Research and reports

Grameen Bank, literally Bank of the Villages in Bengali, represents one of the largest, best performing, and most influencing microcredit financial institutions, whose business model has been emulated by many developing countries. The Bangladeshi bank began as a microcredit research project launched by Professor Muhammad Yunus in Chittagong’s Jobra village in 1974. Its goal was to provide microcredit services for financially disadvantaged groups, women in particular, enabling them to break the poverty cycle of “low income—low savings—low investment—low income” by making investment first with small loans and then generating returns. In 1983, the Bangladeshi government enacted the Grameen Bank Ordinance, signaling the founding of Grameen Bank, the world’s first bank dedicated to serving the poor.

Grameen Bank is always committed to serving the poor and promoting inclusive finance underpinned by the principle that “all people who need them can have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients”. With the joint efforts of the Bangladeshi government, the people, and Grameen Bank, the country, as shown in the latest data from its bureau of statistics, has seen the absolute poverty rate plunge from 82% in 1972 to 11.3% in 2018, and the rural area in Bangladesh has tremendously changed since then. The Grameen model has been replicated in 41 countries, including the US, Mexico, and Turkey, and benefited 16.88 million low-income households. It is thus globally recognized as a sustainable and effective way to eradicate poverty. As the founder of Grameen Bank, Professor Yunus was awarded the Nobel Peace Prize for his outstanding achievement in 2006.

Grameen Bank is considered innovative in the following aspects. It places emphasis on poor women at the bottom of the social pyramid, provides the poor with microcredit, and encourages savings and shortterm installment repayments. By introducing the Sixteen Decisions, the bank improves clients’ capacities, inculcates fine values, and enhances members’ abilities to manage finance and make a living. Under the Group+Center model, it controls risks by helping members build self-reliance, solidarity, mutual help, and a sense of teamwork, to motivate loan repayments.

Grameen Bank is committed to providing microcredit services for disadvantaged groups, especially women, so that the concept of finance and related financial services can really reach the poor people in need. Combining the specific situation of rural agriculture and financial development in Bangladesh, Grameen Bank has established the concept of serving the poor and defined the specific measures to conduct business for women groups of poor families. Adhering to the original intention and mission of financial inclusive services is the foundation of Grameen Bank’s development and operation.

Grameen Bank, since its establishment, has taken as its mission to serve the “poorest of the poor, who are at the bottom of the social pyramid”. Thus, the difficulty of reaching the deepest bottom of the pyramid of may inclusive finance institutions doesn’t hold for the Grameen Bank. Professor Yunus believes the Grameen model is bottom-up, not top-down.

At the same time, the Grameen Bank has targeted at women from impoverished families since the beginning. The reasons are many: about 70% of poor people in the world are women; low-income women find it harder to access financial services compared to men; women are more vulnerable to hunger and poverty and they would seize any opportunities that can help to improve their living standards; women are hardworking, and they care more for their children’s wellbeing and future, and they would even be willing to sacrifice everything for their children. Grameen Bank’s practices have shown that poor women are better borrowers than men. Of course, the Grameen Bank does not reject a client simply because he is a man. The Bank has different approaches in dealing with making clients across different countries and regions. For instance, some cap the number of male members in a group, some others bar male members from leading a group or a center.

The special target client focus requires that the financial products and services of Grameen Bank are all designed to cater to clients’ fundamental needs. They are also adjusted in other countries and regions to blend in seamlessly with the consideration of local financial communities and culture. Bangladesh got hit hard by the destructive floods in 1998, leading to a massive loss for Grameen Bank and its millions of clients. Instead of being crushed, the bank started to reflect on how to improve and innovate its rules and system. In 2000, an overhaul was pushed to the “Grameen I” model, also known as the Grameen Classic System. After years of practice, correction, and innovation, the “Grameen II” model, or the Grameen Generalized System, emerged to render better services. Under Grameen II, the Bank offered greater flexibility in loan disbursement, loan ceiling, loan duration, installment payments, and repayment methods. It became easier for members to apply for a new loan before repaying the previous one in full. More restrictions were imposed on defaults and defaulters. And there were products specially tailored to beggars as well.

In addition to the bank’s main product Basic Loan, Grameen Bank provides the Flexi-Loan, Housing Loan, Higher Education Loan, and Microenterprise Loan to meet the needs of different clients. It also offers reliable savings products with attractive rates to its low-income members as well as to the general public. The 5% Group Tax was eliminated under Grameen II, and the weekly personal savings amount varies and each client’s saving accounts were independently operated. The Grameen Pension Savings is the bank’s another product designed to encourage members to save for their retirement and with a saving period of 5 to 10 years, attractive interest rates and an option for extension upon maturity. To ensure loan repayment after the borrower dies, Grameen Bank developed the Loan Insurance Savings Fund, a product to which the borrower contributes an amount based on the size of the loan as an insurance for the loan repayment in the event of death.

Beyond designing financial products, Grameen Bank requires its members to follow the Sixteen Decisions, which are central to the Grameen philosophy and formed through democratic consultation among members to reflect Bangladesh’s important social development agenda. The Sixteen Decisions not only serve as the action plan for Grameen Bank, but also provide guidance for the bank members to pursue a better life (Table 2.3).

In the Grameen Bank programs, groups are important in reducing operating costs and minimizing loan risks. That means members have to meet various demanding requirements before joining a group. Generally, a group consists of five people from different poor households, who should know each other, live in the same community, and of similar age. Before a group forms, a mini meeting should be arranged to ensure all potential members are well informed of the program’s requirements and the loan products. Ongoing group training is essential to ensure the program’s rules and policies are well understood. Each training programme lasts about seven days and systematically reviews all key concepts and rules of the microcredit program, as well as client liabilities. Training is followed by group recognition, the final stage in controlling the quality of a proposed group. The group recognition is typically conducted by a senior-level staff member who asks questions to verify the poverty status of the potential members, determine their eligibility, test their knowledge and understanding of the program, and verify their attendance rates during group training by checking with the attendance register. A typical loan application procedure is shown in Figure 2.9.

In the Grameen methodology, groups aim to provide support for clients, but group members do not share joint debt, and the other group members have no responsibility to repay the loan for the defaulting member. The methodology helps group members foster a stronger sense of responsibility and unity, in a way to motivate them to repay loans on schedule.

The center is the main operational unit in the Grameen model and is formed by a minimum of two groups. It is where transactions take place, including the collection of weekly repayments of loan principal and interest, savings, loan applications, and the discussion of social topics. During center meetings, borrowers not only carry out scheduled financial transactions, but also interact with each other, exchanging ideas and finding solutions to personal, community, and institutional problems. In order to more efficiently manage the group, the location, frequency, procedure, and agenda of center meetings should be properly chosen and prepared.

The Grameen methodology puts strict requirements on the uses of loan proceeds. It aims to direct the loan proceeds primarily to support poor borrowers in their daily production and operation. A culture of proper loan usage should be created from the beginning. It will enable borrowers to develop a good habit of efficiently using a loan. For this reason, the group chairperson, center director, center manager, and even branch manager should be in charge of issuing the first loans, to ensure the success of the program’s ultimate goal: the alleviation of poverty ( Figure 2.10).

As a social enterprise, Grameen Bank has a distinct ownership structure: Borrowers own 95% of the bank, with the government holding the remaining 5%. The non-profit enterprise is established to serve the poorest of the poor, and by offering financial services to them, enable them to live better and this is the social significance of Grameen Bank. At the same time, a social enterprise is run like a company, with high operational efficiency. Compared to philanthropy donation, tackling the poverty problem as a social enterprise prevents unfair wealth distribution, discourages lead-swingers and helps encourage employment. With a long history of over four decades, the innovative Grameen methodology still serves as an inspiration and benchmark to all microcredit businesses in the inclusive financial sector. Grameen Bank is now among the largest banks in Bangladesh. By the end of 2019, the bank had developed 2,568 branches, 137,141 centers, and 1,398,370 groups, covering 81,678 villages in Bangladesh, about 93.48% of the country’s total, and granted microcredit total worth USD29.5 billion. Of its 9.26 million members, 8.96 million are women. Grameen has a 99% repayment rate, making it a wonder in the financial industry.

It is worth noting that the meticulous research of the rural groups in Bangladesh and the full consideration of the local financial and cultural environment have given Grameen Bank the vitality of survival and development. From identifying the poor women as the service target, to exploring a series of specific financial products (basic loans and other financial products), to the popularization of the “Decisions” and the construction of groups and centers, Grameen Bank carried out detailed and considerate work and benefited financial consumers. These showed the importance of keeping consumer centricity and avoiding the “one-size-fits-all” model in designing financial services.