The Grameen Bank or
the power of micro-finance

Muhammad Yunus

Begun in the village of Jobra, Bangladesh in 1976, Grameen Bank breaks the cycle of poverty by offering low-interest micro-credit loans with no collateral, making it possible for virtually anyone to get on their feet financially. In 1983, it transformed into a formal bank under a special law passed for its creation. Borrowers of Grameen Bank at present own 94 percent of the total equity of the bank, with the remaining owned by the government. Since its inception, the number of borrowers is 4.76 million, 96 percent of whom are women.

Grameen Bank methodology is almost the reverse of the conventional banking methodology. Conventional banking is based on the principle that the more you have, the more you can get. In other words, if you have little or nothing, you get nothing. As a result, more than half the population of the world is deprived of the financial services of the conventional banks. Conventional banking is based on collateral, Grameen system is collateral-free.

Grameen Bank starts with the belief that credit should be accepted as a human right, and builds a system where one who does not possess anything gets the highest priority in getting a loan. Grameen methodology is not based on assessing the material possession of a person, it is based on the potential of a person. Grameen believes that all human beings, including the poorest, are endowed with endless potential.

Conventional banks look at what has already been acquired by a person . Grameen looks at the potential that is waiting to be unleashed in a person. Conventional banks are owned by the rich, generally men. Grameen Bank is owned by poor women.

Overarching objective of the conventional banks is to maximize profit. Grameen Bank's objective is to bring financial services to the poor, particularly women and the poorest ¾ to help them fight poverty, stay profitable and financially sound. It is a composite objective, coming out of social and economic visions. Conventional banks focus on men, Grameen gives high priority to women. 96 per cent of Grameen Bank's borrowers are women. Grameen Bank works to raise the status of poor women in their families by giving them ownership of assets. It makes sure that the ownership of the houses built with Grameen Bank loans remain with the borrowers, i.e., the women.

Grameen Bank branches are located in the rural areas, unlike the branches of conventional banks which try to locate themselves as close as possible to the business districts and urban centers. First principle of Grameen banking is that the clients should not go to the bank, it is the bank which should go to the people instead. Grameen Bank's 18,482 staff meet 6.50 million borrowers at their door-step in 70,370 villages spread out all over Bangladesh, every week, and deliver bank's service. Repayment of Grameen loans is also made very easy by splitting the loan amount in tiny weekly installments. Doing business this way means a lot of work for the bank, but it is a lot convenient for the borrowers.

There is no legal instrument between the lender and the borrower in the Grameen methodology. There is no stipulation that a client will be taken to the court of law to recover the loan, unlike in the conventional system. There is no provision in the methodology to enforce a contract by any external intervention.

Conventional banks go into 'punishment' mode when a borrower is taking more time in repaying the loan than it was agreed upon. They call these borrowers "defaulters". Grameen methodology allows such borrowers to reschedule their loans without making them feel that they have done anything wrong (indeed, they have not done anything wrong.)

When a client gets into difficulty, conventional banks get worried about their money, and make all efforts to recover the money, including taking over the collateral. Grameen system, in such cases, works extra hard to assist the borrower in difficulty, and makes all efforts to help her regain her strength and overcome her difficulties.

In conventional banks charging interest does not stop unless specific exception is made to a particular defaulted loan. Interest charged on a loan can be multiple of the principal, depending on the length of the loan period. In Grameen Bank, under no circumstances total interest on a loan can exceed the amount of the loan, no matter how long the loan remains unrepaid. No interest is charged after the interest amount equals the principal.

Various services to the family

Conventional banks do not pay attention to what happens to the borrowers' families as results of taking loans from the banks. Grameen system pays a lot of attention to monitoring the education of the children (Grameen Bank routinely gives them scholarships and student loans), housing, sanitation, access to clean drinking water, and their coping capacity for meeting disasters and emergency situations. Grameen system helps the borrowers to build their own pension funds, and other types of savings.

Interest on conventional bank loans are generally compounded quarterly, while all interests are simple interests in Grameen Bank.

In case of death of a borrower, Grameen system does not require the family of the deceased to pay back the loan. There is a built-in insurance programme which pays off the entire outstanding amount with interest. No liability is transferred to the family.

In Grameen Bank even a beggar gets special attention. A beggar comes under a campaign from Grameen Bank which is designed to persuade him/her to join Grameen programme. The bank explains to her how she can carry some merchandise with her when she goes out to beg from door to door and earn money, or she can display some merchandise by her side when she is begging in a fixed place. Grameen's idea is to graduate her to a dignified livelihood rather than continue with begging.

Such a programme would not be a part of a conventional bank's work.

Grameen system encourages the borrowers to adopt some goals in social, educational and health areas. These are knows as "Sixteen Decisions" (no dowry, education for children, sanitary latrine, planting trees, eating vegetables to combat night-blindness among children, arranging clean drinking water, etc.). Conventional banks do not see this as their business.

In Grameen, we see the poor people as human "bonsai". If a healthy seed of a giant tree is planted in a flower-pot, the tree that will grow will be a miniature version of the giant tree. It is not because of any fault in the seed, because there is no fault in the seed. It is only because the seed has been denied of the real base to grow on. People are poor because society has denied them the real social and economic base to grow on. They are given only the "flower-pots" to grow on. Grameen's effort is to move them from the "flower-pot" to the real soil of the society.

If we can succeed in doing that there will be no human "bonsai" in the world. We'll have a poverty-free world.

By: Muhammad Yunus
www.grameen-info.org