GRAMEEN BANK

- Banker For The Poor

A. Executive Summary
“Banking for the poor” - Grameen Bank is the outcome of an Idea from Muhammad Yunus
translated into action. It is the best example of an effective Marketing strategy wherein the focus
is not on the solution but rather on the problem. Grameen Bank has changed the conventional
way of credit lending practice( normally called the 3C’s of credit) as it lends without the
borrower submitting a collateral. The whole model of Grameen bank is all about mutual trust,
accountability, participation and creativity. It doesn’t just believe in empowering the destitute
financially but rather believes in bringing about a complete all round development in their life by
empowering them so that they can move up the economic ladder together with gaining the know-
how of a better living. The objectives as identified by Grameen Bank are as below:

Objectives:
 to extend banking facilities to the poor;
 to eliminate exploitation by money lenders;
 to create small enterprise opportunities for the unemployed and underemployed
 to bring disadvantaged people within the fold of some organizational format which they
can understand and operate and can find some socio-political and economic strength
through mutual support;
 to reverse the age old [poverty] cycle of “low income, low savings, low investment, low
income”into an expanding system of “low income, credit, more income, more credit,
more investment, more income”.

Grameen Bank is just one of the SBU under the Grameen Trust umbrella which also includes
many other SBUs like Grameen Phone, Grameen Textile, etc. Grameen Bank is also a very
sustainable solution and at the same time scalable because during its inception, Muhammad
Yunus implemented it in the Jobra village which comprises of 3 different groups of people,
Muslims, Buddhists and the Christians and this has helped him replicate the Grameen Banks
model in the southern regions of Africa and America very successfully.

B. Target Customer
The target customer for the Grameen Bank is one who satisfies the following characteristics :

• They have no asset

• They have nothing to offer as collateral

 • They have no business experiences

• They have no training

• They have no credit history

• They have no education

C. SWOT Analysis
Strengths:

1. Creator of service himself has a personal experience and feel of being with the customers.
Muhammad Yunus himself being a resident of the Jobra village knew exactly the
problem that the community was facing and hence he could very well cater to the needs
of the destitute by providing them tailor-made lending services which can maintain a
balance between their earnings and repayment rates.

2. The biggest strength of Grameen Bank lies in bringing financial services to poor people
and making it financial sustainable by the economies of scale effect. Some of the other
advantages are that the bank offers tailor-made services to the poor people. Also, the
costumers are called members so they have the feelings of “belongingness”. Moreover,
Grameen Bank focuses on area which is largely untapped and has huge potential.

3. Grameen banks not only provides credit to its borrowers but also helps them grow their
small business and helps them learn the basic principles of healthy living and grows
alongwith the customers. This helps in the creation of loyal customers to the bank.

Weakness:
Grameen Bank suffers from various weaknesses.

1. Peer-Pressure : Because of the group-lending strategy which demands that all the
members of the group should repay the loan or else none of them will be given the loan
the next time, has created a lot of domestic pressure amongst the destitute families. There
has been many cases wherein violence has crept amongst many families for the reason of
one family not being able to repay the loan. Also because of the peer-pressure many
families try to repay the loan by borrowing the money from the “paikars” the local
money-lenders who would charge them double the rates (10% a week). This at times
 defeats the complete purpose of Grameen Bank of getting the destitute out of the vicious
cycle of the credit from local money-lenders.

2. Actual Users of the loan : Many a times the loans didn’t use to reach to the actual users of
the loan, as many borrowers try to pretend to be destitute and borrow money and then
lend it themselves to the actual destitute charging them higher rates.

3. Rise in Violence against Women : Grameen bank has the policy of lending it only to the
female members of the family. This has aimed at motivating the females so that they get
a social status as deserved by them and can drive the family. But as per the recent
statistics this has been the other way, in many of the borrower families, an increase in
violence against the women borrowers is seen because of the in-laws and the husband not
ready to accept the empowerment of women.

Opportunities:
1. Other service sectors like health, education and insurance can be explored for their
customers : Grameen Bank can focus on getting into other sectors so that the loans
provided by them goes in for spending for the services like education, health and
insurance. This is both aligned with their purpose of bringing about an all-round
socio-economic change aswell as sustaining the operations by going for economies of
scope.

2. Consultancy services for helping the customers to be more profitable : This can be a
potential area of penetration for Grameen Bank keeping in mind the literacy level of
their target customers. The target customers of Grameen Bank are destitute who even
if given money in hand would not be able to use it in a well planned way so as to help
them eventually grow. Hence if Grameen Bank comes out with a consultancy service
for their customers then this on one hand help their customers grow financially as
well as this will help the bank increase the repayment rates because the customer is
financially well enough then to pay back the loans

Threats:
1. Government policies making Financial inclusion a mandate for banks : This will
make the commercial banks come into compete with the Grameen Bank. Till now
the commercial banks have never focused on tapping the rural customers but with
the mandate from the Govt, commercial banks pose a big threat to Grameen bank.

2. Interest rates of competitors : Earlier the interest rates that the banks used to charge
to rural customers were considerably high but now with the BPLR to BASE RATE
 transition banks wont be able to charge higher rates to its customers. Hence this can
pose a threat to Grameen bank.

3. MFI’s , like SKS microfinance : There is a potential threat from MFI’s like SKS
Microfinance which have a great deal of penetration in the rural market in India
already, and this is one of the reasons why Grameen Bank has not entered the Indian
market.

D. Marketing Strategies and

Implementation:
Exclusive Focus on the Poorest of the Poor
Exclusivity is ensured by:

1. Establishing clearly the eligibility criteria for selection of target group and adopting
practical screening techniques to exclude those who do not qualify. Since mixing of
different income groups tend to result in the higher income groups ousting the low ones.

2. Women are given priority, since their empowerment has a greater positive impact on the
family and they have proven to be disciplined and astute entrepreneurs.

3. The delivery system is geared to meet the diverse socio-economic development needs of
the poor housing, education, nutrition, family planning, economic development etc.

Borrowers Organised into Small Homogenous Groups

1. Organising the primary groups of 5 members and federating them into centres has been
the basic building blocks of the GB’s credit delivery system.
2. On the outset the emphasis is on building strong grassroots borrower organizational
structures; this is the means of empowering and enabling borrowers to develop the
capacity for planning and implementing micro level development decisions.
3. Centres are functionally linked to the GB via the field workers, who have to officiate at
compulsory centre meetings on a weekly basis and present weekly reports to their
superiors.
4. A policy of replacing traditional collateral with social collateral, by making a group of
five borrowers responsible for each others loans. Group pressure forces members to
conform to the payment agreements.
Loan Conditions Specially Tailored for the Poor
The key to the Banks success was the achievement of a simple to operate loan mechanism that
all borrowers understand almost immediately:

1. Very small amounts of loans given without any collateral.

2. Loans payable in small 50 weekly installments spread over a year.
3. Access to larger subsequent loans dependent on repayment history
4. Individual, self chosen , rapid income generating activities, employing skills that the
borrower is already equipped with.
5. Close supervision of credit utilization by the group as well as the bank staff.
6. Stress on credit discipline and collective borrower responsibility (peer pressure).
7. The adaptation of financial services to suit local demand through “regular door-to- door
banking”.
8. Compulsory (borrowers are compelled to save a minimum of 67cents22 in SA currency
per week) and voluntary savings schemes to minimize income fluctuation risks that
usually confront the poor. Savings implies that borrowers are paying a higher effective
interest rate thus allowing the GB to charge only 20% on micro enterprise loans .
9. Transparency in all bank transactions most of which occurs at centre meetings.

Undertaking Social Development Programs to Address Basic Needs of

the Poor
This is reflected in the “sixteen decisions” adopted by the GB borrowers. This helps to:

1. raise the social and political consciousness of the newly organised groups
2. focus increasingly on women from poorest households, whose survival urges has a far
greater bearing on the development of the family.
3. empower the poor to take care of their own basic needs - housing, sanitation, drinking
water, education, family planning etc.
4. the development of a broader social upliftment programmes, which includes the building
of houses and schools, undertaking of large economic projects eg. Textiles, fisheries and
telecommunications.

Design and Development of a Credit Conducive Organisation and

Management System Capable of Servicing the Poor
1. The system has evolved gradually through a structured learning process that involves
trails and errors and continuous adjustments. Special training programme has evolved, to
screen, train and develop highly motivated and progressive staff members, so that
decision making and operational authority is gradually decentralized and administrative
functions delegated at the zonal level downwards.
 2. A dedicated and committed workforce achieved both through rigorous practical
management training programmes and market related remuneration packages.
3. The management style of top and middle management not only supports but also
empowers field workers and branch managers. At the branch level workers enjoy
considerable delegated authority.

Expansion of the Loan Portfolio to Meet Diverse Development Needs of

the Poor
As the general credit programme gathers momentum and the borrowers become familiar with
credit discipline, other loan programmes are introduced to meet the growing social and economic
development needs of borrowers. Apart from housing projects which are well established, such
programs include:

1. credit for building sanitary latrines

2. credit for installation of tubewells that supply drinking water and irrigate kitchen
gardens
3. credit to buy agricultural inputs for seasonal cultivation
4. finance projects undertaken by the entire family of a seasoned borrower.
5. Loans for the purchase of equipment and machinery

Strategic Market Orientated Credit Policies

Apart from the above policies, the following also contribute significantly towards GB’s success

1. Market related interest rates that cover costs, GB charges 20% interest pa., of which 5%
is contributed toward a group fund to cover risks.
2. A moderate subsidy dependent index (the amount by which interest rates need to be
raised in order to remove subsidies).
3. Protection of loan funds from inflation by depositing dormant funds in commercial
banks that earn competitive interest rates and by engaging in bond trading.

Some researchers have posited the notion that the Grameen Bank’s success lies in its
organizational policies. The organizational structures may be split into three hierarchical levels
viz.,the local people’s organization ie. centres, the field organization comprising branches and
area offices and support organizations comprising of zonal offices and headquarters

The Organisational Structures and Functions

New recruits are required to form into a group of at least 5 members then each prospective
member has to undergo training in order to understand what the Bank is all about. Before gaining
acceptance into the Bank each member has to separately undergo an oral exam (85% of rural
women are illiterate), if any member fails then the group’s acceptance into the bank is stalled
until exams are retaken. This process not only ensures that the most desperate qualify for loans,
since the moderately well off will avoid such difficulties, but also encourages group participation
and empowerment of women. Moreover this approach commits them to the GB before they
could borrow. Loans are first extended to only two group members , if they pay regularly for the
next six weeks , then loans are granted to a further two members, the group leader receives
her/his loan last.

E. Evaluation and Control

Performance Standards and Financial Controls

A set of standards was followed for processing/deciding loans, setting new branches, supervising
branches, some of which are as follows:

 Five member group

 Weekly meeting
 Each branch managed by a team of 6 workers
 A branch worker served 10 centres 5 days a week. During mornings the branch worker
attends two centre meetings and collected savings/loan installments. He/she then visits
the same centres in the afternoon to check on the utilization of loan monies and the
performance of all ongoing loan activities
 Each case of nonpayment of savings/loan is followed up.
 Branches supervised and supported by the area offices , zonal offices and the
headquarters

Branch Supervision

The Branch Manager makes supervisory visits to different centres and checks the physical
utilization of loan monies for at least 20% of all loans. Furthermore he/she makes on the spot
checks on the performance of Branch Assistants and also ensured that Bank Assistants and
Group Leaders did not discriminate against any member. At the time of a loan disbursal, he/she
personally enquired about the loan activity and ensured that the borrower understood all the
conditions of the contract. Every month he/she also checks and countersigns each members
account book to ensure that amounts of cash collected were correctly entered. Each branch
prepares detailed weekly reports on branch performance. Worker and centre performance were
also reviewed so that it became the common knowledge of all staff members.