Indigenous
Solutions: The Phenomenon of Grameen Bank
By M. Majid Ali, CPA
New Jersey, US
“When she accepts the money, her hands
are trembling. She’s never seen $30 all
in one place, let alone in her own hands. She
takes the money and starts her business, and her
life is changed forever.” Such is the experience
of creative, collateral-free banking described
by Mohammad Yonus, the founder of Grameen Bank.
If ever there was an example of a successful indigenous
banking institution in an agrarian country that
shattered the myths of traditional collaterized
lending exclusively to the wealthy, it is Grameen
Bank of Bangladesh. Until recently the bank’s
eleven hundred branches had disbursed well over
$3 billion to over two million people (mostly
women) in 40,000 villages. The loan re-payment
rate has averaged an astonishing 95%.
When Professor Yonus of the University of Chittagong
started the bank in 1976 he created it solely
to lend to the poor to end their exploitation
by the village money lenders. The modus operandi
was to bring people, mostly women within an organizational
format that they could understand and manage by
themselves. The end goal was to transform the
age-old vicious cycle of “low income, low
saving and low investment” into a virtuous
cycle of “low income, injection of credit,
investment, more income, more savings, more investment,
more income”. Originally sponsored by the
Central Bank and supported by the nationalized
commercial banks, legislation in 1983 allowed
Grameen Bank to operate independently with the
result that today the majority of the bank is
owned by the poor to whom it lends.
By lending without material collateral, the bankers
at Grameen Bank have successfully shattered the
age-old myth that the poor are not bankable. In
fact, the bank has demonstrated that with proper
management, oversight and encouragement, the loan
collateral can simply be the will and capacity
of the borrowers to succeed in their ventures.
Loans are made to people to formally establish
for themselves a small business they are already
familiar with. Loans are made for income generating
projects such as tubewells, kitchen gardens, leasing
phones and machinery, purchase of cattle etc.
The programs are widened as the borrowers become
familiar with credit discipline. Bankers visit
a village and seek out a group of five eligible
borrowers out of which only the two neediest people
get a loan. Only when the first two borrowers
adhere to the rules of the bank and start repayments
over a period of six weeks, do the other members
of the group become eligible for a loan themselves.
The peer pressure to keep individual records clear
transcends into a collective responsibility which
becomes the paperless collateral for the loan.
This ingenious approach to banking is original,
unprecedented and gives substance to Comrade Mao’s
wise observation that lasting change has to be
brought about by indigenous forces and cannot
be forced from the outside.
The interest rate on all loans is 16% which is
reasonable for a high inflation economy. Although
the bank mobilizes group savings for its funding,
most of the loanable funds come on commercial
terms from other banks and international institutions.
Grameen Bank has roughly doubled its number of
borrowers every two years with the landless benefiting
the most. Only 20% of the bank’s members
live below the poverty line versus 56% for comparable
non-members. And a shift has occurred from socially
challenging agricultural wage labor to enterprising
self-employment. On a national level, most of
the poor in Bangladesh used to heed the advice
of the village elders when casting their ballots
for elections. Not so in Grameen Bank villages.
Candidates are interviewed by borrowers and in
some cases the borrowers themselves have been
successfully elected.
Today, more than 4000 people from 100 countries
have gone through Grameen Bank’s training
programs and over 58 countries have similar institutions.
The bank’s success has been recognized by
various international development agencies and
media. (The Price of a Dream: David Bornstein,
Let Grassroots Speak: Aditee Nag Chowdhury). In
the words of its founder, Mohammad Yonus, Grameen
has proved that with a participatory banking system,
that focuses on individual empowerment, “millions
of small people with their millions of small pursuits
can add up to create the biggest development wonder”.
While addressing a mammoth public rally in Lahore
on October 14, 1970 during his numerous battles
with the Martial Law Government, the leader of
the People’s Party, Zulfiqar Ali Bhutto
had invoked Allama Iqbal: “Stand up and
wake the poor of my world”. Always a champion
of the poor and having run his campaign on a platform
of “Islami Mussawat”, he then turned
to face the tomb of Dr Iqbal and pronounced, “Allama
Iqbal, I have woken up the poor of your world”.
It is unfortunate that despite Mr. Bhutto’s
eventual ascent to the position of Prime Minister
and his nationalization of Pakistan’s banks,
the dream of having institutions like Grameen
was left unfulfilled in West Pakistan. In fact,
after Mr. Bhutto’s execution, the misuse
of nationalized banks gave the feudal/military
junta an even greater hold on the country’s
majority farming peasantry.
Zulifiqar Ali Bhutto is no longer with his people,
but a faint cry still echoes from the slave quarters
of the villages where the peasants once looked
up to him and they still await the arrival of
Grameen-like Bankers, “Resurgam, Resurgam”
(I shall rise again).
(The author is a CPA working in Investment Banking.
He can be reached at indus000@hotmail.com)
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