Grameen Bank is an old organization. Their first loan disbursement goes back to 1970s, the time when the hunger and famine severely hit the country. Yunus says there is nothing terrible than seeing people dying because of hunger. This was the time when he first started micro finance in the village of Jobra. He did not know the years ahead he would receive one of the most prestigious award, the Nobel Peace Prize. It was also his first time that he deeply believed that poor people were as financially reliable as rich people. The situation in Bangladesh is much better now. Things are changing but slowly but dying of hunger is no longer an issue as it was in the past. Grameen Bank, when it first started, was providing only micro loans but over time it expanded, it changed. It expanded so much that with 8 million members now, it provides not only loans for income generation activities but also other services such as insurance, health, education and housing loans. GB is owned by the poor. 95 percent of the total equity of GB belongs to its members. The rest 5 percent is owned by the government.
The financial institutions are for rich people. Because, the rich have money and they can get things done with just a phone call when they need. But, the poor have only their word, and honesty as collateral. They got no physical collateral, no guarantor, nothing. By starting micro loans, Muhammad Yunus showed the world that the poor were trustworthy. With a unique approach he created, Grameen Bank has been still alive despite the most recent economic meltdown . When all big companies and financial institutions were going down one after another, GB, the largest financial institution in Bangladesh passed through the economic crisis without a problem. The secret according to Yunus is simple: GB is owned by the poor. The money generated from micro finance goes back to members, not to stock market or off shore bank accounts. Grameen Bank declared 30% cash dividend for 2009. This is actually the highest cash dividend declared by any bank in Bangladesh in 2009. The highest record of dividend was in 2006, 100 percent. The shareholders, who account for 95 percent receive these dividends each year.
At Grameen Bank, there are different interest rates for different products, (rather than service, 'product' is the term the GB staff members prefer to use): 20 % for income generating loans (micro loans), 8 % for housing loans, 5 % for student loans and interest free loans for Struggling Members (beggars). However, it should be indicated that all interest rates are simple interest, thus calculated on a declining balance method. Simply, if a borrower receives a loan of Tk 1000 and pays back the entire amount in one year in weekly installments, she pays a total amount of Tk.1100. Tk 1000 as principal, plus Tk 100 as interest for the year, equivalent to 10% flat rate. This is a very competitive rate in Bangladesh. At GB, members also deposit cash for long term investment. For this, minimum interest rate is 8.5 %, and max is 12 %.
Grameen Bank does not require members to show any collateral in order to get a loan. Bank also has a different approach in dealing with members having difficulty paying their loans back. Because the bank does not require the borrowers to sign any legal paper recognized by law, the borrowers do not face any potential charge before court if there is a dispute between the bank and the members. The solution is different in Grameen approach. Talking to borrowers, group solidarity, providing the troubled members with a more flexible payment schedule. Things are worked out.
Although each borrower must belong to a five-member group, the group is not required to give any guarantee for a loan to its member. This used to be the case. But Grameen Bank changes rules if they do not work. This is something that I really liked about the way the bank works. There was a lot of criticisms about how much pressure the group liability put on the members of a group. Now, the bank states that repayment responsibility solely rests on the individual borrower, while the group and the centre oversee that everyone behaves in a responsible way and no one gets into a repayment problem. However, due to lack of monitoring and control mechanism and because the bank has grown so much that, center managers as well as branch managers use group pressure as a way of collecting money. Eventually, it is the repayment rate that matters for GB, it is the main indicator of success that they use quite often. This is another issue that I will cover later in my posts. The blow picture indicates the locations where GB operates in the country. GB is pretty much everywhere in Bangladesh.
Grameen Bank as of September 2010 disbursed roughly 560 million taka (8 billion USD). Out of this amount 58 billion taka has been used for basic loan, 149 thousand for housing, almost 2 million taka was utilized by members for education purposes. Grameen Bank also accepts member’s savings under government permission. The total amount in that yeas was 50 million taka for members, and 43 million taka for non-members. As a final note, the rate of recovery that GB is very proud to state publicly is 97 per cent. This is amazingly high considering how big the organization is in the country. The organization is so big that almost in all districts and rural areas the GB has branches. Again 2010, the Bank had 2,500 branches organized in 81 thousands villages. Members formed more than one million groups and organized around 145 thousands centres. In order to better understand the structure of GB, below paper drew by a GB employee is explanatory.
