Grameen Bank Presented by

Name: Muhammad AliRoll No: MBKM-13-40

Presented to :Sir Khalid

rafique

IBF, BZU, Multan

Historical Background•Bangladesh is a predominantly rural economy whose labor force grows by 2.4 percent annually but whose agriculture, industry and service sectors can accommodate an annual growth rate of only 1.7 percent.• Since the agricultural sector supplies 78 percent of rural employment started the Grameen Bank in 1976 as a research project.•The Grameen Bank believes that with the appropriate support, the poor can be productively employed in income generating activities, including processing and manufacturing, transportation, storing and marketing agricultural produce and raising livestock.

What is Micro-credit?

๏ Micro-credit: programs that extend small loans or wider range of financial services to poor people to foster self-employment and income generations and improve their living standards.

๏ Micro-finance: programs that provide credit for self-employment and other business and financial services, includes both credit and savings aspects of the program.

What is the Grameen Bank?The Grameen Bank is a rural bank in Bangladesh that provides micro credit to the rural poor, particularly women, who own less than half an acre of land or whose assets do not exceed the value of one acre of land. Unlike traditional commercial bank loans, Grameen Bank loans need not be secured by collateral.

Architect of Grameen Group Model

Professor Muhammad Yunus, founder of the globally renowned Grameen Bank and architect of Grameen Model. Joint winner of 2006 Nobel Prize Winner for Peace

“It’s not people who aren’t credit-worthy. It’s banks that aren’t people worthy.”

GRAMEEN BANK

Covers almost the Whole Country

Grameen Bank vs. Conventional Banks

๏ To bring economic and social change to the poor.

๏ Based on trust๏ Looks at what the borrower can

have๏ Located in rural areas๏ The bank goes to the customer๏ Flexible payment scheme๏ Most owners and borrowers are

poor women๏ Loans are for productive

activity, not consumption

๏ To make profit๏ Based on collateral๏ Looks at what the borrower

already has๏ Located in urban areas๏ Customers have to go to the

bank๏ Strict payment scheme๏ Most owners and borrowers are

wealthy men๏ Loans could be used for

consumption or other activities.

Member I

Member 2

Member 3

Member 4

Member 5

Secretary and

Chairperson

Weekly Meeting

Weekly Savings

Training

Extension of Loan

First Two Members

Next two Members

Chairperson

Credit Delivery Model

Social Collateral Approach vs. Traditional Collateral Approach

• Small borrowers self-select into group

• Information • Diversification• Peer pressure

ensures repayment

• Individual finds others to co-sign or guarantee

• Banker must screen• Diversification is

banker’s responsibility

• Banker monitors borrower for repayment

Peer Pressure

Joint liability: every member of the peer group is in default if any member is.

If peers can/will impose social penalties on each other, this adds an additional incentive not to default on one’s portion.

=> reduces moral hazard reduces the riskiness of the loans increases likelihood of obtaining the loan

Information Transfer

Borrowers self-select into groups with people they know and trust.

reduces incidence of adverse selection new or low income entrepreneurs more

welcome increased value of the group loan as an

asset (to the lender)

Mutual InsuranceThe group is a safety net against default and its consequences for each borrower and the lender. Members effectively insure each other across project-specific downside risks.

=> Less credit risk. =>Applications rates rise.=> Loan approval rates can rise.

For what purposes loans are granted

๏ Average loan size is $120 and must be used for business venture

๏ Self Employment- Income generating activities. ๏ Credit for installation of tube wells that supply drinking

water and irrigation for kitchen gardens ๏ Credit for seasonal cultivation to buy agricultural inputs ๏ Loan for leasing equipment / machinery, ๏ Finance projects undertaken by the entire family of a

seasoned borrower.

Micro Credit ProgramsVillage Phone program In the Village Phone program, women entrepreneurs can start businesses to provide wireless payphone service in rural areas. This program earned the bank the 2004 Petersburg Prize worth EUR 100,000, for its contribution of Technology to Development... More than 55,000 phones are currently in operation, with more than 80 million people benefiting from access to market information, news from relatives, and more.

Struggling members programIn 2003, Grameen Bank started a new program, different from its traditional group-based lending, exclusively targeted to the beggars in Bangladesh. This program is focused on distributing small loans to beggars. The loans are completely interest-free, the repayment period can be arbitrarily long, and the borrower is covered under life insurance free of cost. For example, a beggar taking a small loan of around 100 taka (about US $1.50) may pay back only 2.00 taka (about 3.4 US cents) per week.

Housing LoansGrameen has made housing loans totaling $190 million to build over 560,000 homes with near-perfect repayment. By 1989, their average housing loan had grown to $300. That year, the Grameen housing program received the Aga Khan International Award for Architecture

Structure of Grameen Bank

Head Office

Zonal Offices

Area Offices

Branches

Centres

Groups In Villages

1 ZO for 8 Area Offices

1 AO for 8 10-12 Branches

1 Branch for 50-60 Centers

1 Center for 6-8 Groups

Each Group will have 5 members

Governance of Grameen Bank

Governance: Managed by 13 Member Board comprising 9 Members from borrower shareholders, 3 nominees of Gove of Government, and 0ne Managing Director rnment, and 0ne Managing Director

Funding Sources

Foreign Loan

Sources

Commercial Lending Foreign Donation

Central Bank Lending

Indicators of Poverty LineGrameen Bank borrower is said to havemoved out from poverty if it meets the

followingcriteria

– The family lives in a house worth at least Tk. 25,000 or a house with a tin roof, and each member of the family is able to sleep on a bed instead of on the floor.

– Family members drink pure water of tube-wells, boiled water or water purified by using alum, arsenic-free, purifying tablets or pitcher filters.

– All children in the family over six years of age are all going to school or finished primary school. Family experiences no difficulty in having three square meals a day throughout the year, i. e. no member of the family goes hungry any time of the year.

–

Indicators of Poverty Line

• Minimum weekly loan installment of the borrower is Tk. 200 or more.

• Family uses sanitary latrine. • Family members have adequate clothing for every

day use, warm clothing for winter, such as shawls, sweaters, blankets, etc, and mosquito-nets to protect themselves from mosquitoes.

• Family has sources of additional income, such as vegetable garden, fruit-bearing trees, etc, so that they are able to fall back on these sources of income when they need additional money.

• The borrower maintains an average annual balance of Tk. 5,000 in her savings accounts.

• Family can take care of the health. If any member of the family falls ill, family can afford to take all necessary steps to seek adequate healthcare.

Vital Statistics•Members : 6.83 million – 96 % are women, 1,086,744 groups•Area Coverage : 73,609 villages through 121,755 centres, 2283 branches and 20,233 staff•Deposits: Tk 41.22 b – 62 % from members , rates 8.5 to 12.0%•Loans: Cumulative disbursement - Tk 301.72 b Loan Outstanding – Tk 32.66 b , Annual disbursement – Tk – 49.46 b •Interest rate : 20% (declining basis) for income generating loans, 8% for housing loans, 5% for student loans, and 0% (interest-free) loans for Struggling Members (beggars)

Sustainability•Loan Recovery Rate : 98.91 per cent

•ROI on loans – Income generating activities – 20 %, Housing Purposes – 8 %, Student loan – 5 % •All interest rate are simple interest & applied on declining basis. Interest collected not to exceed Principal

•After 1995 the Bank had decided not to receive anymore donor funds. It has become self reliant.

Grameen Family of EnterprisesGrameen started to diversify in 1980 and these interests grown into separate organizations-:

•Grameen Communications- not for profit IT company.•Grameen Shakti- promote and develop renewable energy technology.•Grameen Telecom•Grameen phone- GSM based cellular operator•Grameen Fund- to provide capital to SMEs•Grameen Trust- Aid in replication of the model internationally •Grameen Fisheries•Grameen Danone Foods -joint venture between Grameen Bank and French food company

Some Grameen Replicators in India

1. Share Micro Fin Ltd, Hyderabad2. Spandana, Guntur3. Swyam Krishi Sangam, Hyderabad4. Cashpor Micro Credit, Varanasi5. Grameen Koota, Bangalore

Nobel Peace Prize

October 13, 2006 ~ The Nobel Committee awarded Grameen Bank and its founder, Muhammad Yunus, the 2006 Nobel Peace Prize, for their efforts to create economic and social development from below.“From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty. Grameen Bank has been a source of ideas and models for the many institutions in the field of micro-credit that have sprung up around the world.”

Only business corporation to have won a Nobel Prize

Conclusion

From its inception as an experimental project in 1976, the Grameen Bank has been led by Dr. Yunus, whose dynamic leadership has positively influenced its performance and expansion. However, since it began operating as a bank in 1983, its growth as a well-structured and decentralized organization has been instrumental in its phenomenal expansion and replication. Unlike other development financial institutions and even government infrastructural investments, the expansion and location of Grameen Bank branches does not depend on favorable agro climate and area factors considered important for financial institutions' viability. The Grameen Bank has thus proven that financial intermediation can alleviate poverty.