Principles of Grameen Bank

Principles of Grameen Bank

Bank goes to the Poor
Basically, Grameen Bank exclusively focuses on the poorest of the poor. They set the  priority assigned to women to ensure / meet the diverse socio-economic development needs of the poor.They establish clearly the eligibility criteria for selection of targeted clientele and adopting practical measures to screen out those who do not meet them. They investigate the client problems or complexity and then set priority to grameen credit and make borrowers organized into small homogeneous groups. The emphasis from the very outset is to organisationally strengthen the Grameen clientele, so that they can acquire the capacity for planning and implementing micro level development decisions. The Centres are functionally linked to the Grameen Bank, whose field workers have to attend Centre meetings every week.

They make design and development of organization and management systems to capable of delivering programme resources to targeted clientele and The system has evolved gradually through a structured learning process, that involves trials, errors and continuous adjustments. A major requirement to operationalize the system is the special training needed for development of a highly motivated staff, so that the decision making and operational authority is gradually decentralized and administrative functions are delegated at the zonal levels downwards.

Instead of the poor coming to the bank Grameen Bank carries its services to the comfort zones of their door steps. It explains why the Bank’s members consist largely of women who normally shy away from the glare of a conventional banks with branches located away from where the poor live. All banking transactions except loan disbursements are done in the meetings of the borrowers at the village level centres organized by the Bank’s centre manager.

The mode of operation of Grameen Bank is as follows. A bank branch is set up with a branch manager and a number of center managers and covers an area of about 15 to 22 villages. The manager and the workers start by visiting villages to familiarise themeselves with the local milieu in which they will be operating and identify the prospective clientele, as well as explain the purpose, the functions, and the mode of operation of the bank to the local population. Groups of five prospective borrowers are formed; in the first stage, only two of them are eligible for, and receive, a loan. The group is observed for a month to see if the members are conforming to the rules of the bank. Only if the first two borrowers begin to repay the principal plus interest over a period of six weeks, do the other members of the group become eligible themselves for a loan. Because of these restrictions, there is substantial group pressure to keep individual records clear. In this sense, the collective responsibility of the group serves as the collateral on the loan.

Loan without Collateral

Grameen Bank (GB) has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust, accountability, participation and creativity. GB provides credit to the poorest of the poor in rural Bangladesh, without any collateral. At GB, credit is a cost effective weapon to fight poverty and it serves as a catalyst in the overall development of socio-economic conditions of the poor who have been kept outside the banking orbit on the ground that they are poor and hence not bankable. Professor Muhammad Yunus, the founder of “Grameen Bank” reasoned that if financial resources can be made available to the poor people on terms and conditions that are appropriate and reasonable, “these millions of small people with their millions of small pursuits can add up to create the biggest development wonder.”
As of December, 2015, it has 8.81 million borrowers, 97 percent of whom are women. With 2,568 branches, GB provides services in 81,392 villages, covering more than 97 percent of the total villages in Bangladesh.

The Bank does not work for profit alone as demonstrated by the zero or subsidized interest rates for the disadvantaged segments of the people. Nevertheless, the Bank continues to achieve significant growth in terms of operating and net profits. During the year the Bank earned a profit of BDT 24 million and declared 30% cash dividend for the year. The bank has also created a Dividend Equalization Fund to serve as a cushion against adverse situation weighing down on the bank’s profit due to natural or manmade calamities. It ensures a fair degree of stability in the rates of dividends payable to the shareholders over the years. It serves as an incentive for the shareholders to sustain their enthusiasm to carry forward GB’s goals to empower the poor. Payment of attractive dividends serves as inspiration for shareholders to relentlessly work toward sustaining the momentum that has been a hallmark of GB’s performance year after year. What is more significant is that the Bank’s borrowers are its shareholders along with the government.
The underlying premise of Grameen is that, in order to emerge from poverty and remove themselves from the clutches of usurers and middlemen, landless peasants need access to credit, without which they cannot be expected to launch their own enterprises, however small these may be. In defiance of the traditional rural banking postulate whereby “no collateral (in this case, land) means no credit”, the Grameen Bank experiment set out to prove – successfully – that lending to the poor is not an impossible proposition; on the contrary, it gives landless peasants the opportunity to purchase their own tools, equipment, or other necessary means of production and embark on income-generating ventures which will allow them escape from the vicious cycle of “low income, low savings, low investment, low income”. In other words, the banker’s confidence rests upon the will and capacity of the borrowers to succeed in their undertakings.

As Grameen Bank provides loans to their clientele without any collateral especially the poor, disadvantaged groups, downtrodden groups, remaining vulnerable situation and Loans are small, but sufficient to finance the micro-enterprises undertaken by borrowers: rice-husking, machine repairing, purchase of rickshaws, buying of milk cows, goats, cloth, pottery etc. The interest rate on all loans is 16 percent. The repayment rate on loans is currently – 95 per cent – due to group pressure and self-interest, as well as the motivation of borrowers.

The collateral free loan system focuses on some conditionalities :
1.     Loans given without any collateral
2.     loans repayable in weekly instalments spread over a year
3.     eligibility for a subsequent loan depends upon repayment of first loan
4.     individual, self-chosen, quick income generating activities which employ the skills that borrowers already posses
5.     close supervision of credit by the group as well as the bank staff
6.     stress on credit discipline and  peer support solidarity.
7.     special safe gaurds through savings to minimise the risks that the poor confront
8.     transparency in all bank transactions most of which take place at centre meetings.

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