A visit to Bangladesh’s Grameen Bank

By M. Osman Ghani

I had an opportunity to visit Grameen Bank (GB) Bangladesh during November, 2009. I stayed in a branch office (Durgapur Rajshahi) for four days and studied various aspects of micro-credit loan programme in the rural areas of Bangladesh. Grameen Bank, and the concept and methodology of micro-credit that it has been promoting through its 30 years of work is highly contributing to reducing poverty in the vast rural areas of Bangladesh. In fact, Grameen Bank (GB) has become a role model for the rich and the poor countries alike which want to tackle poverty. Grameen Bank project was born in 1976 and transformed into a formal bank in 1983. It is owned by the poor borrowers of the bank who are mostly women. Borrowers of GB at present own 95 percent of the total equity of the bank. Remaining 5 percent is owned by the government. GB does not require any collateral against its micro loans. Its present number of borrowers is about 8 million, 97 percent being women. GB has 2559 branches in 84691 villages of Bangladesh with a total staff of 23144. Total amount of loan disbursed by GB since inception is TK476.5 billion ($8.43 billion), out of which TK 425 billion ($7.49 billion) has been repaid. 100 per cent loans financed by GB are from its deposits with recovery rate of 98 per cent.

It is micro credit programme is rapidly improving socio economic status of rural areas in Bangladesh. Ever since GB came into being it has made profit every year except in 1983, 1991 and 1992. Total revenue generated by the bank in 2008 was TK 12 billion. Total expenditure in the same year was TK 10.7 billion. Interest payment on deposits in 2008 was TK 5.5 billion, was the component of expenditure GB made a profit of TK 1.3 billion in 2008. Unbelievable success story of GB in Bangladesh in fighting abject poverty and raising millions of poor asset less and landless people of Bangladesh is inspiring the governments and policy makers in both poor and rich countries to follow its example. This is why many governments are trying to emulate Grameen Banks example of fighting poverty.

There are four types of interest rates for loans from GB: 20 per cent for income generating loans, 8 per cent for housing loans, 5 per cent for student loans and 0 per cent (interest free) for struggling members (beggars). All interests are simple interest, calculated on declining balance method. It offers very attractive rates for depositors ranging from 8.5 per cent to 12 per cent. By the end of September 2009 total deposits in GB stood at TK 73.04 billion ($1.06 billion). Member deposit constituted 54 per cent of the total deposit. GB had taken up a special programme called “Struggling Members Programme” (beggars rehabilitation programme). Over 112,000 beggars have joined the Programme with total amount disbursed at TK 139 million out of which TK 105 million has already been paid back (75 per cent) by the beggar members of the Bank 18900 have left begging.

Grameen Bank introduced housing loan in 1984. It became a very attractive programme for the borrowers. This programme was awarded Aga Khan International Award for Architecture in 1989. 675,883 houses have been constructed so far with the housing loans averaging TK 13,093. A total amount of TK 8.85 billion has been disbursed for housing loans. Grameen Bank provides larger loans, called micro-enterprise loans, for these fast moving members. There is no restriction on the loan size. So far 2,015798 members took micro-enterprise loans. A total of TK 50.81 billion ($763.11 million) has been disbursed under this category of loans. Average loan size is TK 25,205.

Grameen Bank also gives scholarships ever year, to the high performing children of Grameen borrowers, with priority on girl children. Up to September 2009, scholarships amounting to $1.83 million have been awarded to 92,076 children. By September 2009, 37,908 students also received higher education loans, of them 35922 students are studying at various universities; medical schools, engineering and in other professional institutions. Thus GB is also promoting education and learning among the poor masses. GB plans to halving poverty level in Bangladesh by 2015 which appears to be an achievable target if compared with the present pace of growth of its micro credit programme and women empowerment. A large member female entrepreneurs is emerging in Bangladesh who are now contributing to value addition of Bangladesh GDP.

Main findings of the team

I visited the Durgapur Branch of GB in Rajshahi District. Our branch office trip consisted of three members. We stayed in Durgapur Branch Office for four days (from November 9-13, 2009) and minutely studied the borrowing, lending and deposit mobilisation activities of the Bank at grass root level.

Durgapur Branch of GB is surrounded by dozens of villages with about two dozens centres, each centre representing about 50-100 borrowers, depending upon the size of population of the village. This was an all female member branch office thus all the loanee/borrowers of the Grameen Bank were female, mostly having husband and children. The essential task was to complete a case study report of some borrowers after observing GB field operations mechanism. During our stay in the Durgapur Branch we conducted the tasks namely: (i) Case study of a Grameen Bank borrowers; (ii) Case study of a GB Branch; (iii) Case study of a Centre Manager; (iv) Understanding Grameen Generalised System; (v) Field Work; (vi) Experience on report-monitoring and evaluation of GB; (vii) Special Programme; and (viii) New Branch Operations.

Case study of a Grameen Bank borrower was to facilitate understanding of the dynamics of poverty at an individual and subjective level and to gain insight into the lives of the poor, their struggles, achievements, hopes, fears and dreams. Case study of a Grameen Bank Branch was to enable the participants to understand the dynamics of branch management and the process by which it is set up and institutionalised. For instance, participants could investigate into the genesis of the branch; what was the initial reaction of the local people; what are its present characteristics (loan volume, various saving product, profit/loss, number of borrowers, struggling members, etc.), what are its achievements and failures, what motivates the staff of GB to work for the poor of the area.

Our main objective of the branch office visit was to gain an understanding of the dynamics of a GB branch office as it is the basic and most important component of Grameen Banking System. We were supposed to learn the process by which a branch office is set up and institutionalised, sector behind the genesis of the branch, how the site was selected, what was the initial reaction among borrowers and others in the locality. What are its present characteristics (e.g. volume of loans disbursed various saving products, loan recovery rates, present strength and weakness. We were also supposed to learn what does GB represent to the borrower, how do borrowers accept the new Grameen methodology known as Grameen-II etc.

Our team was very impressed at the outstanding performance of Durgapur Branch of GB. It was an all female branch with 100 per cent recovery rate. We visited several centres of the branch during official transaction of its business. GB deposits and loan disbursements are conducted on weekly basis, meaning that each centre has a fixed weekly date and time on which all the borrowers of the centre gather in a tin-shade office. Each borrower was a member of a group where only the group leader is entitled to negotiate fresh loans and make loan repayment on behalf of the five member group. A centre may represent 10 to 20 groups based on the number of borrowers. Its credit delivery and recovery mechanism is very client friendly and flexible. Repayment is made in weekly installments. All banking transactions take place at the centre meeting. All transactions are highly transparent. The poor do not come to the bank but the bank goes to the poor. One can borrow more and more as one grows in confidence, skills, experiences and fulfill Grameen requirements. The concerned branch office contracts and monitor each and every activity of its centres and advise its borrowers how to promote their business activities through its centre offices. GB promotes and maintains a problem-solving culture. It puts total trust in the creative potential of its staff and clientele in crisis management. The period for the basic loan may vary from 3 months to 3 years. The period for housing loan is 10 years. Micro enterprise loan is also given for a period up to 3 years, education loan provided for the period of education. Grameen has also scholarship programme for the children of its members. We also visited some struggling member. We found them happy with vital support which GB is providing them to get rid of poverty trap.

We conducted case studies of some outstanding borrowers who experienced chilling poverty before they became members of the GB but now their financial and social status have markedly improved. Most of the female borrowers were helping their husbands, or sons to establish their own sources of income. The main economic activities in the area we visited consist cultivation of various vegetables, rice, fish farming, small transport business, small grocery business, some wholesale business, cow or goat keeping and running of small factory, like ice factory etc. We found most of the borrowers of GB hardworking, energetic and full of ambition for their future prosperity. We found most of the Grameen borrower above the poverty line. They were equally committed for education and prosperity of their children.

Grameen has helped to create a large number of self-employment for poor men and women who never had any income before. Asset less people have become economically active people. Grameen does not lend money to small-holders, but small-holders benefit from the increase in demand for agricultural products created by the increased income of the poor. We have witnessed the process of real transformation from abject poverty to promising prosperity of many rural folk in Bangladesh.

Ten indicators to assess poverty level by GB

Every year GB staff evaluates their work and check whether the socio-economic situation of GB members is improving. GB evaluates poverty level of the borrowers using ten indicators. A member is considered to have moved out of poverty if her family fulfils the following criteria:

(1) The family lives in a house worth at least TK 25,000 (twenty five thousand) or a house with a tin roof, and each member of the family is able to sleep on bed instead on the floor.

(2) Family members drink pure water of tube-wells, boiled water or water purified by using alum, arsenic-free.

(3) All children in the family over six years of age are all going to school or finished primary school.

(4) Minimum weekly loan installment of the borrower is TK 200 or more.

(5) Family uses sanitary latrine.

(6) Family members have adequate clothing for every day use, warm clothing for winter, and mosquito-nets to protect themselves from mosquitoes.

(7) Family has sources of additional income, such as vegetable garden, fruit-bearing trees, etc.

(8) The borrower maintains an average annual balance of TK 5,000 in her savings accounts.

(9) Family experiences no difficulty in having three square meals a day throughout the year.

(10) Family can take care of the health, can afford to take all necessary steps to seek adequate healthcare.

Conclusion

In Bangladesh, rural women are lifting their families out of poverty, using their own skills in their own projects being implemented by dedicated and highly committed teams of Grameen Bank (GB) under its able leadership of Prof. Yunus. About 8 million borrowers of GB are struggling, day and night to free themselves from the tentacle of chronic poverty and they are showing unbelievable results. All they needed was capital in the form of small loans delivered at their door steps by the team of GB. The very poor have little margin and literally cannot afford to take risk. Small amount of financial resource opens up the opportunity for the poor to translate their individual unused potential into concrete economic action to create an income flow. Grameen is a well-studies institution. All studies indicate that borrowers have succeeded in raising their real income at an average rate of 18 percent per annum. They have increased their asset ownership, they are using their idle hours for productive purposes through generation of self employment, their food intake has improved in the forms of calorie intake, their social status has undergone positive changes, and poor rural women who were simply ignored have risen to establish themselves as independent entities after becoming active members of GB. They became conscious about health issues in general and family size in particular. All Grameen members declare that they will neither accept dowry, nor will they give any dowry.

Grameen’s programme transforms unemployment into self-employment without prior preparation in terms of training. It creates the basis of a functioning economy at the grassroot. It helps utilisation of local skill, local technology and local market. It helps retain the economic benefit in the area where it is generated instead of allowing it to flow out to a distant economic centre. Grameen helps people organise themselves to remove the barriers in their way to achieve better life.

Government of Bangladesh has been supportive of Grameen’s efforts. Government is trying to expand the scope of Grameen by creating a Trust which will help government institutions to carry on Grameen type programmes. Grameen has helped create a large number of self-employment for poor men and women who never had any income before. Due to Grameen efforts asset less people are now becoming economically active people in Bangladesh and many other countries which are emulating GB experience effectively.

The Government of Pakistan is conscious of the magnitude of existing poverty menace in the country. Pakistan has introduced a number of programmes to reduce poverty level in the country through microfinance programmes both in the public sector and the private sector. The National Poverty Reduction Strategy (2008-2011) is such an approach. The main focus of the strategy is to address the rising level of poverty. About half a dozen of micro credit banks in the private and public sectors, including Khushali Bank’s credit out reach programmes are showing some visible impact. There were about 1.8 million beneficiaries of the micro finance institutions during the fiscal year 2007-08. They leant more than Rs.21 billion to the poor. However the number of active borrowers of micro loans has dropped by 7 per cent, while the gross load portfolio (GLP) has fared even worse, declining by 12 per cent in the first quarter of 2008. Credit was not extended to a significant number of previous borrowers as the lenders have not been able to roll-over their existing lines of credit.

To address poverty in a big way a project entitled. Benazir Income Support Programme (BISP) has been initiated by the Government of Pakistan with initial allocation of Rs 34 billion in FY09 ($425 million) the third largest in the total budget. The programme has been initiated to help the poor families whose monthly income is less than Rs.6000/-. For widowed/divorced women, without adult male members in the family. Any physically or mentally retarded person(s) in the family. For any family member suffering from a chronic disease. During the current fiscal year (2009-10) PSDP allocation to BISP is more than Rs.70 billion to cover millions of people who are extremely poor and neglected.

For meeting the needs of the landless and those without any tangible assets the government should encourage further promotion of micro finance institutions and also funds for micro credit administered various NGOs. Some of the NGOs in Pakistan are aggressively promoting health and education facilities at various levels and across the country. But despite all these initiatives the number of weak and vulnerable people is rising in Pakistan that is a matter of concern and need to be addressed soon.

Replication of Grameen experience

The relentless efforts of GB, its dedicated leadership and experienced and dedicated teams have achieved unbelievable success in Bangladesh. It has brought million of people out of poverty trap and it has inspired many countries and institutions to emulate its example. Untiring efforts of Prof. Yunus and his dedicated team members are now the centre of focus for all those who want to help the poor and derive the poverty demon out of sight and dismantling the poverty wall. I suppose the socio-economic condition of Pakistan is ideal to replicate Grameen experience. With slight adjustment as per local and regional condition Grameen experience can be effectively promoted in Pakistan. But for this gigantic task we need some devoted, dedicated and willing teams of workers, who are ready to help the asset less and helpless people.