Grameen Bank

Grameen Bank a specialised bank established on October 1983 as a body corporate under the Grameen Bank Ordinance 1983 for extending credit exclusively to the landless men and women of rural areas of the country. The Bangla word grameen means rural and the bank emerged out of a rural banking project that began in 1976 at Jobra village of Hathazari upazila of Chittagong district. The project was an experiment initiated by Dr Muhammad Yunus, a former professor of Economics at the University of Chittagong. The principal objective of the Grameen Project (GP) was to develop an organisational structure, which can provide collateral free credit to the landless people in a reasonably dependable form. The project also explored the potentiality of the poor to generate productive self-employment with marginal financial support at reasonable terms and conditions.

Encouraging results of the experiment inspired Prof. Yunus to expand the project in more villages of Tangail and Chittagong districts in November 1979 and he was extended funding support from the bangladesh bank for the purpose. In 1982, it was further expanded to Dhaka, Rangpur and Patuakhali districts with the financial assistance from the International Fund for Agricultural Development (IFAD). By that time the project took the shape of a new type of banking for the poor and the banking units of the project were nationalised commercial banks. In September 1983, the government decided to transform the project into a specialised credit institution under the name Grameen Bank with an authorised capital of Tk 100 million divided into ordinary shares of Tk 100 each. The paid up capital of the bank was Tk 30 million, of which 40% was subscribed by its borrowers themselves and the rest by the government and government-owned financial institutions. On 31 December 2008, the authorised and paid up capital of the bank stood at Tk 3500 million and 358 million respectively. The shareholding position in the paid up capital of the Grameen Bank is: Government of Bangladesh 3.35%, Sonali Bank 0.84%, Bangladesh Krishi Bank 0.84% and the members of Grameen Bank 94.97% (male 4.23% and female 90.74%).

The main functions of Grameen Bank are to provide collateral-free credit facilities in cash of on kind to landless persons for various types of income-generation and livelihood activities. The Bank also accepts money on deposit, borrows money (against its assets as the security, or otherwise) for the purpose of its business excluding business in foreign exchange transactions. It invests in government securities, provides professional counsel to landless persons regarding investment in small business and cottage industries, and carries out survey and research.

The bank runs its credit program with the philosophy that credit for self-employment is a fundamental human right. It takes credit to the doorsteps of the principal works as a powerful instrument in ensuring access of the poor to credit for providing them a chance to improve their economic condition. Through small loans Grameen Bank enables the landless, rural women to start their own businesses and thereby gain reasonable economic independence, self-sufficiency, self-respect and self-empowerment. Credit delivery mechanism and the mode of repayment of the loans have become a model in Poverty alleviation efforts in Bangladesh, other developing countries, and in some developed countries such as the USA, Canada, Germany and France. For the contribution of poverty reduction through micro-credit Professor Muhammad Yunus and Grameen Bank jointly was awarded the Nobel Peace Prize 2006.

Grameen Bank gives loans to individuals through group. The member-borrower alone is responsible for his/her loan although there exists informal inter-locking responsibility among the members of a group. The bank has a sixteen-point guideline for implementation of its credit delivery and the social development program. All members of the Grameen groups are to know and follow this guideline, which teaches them to follow and advance the principles of discipline, unity, courage and hard work. It instructs the Grameen beneficiaries to bring their own houses to avoid living in dilapidated houses, grow, eat and sell vegetables all the year round, plant trees, keep the families small, minimize expenditure and save environment pollution free, build and use pit-latrines, drink tube-well water or boiled water, give up the practice of child marriage, avoid taking and paying dowry, refrain from doing any injustice on any one, undertake collective and bigger investments, follow the rule of mutual help, restore discipline in case of breach or violation by the fellow members, introduce physical exercise at all centers, and take part in all social activities collectively.

The broad activities for which Grameen Bank provides credit facilities from its own fund are processing and manufacturing, Agriculture and forestry, service sector enterprises, trading, peddling (pulling rickshaws and rickshaw vans), shop keeping, etc. There are innumerable types of different activities under each of these broad categories for which the bank extends credit financing. The bank accumulates savings of its member-borrowers and from non-members.

On 31 December 2008, Grameen Bank had 2,539 branches in 264 areas and 40 Zones covering almost all upazilas of the country. Up to the date, it extended credit facilities to a total of 7,670,203 members of 83,566 villages. The volume of its loans disbursed since inception amounted to Tk 418.90 billion. Grameen bank has a saving scheme for borrowers. The total balance of savings deposit was Tk 64.18 billion. At present, it maintained a high loan recovery rate at around 98%.

Under the housing loan scheme of the bank introduced in 1984, a member can borrow up to Tk 25,000 ($360) at an interest rate of 8% for constructing a simpler tin-roof house. Housing loans are to be paid back by the members in five years in weekly installments. Up to December 2008, total 665,568 such houses had been constructed against a total amount of loans of Tk 8.72 billion.

Grameen Bank has a program of leasing loan services, under which it introduced village phone to provide easy telecommunication services to the rural poor in Bangladesh. At the end of December 2008, the number of village phones distributed by almost all branches of Grameen Zones was 353,909.

Sources of funds of the bank are share capital, general and other reserves, various special funds maintained and managed by the bank itself, deposits and balance of other funds, borrowing from banks and other foreign institutions etc. Up to December 2008, it borrowed Tk 11.64 billion and the list of funding institutions/organisations includes Bangladesh Bank, IFAD, NORAD, SIDA, Ford Foundation, Dutch Grant Loan, Vic Spain and ORCF. Grameen Bank also raises funds by issuing bonds and debentures under guarantee of the government of Bangladesh and the rate of interest for these varies between 4% and 10%.

Up to 2005, the net profit of the bank was transferred to Rehabilitation Fund. But from 2006, the bank has given dividends to its shareholders. The assets of the bank were valued at Tk 82.80 billion on 31 December 2008.

Grameen Bank is praised for success in its mission of alleviating poverty. Its success is attributed to employment creation and income generation through its extensive credit programs for the landless rural poor of both genders. The special features of the institution are its high loan recovery rate, organisation of its members into groups exercising peer pressure in loan repayment and proper utilisation of the loans, close supervision by the bank’s field staff, organised advisory services to the clients, and empowerment of the poor, especially the poor rural women by involving them in self-employment and income-generating activities.

The management of Grameen Bank is vested in a 13-member board of directors with its chairman appointed by the government. Nine of the 12 directors are elected from amongst the female members of different centers under its different branches. The head office of the bank located at Dhaka has 12 departments namely, Central accounts, administration, establishment, training, international program, monitoring and evaluation, services, audit, co-ordination and operation-east, co-ordination and operation-west, Grameen Bank secretariat and the managing director’s secretariat. There are also some sections like technology and development, construction, special program and planning. [Abul Kalam Azad]