Bangladesh Grameen Bank-pioneer in Microfinance
The Grameen Bank model was one of the widely researched microfinance model al over world. the Bank had four tiers, the lowest level being branch office and the highest level being the head office, second highest being zonal office, and next highest being area office. The branch office supervised all ground activities of the bank such as organizing target groups, supervising credit process and sanctioning loans to the members. For every 15-22 villages a branch was set up with a manger and staff. Area office supervised around 10-15 branch offices. Program officers assisted the area office to supervise utilization of loans and recovery of the same. All area offices were under the purview of zonal office. Each zonal office supervised around 10-13 area offices and all zonal offices reported to the head office situated in Dhaka.
Grameen bank operated on the principles: mutual trust, Supervision, accountability and member participation. Unlike commercial banks, which granted credit on the basis of collateral security, Grameen bank did not demand any security for extending credit. The interest changed by Grameen bank was higher than that charged by commercial banks, but lower than the interest charged by moneylenders. The difference between the interest earned by the Grameen bank and interests paid by it on the loans taken commercial banks was used to cover the operational costs of the bank.
Grameen bank adopted an innovative `Group Lending Technique’ for extending loans was formed. Each group consisted of 5 women who became members of the Grameen bank. All the members were given training for a week, which included introducing them to the rules of the bank and the bank’s social contract. It was mandatory for the members to abide by the social contract known as `sixteen decisions’ for getting loans from Grameen Bank. These sixteen decisions helped in increasing awareness about the social issues among the rural poor.
Every group had to give examination, which test the member’s understanding of the bank’s rules and decisions. After the group cleared the oral examination, two financially weak members were chosen for loans. After chosen members for loans, each group had to submit proposals for loans to the branch. All group discussed the loan proposals in the branch’s weekly meeting and approved loans were sanctioned in sequence.
The loan amount usually ranged between 1,000to 3,000 Taka, which had to be repaid in 50 weekly installments spread over one year. Initially, 16 percent interest was changed on the declining balance but since 1992, the interest rate was increased to 20 percent. In addition to paying interest, every member of the group was bound to contribute 5% of the loan amount to the group fund. The group found was utilized during emergencies. In addition to this, in order to mobilize savings among the poor, each member had to save I Taka every week and buy non-salable Grameen Bank shares.
Along with offering loans for entrepreneurial ventures, Grameen bank also started lending housing loans to its members. Unlike the traditional methods followed by banks and financial institutions, Grameen bank did not demand any collateral for issuing housing loans.
Another type of housing loan pre-Basic Housing Loan was introduced in the northern part of the country. Grameen bank also provided loans for buying land for constructing house. Grameen bank charged 8% interest per annum on housing loans. And the repayment period was spread over 10 years weekly installation.
However Grameen bank also attracted criticism from media and economists all over world. Analysts pointed out that there was no proper monitoring of how the loans were utilized; it was reported that the loans availed by women were mostly used for consumption rather than investment purposes. Analysts also pointed out that accounting methods used by Grameen bank were not in accordance with the industry standards and it did not provide full details about its financial position and loan repayments.
Like it on Facebook, Tweet it or share this article on other bookmarking websites.