http://socialentrepreneurshipximb. wordpress. com/2009/12/08/review-of-the-book-banker-to-the-poor-by-muhammad-yunus-by-lg-9/ Social Entrepreneurship exploring the unexplored………. GRAMEEN BANK – The bank for the poor. In 2006 Mohammed Yunus and the Grameen bank were jointly awarded the Nobel Peace Prize, “for their efforts to create economic and social development from below”. Analyzed the root cause of the misery of the rural women of Bangladesh who work hard day and night and are still not able to get out of the cliches of poverty, thanks to the middle men and money lenders.
So he found out that how a meager loan can free the whole village from the poverty. Then he has taken a critical view on the donor system that prevailed at that time. He has discussed in detail his conflicts with the World Bank. He has justified his views against the system of donor funding with the help of the case of a beggar and how a person paying him few pennies is spoiling his life. He rejected huge amount of loans from World Bank and his success also influenced the senior leadership of World Bank to change their views. In the late 1990s the Bank faced repayment problems and a developing financial crisis.
Strategies were put in place to stabilise and reshape the Bank. This led in 2001 to the launch of Grameen II, which is analysed in terms of its main components and its results. Our opportunity statement should also point towards Grameen Bank’s future role as a major player in the microfinance market, and as an inspiration for those helping poor people improve their own lives. Grameen bank is owned by the poor | | | Grameen Bank Project was born in the village of Jobra, Bangladesh, in 1976. In 1983 it was transformed into a formal bank under a special law passed for its creation.
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It is owned by the poor borrowers of the bank who are mostly women. It works exclusively for them. Borrowers of Grameen Bank at present own 95 percent of the total equity of the bank. Remaining 5 per cent is owned by the government. | 3. 0| | No Collateral, No Legal Instrument,No Group-Guarantee or Joint Liability | | | Grameen Bank does not require any collateral against its micro-loans. Since the bank does not wish to take any borrower to the court of law in case of non-repayment, it does not require the borrowers to sign any legal instrument. | | 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. Repayment responsibility solely rests on the individual borrower, while the group and the centre oversee that everyone behaves in a responsible way and none gets into repayment problem. There is no form of joint liability, i. e. group members are not responsible to pay on behalf of a defaulting member. | 4. 0| | 97 per cent Women | | | Total number of borrowers is 8. 29 million, 97 per cent of them are women. | 5. 0| | Branches| | | Grameen Bank has 2,564 branches.
It works in 81,367 villages. Total staff is 22,653| 6. 0| | Over Tk 553 billion Disbursed| | | Total amount of loan disbursed by Grameen Bank, since inception, is Tk 553. 78 billion (US $ 9. 54 billion). Out of this, Tk 491. 78 billion (US $ 8. 50 billion) has been repaid. Current amount of outstanding loans stands at TK 62. 01 billion ( US $ 893. 97 million). During the past 12 months ( from August’09 to July ’10 ) Grameen Bank disbursed Tk. 88. 50 billion (US $ 1279. 04 million). Monthly average loan disbursement over the past 12 month was Tk 7. 37 billion (US $ 106. 59 million). Projected disbursement for year 2010 is Tk 97. 0 billion (US $1403 million), i. e. monthly disbursement of Tk 8. 08 billion (US $ 116. 92 million). End of the year outstanding loan is projected to be at Tk. 70. 00 billion (US $ 1013 million). | 7. 0| | Recovery Rate Over 97 per cent| | | Loan recovery rate is 97. 29 per cent. | 8. 0| | 100 per cent Loans Financed From Bank’s Deposits| | | Grameen Bank finances 100 per cent of its outstanding loan from its deposits. Over 54 per cent of its deposits come from bank’s own borrowers. Deposits amount to 149 per cent of the outstanding loans. If we combine both deposits and own resources it becomes 159 per cent of loans outstanding. 9. 0| | No Donor Money, No Loans| | | In 1995, GB decided not to receive any more donor funds. Since then, it has not requested any fresh funds from donors. Last installment of donor fund, which was in the pipeline, was received in 1998. GB does not see any need to take any donor money or even take loans from local or external sources in future. GB’s growing amount of deposits will be more than enough to run and expand its credit programme and repay its existing loans. | 10. 0| | Earns Profit| | | Ever since Grameen Bank came into being, it has made profit every year except in 1983, 1991, and 1992.
It has published its audited balance-sheet every year, audited by two internationally reputed audit firms of the country. All these reports are available on CD, and some on our web-site : www. grameen. com. | 11. 0| | Revenue and Expenditure| | | Total revenue generated by Grameen Bank in 2009 was Tk 14. 50 billion (US $ 209. 80 million). Total expenditure was Tk 14. 13 billion (US $ 204. 42 million). Interest payment on deposits of Tk 7. 07 billion (US $ 102. 29 million) was the largest component of expenditure (50 per cent). Expenditure on salary, allowances, pension benefits amounted to Tk 3. 2 billion (US $ 55. 33 million), which was the second largest component of the total expenditure (27 per cent). Grameen Bank made a profit of Tk 371. 57 million (US $ 5. 38 million) in 2009. | 12. 0| | 30% Dividend for 2009| | | Grameen bank has declared 30% cash dividend for the year 2009. This is the highest cash dividend declared by any bank in Bangladesh in 2009. Highest record of dividend declared by Grameen Bank was in 2006. It was 100%. The bank has also created a Dividend Equalization Fund to ensure distribution of dividends without much fluctuation in successive years .
Receiving of dividends each year greatly inspires our shareholders, 97% of whom are our borrowers. | 13. 0| | Low Interest Rates| | | Government of Bangladesh has fixed interest rate for government-run microcredit programmes at 11 per cent at flat rate. It amounts to about 22 per cent at declining basis. Grameen Bank’s interest rate is lower than government rate. There are four interest rates for loans from Grameen Bank : 20% for income generating loans, 8% for housing loans, 5% for student loans, and 0% (interest-free) loans for Struggling Members (beggars). All interests are simple interest, calculated on declining balance method.
This means, if a borrower takes an income-generating loan of say, Tk 1,000, and pays back the entire amount within a year in weekly instalments, she’ll pay a total amount of Tk 1,100, i. e. Tk 1,000 as principal, plus Tk 100 as interest for the year, equivalent to 10% flat rate. | 14. 0| | Deposit Rates| | | Grameen Bank offers very attractive rates for deposits. Minimum interest offered is 8. 5 per cent. Maximum rate is 12 per cent. | 15. 0| | Beggars As Members| | | Begging is the last resort for survival for a poor person, unless he/she turns into crime or other forms of illegal activities.
Among the beggars there are disabled, blind, and retarded people, as well as old people with ill health. Grameen Bank has taken up a special programme in 2002, called Struggling Members Programme exclusively for the beggars. Over 111,831 beggars have joined the programme. Total amount disbursed stands today at Tk. 150. 84 million. Of this amount of Tk. 117. 10 million (77% of the amount disbursed) has already been paid off. 19,288 beggars have left begging and are making a living as door-to-door sales persons. Among them 9,475 beggars have joined Grameen Bank groups as main-stream borrowers.
Beggers members have voluntarily opened their personal savings accounts. Cumulative dposit in these savings accounts amounts to BDT 19. 71 million; present balance stands at BDT 7. 89 million. Basic features of the programme are 😐 | | 1)| Existing rules of Grameen Bank do not apply to beggar members; they make up their own rules. | | | 2)| All loans are interest-free. Loans can be for very long term, to make repayment instalments very small. For example, for a loan to buy a quilt or a mosquito-net, or an umbrella, many borrowers are paying Tk 2. 00 (3. 4 cents US) per week. | | | )| Beggar members are covered under life insurance and loan insurance programmes without paying any cost. | | | 4)| Groups and centres are encouraged to become patrons of the beggar members. | | | 5)| Each member receives an identity badge with Grameen Bank logo. She can display this as she goes about her daily life, to let everybody know that she is a Grameen Bank member and this national institution stands behind her. | | | 6)| Members are not required to give up begging, but are encouraged to take up an additional income-generating activity like selling popular consumer items door to door, or at the place of begging. | | | Objective of the programme is to provide financial services to the beggars to help them find a dignified livelihood, send their children to school and graduate into becoming regular Grameen Bank members. We wish to make sure that no one in the Grameen Bank villages has to beg for survival. | 16. 0| | Housing For the Poor| | | 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. Maximum amount given for housing loan is Tk 15,000 (US $ 218) to be repaid over a period of 5 years in weekly instalments.
Interest rate is 8 per cent. 684,474 houses have been constructed with the housing loans averaging Tk 13,069 (US $ 188). A total amount of Tk 8. 95 billion (US $ 210. 29 million) has been disbursed for housing loans. During the past 12 months (from August’09 to July’10) 10,039 houses have been built with housing loans amounting to Tk 114. 71 million (US $1. 65 million). | 17. 0| | Micro-enterprise Loans| | | Many borrowers are moving ahead in businesses faster than others for many favourable reasons,such as, proximity to the market, presence of experienced male members in the family, etc.
Grameen Bank provides larger loans, called micro-enterprise loans, for these fast moving members. There is no restriction on the loan size. So far 2,631366 members took micro-enterprise loans. A total of Tk 70. 30 billion(US$ 1044. 79 million) has been disbursed under this category of loans. Average loan size is Tk 26,717 (US $ 385. 20), maximum loan taken so far is Tk 1. 6 million (US $ 23,209). This was used in purchasing a truck which is operated by the husband of the borrower. Power-tiller, irrigation pump, transport vehicle, and river-craft for transportation and fishing are popular items for micro-enterprise loans. 18. 0| | Scholarships| | | Scholarships are given, every year, to the high performing children of Grameen borrowers, with priority on girl children, to encourage them to stay ahead to their classes. Upto July’10, scholarships amounting to Tk 153. 34 million (US$ 2. 21 million) have been awarded to 114250 children. During 2010, US$ 584,490 will be awarded to about 26,840 children, at various levels of school and college education. | 19. 0 | | Education Loans| | | Students who succeed in reaching the tertiary level of education are given higher education loans, covering tuition, maintenance, and other school expenses.
By July’10, 45,796 students received higher education loans, of them 43,504 students are studying at various universities; 480 are studying in medical schools, 774 are studying to become engineers, 1038 are studying in other professional institutions. | 20. 0 | | Grameen Network| | | Grameen Bank does not own any share of the following companies in the Grameen network. Nor has it given any loan or received any loan from any of these companies. They are all independent companies, registered under Companies Act of Bangladesh, with obligation to pay all taxes and duties, just like any other company in the country. ) Grameen Phone Ltd. 2) Grameen Telecom 3) Grameen Communications 4) Grameen Cybernet Ltd. 5) Grameen Solutions Ltd. 6) Grameen Information Highways Ltd. 7) Grameen Bitek Ltd. 8) Grameen Uddog (Enterprise) 9) Grameen Shamogree (Products) 10) Grameen Knitwear Ltd. 11) Grameen Shikkha (Education) 12) Grameen Capital Management Ltd. 13) Grameen Byabosa Bikash (Business Promotion ) 14) Grameen Trust 15) Grameen Health Care Trust 16) Grameen Health Care Service Ltd. 17) Grameen Danone Food Ltd. 18) Grameen Veolia Water Ltd. 19) Grameen Shakti. 20) Grameen IT Park Ltd. 21) Grameen Star Education Ltd. 2) Grameen Employment Services Ltd. 23) Grameen Fabrics and Fashion Ltd. 24) Grameen Distribution Ltd. 25) Grameen Shamogree Purbanchal Ltd. 26) Grameen Shamogree Uttaranchal Ltd. 27) BASF Grameen Ltd. | 21. 0 | | Grameen Bank-Created Companies| | | The following companies in the Grameen network were created by Grameen Bank, as separate legal entities, to spin off some projects within Grameen Bank funded by donors. Donor funds transferred to Grameen Fund were given as a loan from Grameen Bank. These companies have the following loan liability to Grameen Bank :Grameen Fund : Tk 373. 2 million (US $ 6. 8 million) Grameen Krishi Foundation: Tk 19 million (US $ 0. 33 million) Grameen Motsho (Fisheries) Foundation: Tk 15 million (US $ 0. 26 million) Grameen Kalyan Grameen Kalyan (well-being) is a spin off company created by Grameen Bank. Grameen Bank created an internal fund called Social Advancement Fund (SAF) by imputing interest on all the grant money it received from various donors. SAF has been converted into a separate company to carry out its mandate to undertake social advance activities among the Grameen borrowers, such as, education, health, technology, etc. | 22. 0 | | Loans Paid Off At Death | | In case of death of a borrower, all outstanding loans are paid off under Loan Insurance Programme. Under this programme, an insurance fund is created by the interest generated in a savings account created by deposits of the borrowers made for loan insurance purpose, at the time of receiving loans. Each time an amount equal to 3 per cent of the loan amount is deposited in this account. This amount is transferred from the Special Savings account. If the current balance in the insurance savings account is equal or more than the 3 per cent of the loan amount, the borrower does not need to add any more money in this account.
If it is less than 3 per cent of the loan amount, she has to deposit enough money to make it equal. Coverage of the loan insurance programme has also been extended to the husbands with additional deposits in the loan insurance deposit account. A borrower can get the outstanding amount of loan paid off by insurance if her husband dies. She can continue to borrow as if she has paid off the loan. Total deposits in the loan insurance savings account stood at Tk 5,856. 51 million (US$ 84. 44 million) as on July 31, 2010. Up to that date 170,197 insured borrowers and insured husbands died and a total outstanding loans and interest of Tk 1422. 4 million (US $ 21. 20 million) left behind was paid off by the bank under the programme. The families of the deceased borrowers are not be required to pay off their debt burden any more, because the insured borrowers or their insured husbands do not leave behind any debt burden to take care of. | 23. 0| | Life Insurance| | | Each year families of deceased borrowers of Grameen Bank receive a total of Tk 17 to 20 million (US $ 0. 25 million to 0. 29 million) in life insurance benefits. Each family receives Tk 1,500. A total of 128,060 borrowers died so far in Grameen Bank.
Their families collectively received a total amount of Tk 226. 34 million (US$ 4. 53 million). Borrowers are not required to pay any premium for this life insurance. Borrowers come under this insurance coverage by being a shareholder of the bank. | 24. 0| | Deposits | | | By the end of July, 2010 total deposit in Grameen Bank stood at Tk. 92. 63 billion (US$ 1335. 50 million). Member deposit constituted 53 per cent of the total deposits. Balance of member deposits has increased at a monthly average rate of 2. 41 percent during the last 12 months. | 25. 0| | Pension Fund for Borrowers | | As borrowers grow older they worry about what will happen to them when they cannot work and earn any more. Grameen Bank addressed that issue by introducing the programme of creating a Pension Fund for old age. It immediately became a very popular programme. Under this programme a borrower is required to save a small amount, such as Tk 50 (US $ 0. 72), each month over a period of 10 years. The depositor gets almost twice the amount of money she saved, at the end of the period. The borrowers find it very attractive. By the end of July 2010 the balance under this account comes to a total of Tk 32. 7 billion (US $ 468. 12 million). Tk 7. 78 billion (US $ 112. 46 million) was added during the past 12 months (August’09 -July, 2010 ). We expect the balance in this account to grow by Tk 5. 95 billion (US $ 86. 08 million) in 2010 making the balance to reach Tk 32. 45 billion (US $469. 47 million). | 26. 0| | Loan Loss Reserve | | | Grameen Bank has a very rigourous policy on bad debt provisioning. If a loan does not get paid back on time it is converted into a special type of loan called “Flexible Loan”, and 50 per cent provisioning is done on the last day of each month.
Hundred per cent provisioning is done when flexible loan completes the second year. At its third year, the outstanding amount is completely written off even if the loan repayment still continues. Balance in the loan loss reserve stood at Tk 5. 69 billion (US $ 82. 37 million) at the end of 2009 after writing off an amount of Tk 1. 53 billion (US $ 22. 11 million) during 2009. Out of the total amount written off in the past an amount of Tk 0. 67 billion (US $ 9. 72 million) has been recovered during 2009. | 27. 0| | Retirement Benefits Paid | | | Grameen Bank has an attractive retirement policy.
Any staff can retire after completing ten years or more of service. At the time of retirement he receives a retirement benefit in cash. It is usually paid out within a month after retirement. Since this benefit was introduced 7,982 staff members retired and received a total amount of Tk 5. 45 billion (US $ 90. 94 million) in cash. This amounts to Tk 0. 68 million (US $ 11393) per retiring staff. During the past 12 months 441 staff went on retirement collecting a retirement benefit of Tk 720. 00 million (US $ 10. 41 million). Average retirement benefit per staff was Tk 1. 63 million (US $ 23,605 ). 28. 0| | Telephone-Ladies| | | To-date Grameen Bank has provided loans to 391,203 borrowers to buy mobile phones and offer telecommunication services in nearly half of the villages of Bangladesh where this service never existed before. Telephone-ladies run a very profitable business with these phones. Telephone-ladies play an important role in the telecommunication sector of the country, and also in generating revenue for Grameen Phone, the largest telephone company in the country. Telephone ladies use 2. 22 percent of the total air-time of the company, while their number is only 1. 9 per cent of the total number of telephone subscribers of the company. | 29. 0| | Getting Elected in Local Bodies | | | Grameen system makes the borrowers familiar with election process. They routinely go through electing group chairmen and secretaries, centre-chiefs and deputy centre-chiefs every year. They elect board members for running Grameen Bank every three years. This experience has prepared them to run for public offices. They are contesting and getting elected in the local governments. In 2003 local government (Union Porishad) election 7,442 Grameen members contested in the reserved seats for women, 3,059 members got elected.
They constitute 24 per cent of the total members elected in the seats reserved for women members in the Union Porishad local government. During 1997 local government election 1,753 members got elected to these reserved seats. | 30. 0| | Computerised MIS and Accounting System | | | Accounting and information management of nearly all the branches (2,563 out of 2,564) has computerised. This has freed the branch staff to devote more time to the borrowers rather than spend it in paper-work. Branch staffs are provided with pre-printed repayment figures for each weekly meeting.
If every borrower pays according to the repayment schedule, the staff has nothing to write on the document except for putting the signature. Only the deviations are recorded. Paper work that remains to be done at the village level is to enter figures in the borrowers’ passbooks. All zones (40) are connected with the head office, and with each other, through intra-net. This has made data transfer and communications very easy. | 31. 0| | Policy For Opening New Branches | | | New branches are required to fund themselves entirely with the deposits they moblise. No fund from head office or any other office is lent to them.
A new branch is expected to break-even within the first year of its operation. | 32. 0| | Crossing the Poverty-Line | | | According to a recent internal survey, 68 per cent of Grameen borrowers’ families of Grameen borrowers have crossed the poverty line. The remaining families are moving steadily towards the poverty line from below. | 33. 0| | ‘Stars’ for Achievements| | | Grameen Bank provides colour-coded stars to branches and staff for 100 percent achievement of a specific task. A branch (or a staff) having five-stars indicate the highest level of performance. At the end of June’2009, branches showed the following result. ,496 branches, out of total 2,564 branches, received stars (green) for maintaining 100 per cent repayment record. 20,95 branches received stars (blue) for earning profit. (Grameen Bank as a whole earns profit because the total profit of the profit-earning branches exceeds the total loss of the loss-incurring branches. )1,903 branches earned stars (violet) by meeting all their financing out of their earned income and deposits. These branches not only carry out their business with their own funds, but also contribute their surpluses to meet the fund requirement of deficit branches. 51 branches have applied for stars (brown) for ensuring education for 100% of the children of Grameen families. After the completion of the verification processes their stars will be confirmed. 61 branches have applied for stars (red) indicating branches those have succeeded in taking all its borrowers’ families (usually 3,000 families per branch) over the poverty line. The star will be confirmed only after the verification procedure is completed. Each month branches are coming closer to achieving new stars. Grameen staff look forward to transforming all the branches of Grameen Bank into five star branches. Eventually he came up with a model that worked. This had a number of features: • Lending to poor, rural women (as they were less likely than men to use loans badly and were more reliable for repayment). • Organising women into cells of five, that took collective responsibility for each other’s loans (creating social collateral and a peer screening process). • Establishing Kendro (centres) where six cells (i. e. 30 women) met, at a set time each week, to apply for loans and make repayments. • Charging a higher rate of interest than government schemes and NGO loans programmes. Requiring clients to make compulsory microsavings each week (to create financial discipline and generate financial collateral for groups), and to make promises about their social conduct. • Simple, standardised products that required regular, small repayments. • Recruiting and training bright, young graduates to administer services (to minimise corruption). ————————————————- Challenges and solutions Even if the above improvements have been observed, the study also found the presence of several challenges that constrain the MFIs operation not to be efficient.
Some of the challenges according to the representative sample MFIs are: ? Many donors are not keen about MFIs and reluctant to fund; ? Less saving habits; ? Limited loan products; ? Absence of legal title of assets in rural areas; ? Easy dissemination of bad mouthing (some clients are not visionary; they opt for immediate benefits in illegal way). ? Less willingness from commercial banks to lend to MFIs without collateral; ? The legal environment is not conducive enough in enforcing the loan contract; ? Shortage of experienced human resources; and Shortage of Logistics in rural areas such as road, telephone, etc. Particularly, the screening process of clients has also noted as challenging area. Lack of adequate information about the client’s financial management and absence of recorded evidence is the main challenge. This makes the MFIs to rely on fellow group member’s oral information. Additionally, problem of certifying the real ownership of business, problem of clients to target on profitable business, and sometimes lack of understanding of clients about the operation of the institutions, are the challenges.
Hence, to minimize the above stated challenges, the representative sample MFIs have given various possible solutions: ALTERNATIVES ? Policy makers have to design effective rules and regulations of contract enforcement and the implementation should be followed strictly; ? Loan products has to be diversified; ? The National Bank of Ethiopia or any government concerned authority should nurture small MFIs by building their capacity, may be by establishing a fund raising unit for loan able capital; and ? Appropriate screening mechanism should be sought, strict follow up and capacity building of both clients and credit officers should be organized. ———————————————— Some more analysis In general, the study has also identified various challenges that constrain MFIs from efficient operations. And, different policy implication could be drawn from the findings of this study. To mention few: ? As women access is still limited, women’s access to credit has to be strengthened; ? Positive correlation between outreach and financial sustainability implies that we could reach more client to attain social mission and as well we could be profitable .
