers. (Bangladeshi government owns the remaining 8% of the shares). The shareholder-borrowers elect 9 directors from their midst. (Another 3 directors are appointed by the Bangladeshi government). Only the borrowers can buy shares in the bank.

  • Interest Rate

    The board sets the interest rate such that after paying all expenses, including the cost of its growth, the bank makes a modest profit. The profit is returned to the shareholder-borrowers in the form of dividends. The current rate of interest on 'working capital' loan is 20% and on home loans is 8% (Home loans are cross-subsidised by the working capital loans). Last year the bank made a profit of US$ 680,000. Thus the Grameen Bank is an example of a totally self-reliant poverty-eradication initiative which does not need a handout to sustain itself or its growth. The poor own and run the bank and pay for their "development".

  • Creation of wealth

    On the basis of its experience, the bank believes that the poor have the capacity to create wealth as much as any one else. They do not lack ideas, motivation, skill or entreprising spirit. Contrary to what the donors usually believe, the poor do not have to learn new skills, or "change their attitudes" to take the first step out of poverty. They remain desperately poor because an oppressive and exploitative economic system keeps them trapped. They can not get access to capital to create their own jobs because they do not have any collateral. And the employers and money-lenders thoroughly exploit them. Access to credit allows them to break free from the trap, explore their potential and create enormous wealth.

  • The international profile of the Grameen Bank

    The Bank enjoys a very high international profile. Various UN agencies, private foundations, US and European governments and many private individuals deposit money with the Bank, which makes up its lending-base.

    In Australia, the Grameen Cash Management Trust is set up in which we invest our savings. The return is comparable (usually higher) than the interest paid by the major Australian Banks on equivalent at-call and term-deposit accounts.
    (For details, please contact

  • Impact on poverty eradication

    Experience has demonstrated that it takes an utterly destitute six to ten successive loans (one year each) - and a lot of hard work - to cross the poverty line. The first loan is often as little as US$ 50. Average loan size is a little over US$ 100. In the process, the borrower builds a secure self-employment, often employing the whole family.

    54% of Grameen borrowers have thus crossed the poverty line and another 27% are very close to it. For those who do not perform as well, poor housing in rain soaked Bangladesh and chronic ill-health are identified as the major reasons.

  • Impact on population growth

    Many books and research papers have been written and impact studies have been done to explain why the Grameen Bank has had a spectacular success in this area where other, much better funded family planning programmes met consistent and costly failure. (The simplistic summary is that economic empowerment of women is stronly linked with their exercise of choice). If you have an interest in this area, please ask for details. (

  • Housing

    The Bank also provides a $300 10-year housing loan. A family would qualify for this loan if the land title is in wife's name. So far, more than 350,000 houses have been built with this loan. The interest on the housing loan (8%) is cross-subsidised from the interest earnings on the 'working capital' loan.

    The house, designed by a special group of local architects, has many sleek features besides its low cost. These include clever use of indigenous raw material, ventilation, efficient use of space, ability to stand high wind velocity and aesthetic appearance.

    The engineers and economists of the Bank could not believe themselves when their $ 300 house was awarded a prestigious Architecture Award by the jury of the Swiss based Aga Khan Foundation. In the glittering world of architecture, this award normally goes to stunning multi-million dollar designs.

  • Medicare

    Chronic ill-health has been identified as a major reason for the poverty to prevail. The Grameen Bank is experimenting with a medicare scheme the cost of which even the Bangladeshis can not believe: members will pay a premium of US$ 1.25 per family per year, and 2 US cents for each visit to the clinic. This will cover 40% of the cost of the scheme. The remaining 60% of the cost will be sought from the Bangladesh government and, possibly, foreign donors who wish to undertake a long-term commitment.

  • Why women

    In defiance of the Bangladeshi banking system, which treats women as second class borrowers, the Grameen Bank wanted to establish a 50-50 ratio of women and men borrowers. But they soon discovered that the women are far more effective agents of change: when an extra income comes into the household through the woman, children's diet, family's health and nuitrition and the state of repair of the house receive the highest priority. Men, it was found, are more likely to spend some of their income on self- gratifying consumptions. It was also found that women are much better credit-risk than men and more responsible managers of meagre resources.

    But the most compelling reason to treat women as priority clients is the Grameen Bank's mandate itself: to lend to the poorest first. And women represent the most marginalised group among the poorest of the poor.

    In poor societies such as Bangladesh, where family laws are not well enforced, and traditions come before the law, the incidence of men abandoning their dependent wife and children is far too common. Economic empowerment of women has had a dramatic impact on the stabilisng the family unit.

    Beyond Banking

    Through this massive credit programme the Bank has created a whole new rural economy with 20 billion taka (half a billion US dollars) in circulation among the rural landless. To an amateurs eye this appears to be the ultimate in Sustainable Development. However, the economists of the Bank are not satisfied. In their view :

    This Economy-of-the-Poor is characterised by low accumulation of capital. Small quantities of coins and bank notes circulate rapidly and change hands very quickly, creating the economic illusion that there is money enough for everybody. But the system leaves little room for large capital accumulation and investment because it ties up a substantial part of the money circulating in the system.

    To implant a solid foundation underneath this high velocity economy, the Bank created an institution called SIDE (Studies - Innovation - Development - Experimentation). The purpose of SIDE is to integrate the Economy-of-the-Poor with the country's mainstream economy and to mobilise the transfer of capital from the mainstream economy to the poorer rural sector. This is a grand and ambitious experiment in Economic Science currently being undertaken, with sensational success. This is what separates the Grameen Bank from aid and charitable organisations.

    In this summary document, it is not possible to provide detail of the outcome of the SIDE. That is documented in numerous books, articles, research papers and impact studies.

    We shall, however, give you a glimpse into what the SIDE is doing by describing a few very large non-profit non-stock corporations it has created which are at the forefront of this all out assault on poverty.

  • Grameen Agricultural Foundation (GAF)

    This has turned around the centuries old exploitative system of share cropping to the benefit of small and very small landholders and landless workers, who fully own the GAF through share-holdings.

    It collates small, fragmented and inconveniently composed pieces of land into 50 acres Primary Farms, which can be irrigated by a single deep tubewell. GAF provides the capital (on loan from Grameen Bank) to sink the tubewell, owns and maintains the tubewell and the irrigation system and carries out water management. It also provides fertilisers, seeds, pesticides, farm machinery and all other agricultural inputs. No cash payment is required. Instead a share of the crop is taken and sold in the market to recover the costs. Since GAF is a non-profit company, any profit it makes is returned to its share-holders.

    GAF also invests in crop diversification, bio-technology, storage, transportation and marketing infra-structure.

    In short, GAF has taken the risk out of small farmers to whom one failed crop meant losing all they had. In the past these farmers had no choice but to dump the crop onto the market as soon as they finish harvesting. With GAF infrastructure in place, the grain can be stored until there is a demand and transported to markets previously beyond reach. With the security of GAF behind them, the farmers are willing to experiment with unfamiliar crops.

    GAF is exploring the export potential for its surplus produce.

    Please note that individual ownership of land is not affected by participation in the Primary Farm system. Nor is the freedom of individual landowners to grow whatever crop they like. This system is not the same as a commune or cooperative in a socialist/communist economy.

  • Grameen Fisheries Foundation (GFF)

    In 1986 the Foundation took over a failing government fisheries project which had 800 fish ponds, produced just 50 tons of fish a year and was losing millions of dollars of donor (British) money. Theft and neglect were common. Today, fully owned by its share-holder workers, GFF harvests over 1,000 tons of fish in a year, while practicing low-intensity fish farming. Constant research and monitoring is undertaken to ensure that the present generation of owner-workers can pass on an equally viable fishery to the next generation.

  • Grameen Check

    Hand weaving of colorful "check" fabric is a traditional Bangladeshi craft. The 100% cotton yarn is dyed before weaving, making the fabric look beautiful and 100% colour fast. It comes in literally millions of colour combinations ranging from subtle pestal colours to the bright ones. SIDE identified a huge unutilised export potential for this truly magnificient cloth. Today, the Grameen Check employs 200,000 share-holder handloom weavers, and exports to the USA, UK, Europe and Japan. It is looking for the market in Australia.

    In Februray 1996, an exclusive fashion-show and exhibition was held in Paris to promote the Grameen Check and other cotton and silk fabrics produced by the borrowers of the Grameen Bank.

    Beyond Bangladesh

    Bangladesh is Grameen's experimentation site where its Economic & Social Development Model is developed, tried and fine-tuned. The vision is to "replicate" an appropriately customised variation of this model in each and every country of the world where poverty exists. To this end, Grameen Trust was set up to provide the seed capital, training, technical assistance and experience-sharing to economists and bankers of other countries wanting to emulate Grameen Bank's system.

    At present there are 168 Grameen Bank Replications in 44 countries. One new Grameen Bank Replication is created some where in the world each week. At this rate, 300 new Grameen Bank Replications will be set up all over the world by the turn of the century. The plan is to take credit to half a billion poorest people (100 million poorest families) of the world by the year 2005, and to all of world's 1.3 billion poor by the year 2025.

    In Feb 1997, an international Summit co-chaired by Mrs. Clinton, will be held in Washington to bring together all the players in the field of development, review the progress and mobilise the political will and commitment for 'a world free of hunger & poverty' vision. At present, a lot of lip-service is paid to this vision by many nations, both in the North and the South, but there is a distinct lack of belief that this is possible or even desirable.

  • Optimism

    There is a growing optismism that although one-fifth of the humanity (1.3 billion people) today lives in what the United Nations calls "absolute poverty", within our lifetime we shall see a significantly better world.

    There are several reasons for this optimism:

    1. The spectacular demonstration by the Grameen Bank of how responsible and hard-working the poor are.

    2. How little money on loan it takes to bring about the miracle:
      In Grameen Bank model, the optimum size of the loan to a family is around half the yearly national average income of the country. In case of Bangladesh, where the average yearly national income is US$ 370, the optimum loan size is US$ 140. For other countries where the vast majority of the world's 1.3 billion poor live, the optimum size of the loan is found to be between $ 120 and $ 300.

    3. Thus the total credit need of the world's 1.3 billion poor (250 million families) is estimated to be somewhere between 25 and 60 billion dollars. Considering that 85 billion US dollars change hands every year in the name of helping the poor (and disappear in the black hole without a trace), the capital the Grameen Bank is seeking is not a lot.

      (Note: The 85 billion dollars mentioned above is a massive sum of money. 60 billion of it is donated by the governments of various industrialised nations, and 25 billion is provided by the donor public - year after year).

    Therefore the Grameen Bank is enabling the local "bare-foot bankers" - from Bangladesh to Bolivia - to create Grameen Bank replications and, at the international level, it is mobilising the capital. Not only it is influencing the donors, it is also attracting mainstream commercial capital. In the Grameen Bank system, the capital does not disappear. It recycles infinitely and actually grows. Therefore, there is no reason not to seek capital on loan.

  • Risks

    The greatest risk to this daring vision of 'a world free from hunger & poverty' comes from expensive failures of lending-to- the-poor programmes. Such failures will discredit this most effective weapon for fighting poverty, and as a result funds and interest will dry up.

    Therefore we feel greatly concerned to see charitable aid agencies from Western countries now wanting to run banks for the poor. There are two major reasons for our concern:

    1. Grameen Bank model is highly culture-sensitive and works only in the hands of the local bankers. Presence of foreigners is found to have dis-empowering and dis-franchising effects. North-South "cooperation" is found to be particularly damaging (as one can imagine).

    2. The Management-Expense-Ratio (MER) required of a typical Grameen Bank replication can not sustain the cost of involving Western aid-workers, either directly or indirectly. The MER of a Grameen Bank replication is based on the expectation that the workers salaries will be in line with the average national income of the country where the replication is being attempted (that is $20 - $100 a month!).

    Hence, poverty eradication ala Grameen really requires the local leadership and workforce to perform the miracle without outside "help". Some of us at the Grameen Support Group in Australia believe that there is nothing we in the West can really do to help the poor in the South.

    It is hoped that the common sense will prevail and the Third World leadership and workforce will be left alone to undertake eradication of poverty among their people. The donor public in the West can play a part in ensuring this.

    We recommend that the aid organisations in Western countries attend to a much bigger challenge close to home : to educate the Western consumers to practice sustainable consumption.

    Worldwide Support for the Grameen Bank

  • Support from the Americans

    In 1987, when Bill Clinton was the governor of Arkansas, Mr. and Mrs. Clinton approached the Grameen Bank to help them replicate its model in the USA. The capital was provided by an American Bank. Today, there are 20 Grameen Bank replication programmes in the USA working to eradicate the urban poverty. Through various acts of the Congress, funds and legislative support have been provided to allow the Grameen Bank concept to function in this richest country in the world. The Grameen Bank has the support of both the Democrats and the Republicans, as well as the US administration.

  • The CNN

    Although Grameen is grateful to the entire American media, CNN deserves a special mention. Jane Fonda and Ted Turner are great admirers of Professor Yunus. They have played a significant part in making the Bank known to the American public and the world.

  • The European Union

    European governments and public have been involved in supporting the Grameen Bank from its very early days. Belgian, Swedish, German, Norwegian and the Dutch governments have helped make up the lending base of the Grameen Bank and funded the Grameen Trust.

    Europeans have also helped the bank achieve international recognition.
    In 1993 Queen Fabiola and King Baudouin, in a glittering ceremony in Brussels, honoured Professor Yunus and Manzeera Begum, a Grameen borrower. (Begum, Professor Yunus recalls, was not quite impressed of the King. Why doesnt he wear a crown, like the kings do? she quietly asked Yunus.)

  • The World Bank

    The World Bank gives loans and not grants. And it does not deal with non-government organisations. Last year it broke both of its rules to provide the Grameen Trust with a small (two million dollar) grant. In June 1995, the World Bank announced a 100 million dollar fund to finance Grameen Bank replications, 30 million of which was World Banks contribution. Donor governments were invited to contribute the rest. Many such funds do not get subscribed to their target. This fund got over-subscribed to 230 million US dollars, such is the optimism and belief in poverty eradication ala Grameen.

  • Various UN Agencies

    UN International Fund for Agricultural Development (UNIFAD) was the very first lender to the Grameen Project (before it became a bank). The Grameen Bank and the Grameen Trust have received valuable support and funding from the UN Capital Development Fund (UNCDF), UNIFAD, UN Development Programme (UNDP), UNESCO, UNICEF and other UN agencies. In February 1996, UNESCO sponsored an exclusive fashion show in Paris to promote Grameen Check (the cotton fabric handmade by the Grameen Bank borrower-weavers).

  • Private Foundations

    A number of private foundations such as the Rockefeller, the McArthur and the Ford have supported the Grameen Bank with funds and have helped to raise its international profile.

    The Grameen Bank Support Group / Australia

    This Support Group was born out of the anger and frustration with the exploitation of donors and tax-payers that goes on in the Western countries in the name of helping the poor "over there". We discovered Grameen Bank through an ABC TV documentary. Unable to believe what seemed like a fairy tale, some of us went to Bangladesh. This is what we found:

    The high self-esteem of the Grameen Bank borrowers stood in stark contrast to the low self-image of the recipients of aid we met at many other aid projects that we sponsored in the past. Compared to the charitable approach we have seen elsewhere, this was a professional assault on structured poverty using the tools of economics, banking and trading. Here, poverty alleviation was a sustainable, even profitable, business; the poor were share-holders in the business, not the target of some aid programme.

    We believe Grameen Bank's position that:

    • a vast majority of world's 1.3 billion poor, trapped in grinding poverty, are perfectly
      capable of working their way out of it.

    • the poor do not need handout; that charity creates dependence and kills initiative,
      thus maintains and even deepens the poverty.
    We believe Grameen Bank's promise that within our lifetime we shall see a world by and large free from poverty. We are, however, convinced that unless the leadership and workforce of this undertaking comes from the Third World itself, this will not happen.

    The purpose of this Support Group is to help and support the Grameen Bank in Bangladesh and its replications throughout the world and make the bank known to the Australian public, media and the policy-makers.

  • Membership of the Support Group

    The membership is open to all who endorse Grameen Banks vision and its approach. There is no membership fees.

    Frequently asked questions

  • Does the Bank lend to "normal" people ?

    Grameen Bank does not engage in any banking business except lending to the poor (technically called "micro-lending").

  • Does Grameen Bank accept donations ?

    The Grameen Bank in Bangladesh is an experiment in self-reliance. Therefore it does not seek donations, although it accepts one when offered.

  • What about the Grameen Trust ?

    The Grameen Trust seeks donations, to finance new Grameen Bank replications all over the world, and to scale up the existing ones until they become viable.

    Donations to the Grameen Trust can be sent :

    USA: personal cheque directly to the Grameen Trust
    Australia: personal cheque in favour of `Grameen Trust' to this Support Group
    Other Countries: US$ bank draft directly to the Grameen Trust

  • Can I invest in the Grameen Bank ?

    Australians can invest in the Grameen Cash Management Trust which provides return comparable to the Cash Managemnt Trusts of the major Australian banks. For information, please contact this Support Group.

    Residents of other countries, please contact the Grameen Bank for information.

  • Does Grameen Bank/Trust has a newsletter ?

    Yes, it is called the 'Grameen Dialogue'. Subscription costs US$ 25 a year.
    In Australia, the costs are :

    - A$ 30 a year (full subsription)
    - A$ 10 a year (students, pensioners)
    - free subscription is also available on request.

    Cheques in favour of 'Grameen Trust' to this Support Group.

  • Any good book on Grameen ?

    A captivating book on Grameen is the outcome of a critical study of the bank commissioned by the Norwegian Ministry for Development Cooperation (NORAD). It provides a detailed insight into the working of the bank, and explains why it enjoys such high loan repayments and success. Highly recommended :

    "Particpation As Process - What Can We Learn From Grameen Bank"
    Andreas Fuglesang and Dale Chandler, ISBN 984-05-1238-2, US$ 15.

    Can be ordered from the Grameen Trust, this Support Group or from the following address in Washington :

    Ms. Patricia Young
    National Co-ordinator, World Food Day Committee
    1001 - 22nd Street NW, Washington DC 20437, USA
    Phone: (202) 653 2404

  • Anything else I can read ?

    Professor Yunus has written numerous books. To some one new to the Grameen we would highly recommend:

    "GRAMEEN BANK: Experiences & Reflections"
    (costs US$ 1 - because it is published in Bangladesh!)

  • Are there Grameen Support Groups in Other Countries ?

    Yes. Please contact us for information.

    For more information, please contact

    Grameen Bank Support Group / Australia
    7 Burke Place
    Mount Colah, NSW 2079
    Tel. 018 - 440 717 (message bank)
    Fax. 02 - 9457 8805

    Contact Person: Shan Ali -

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