Micro Finance

GRAMEEN BANK

Trina Bhagat (09020242005)

Aikta Dube (09020242008)
Meghraj Gawande (09020242009)
Rishika Mittal (09020242030)
Susrita Sen (09020242036)
Vipra Khandelwal (09020242046)

MBA – Agri Business

2009 – 2011
Symbiosis Institute of International Business
• The Grameen Bank is a microfinance organization and
community development bank started in Bangladesh that
makes small loans (known as microcredit or "grameencredit")
to the impoverished without requiring collateral.

• The system of this bank is based on the idea that the poor
have skills that are under-utilized.
• A group-based credit approach is applied which utilizes the
peer-pressure within the group to ensure
– Borrowers follow through and use caution in conducting
their financial affairs with strict discipline,
– Ensuring repayment eventually
– Allowing the borrowers to develop good credit standing.

• The bank also accepts deposits, provides other services, and

runs several development-oriented businesses.
A Brief History
• 1976
• Professor Muhammad Yunus,
– a scholar at Vanderbilt University
– Professor at University of Chittagong,

• Launched a research project to examine the possibility of

designing a credit delivery system to provide banking services
targeted to the rural poor.
A Brief History contd…

• In October 1983, the Grameen Bank Project was transformed into an

independent bank by government legislation.

• The organization and its founder, Muhammad Yunus, were jointly

awarded the Nobel Peace Prize in 2006; the organisation's Low-cost
Housing Programme won a World Habitat Award in 1998.

“In Bangladesh 80 percent of the poor families have already been reached with microcredit.
We are hoping that by 2010, 100 per cent of the poor families will be reached.”
Awards for Grameen bank
• SWITZERLAND : Aga Khan Award For Architecture : 1989

• BELGIUM : King Baudouin International Development Prize : 1993

• BANGLADESH : Independence Day Award : 1994

• MALAYSIA : Tun Abdul Razak Award : 1994

• UNITED KINGDOM : World Habitat Award : 1997

• INDIA : Gandhi Peace Prize : 2000

• U.S.A : Petersberg Prize : 2004

• Norway : Nobel Peace Prize : 2006

Key Features of Grameen Bank
• Owned by the Poor

• No Collateral, No Legal Instrument, No Group-Guarantee or Joint

Liability

• 97 per cent Women

• Branches
– Grameen Bank has 2,563 branches.
– It works in 81,343 villages.
– Total staff is 23,275.

• Over Tk 339 billion Disbursed

• Loans Paid Off At Death

• Recovery Rate 98 per cent
• Beggars As Members
• Housing For the Poor
• Education Loans & Scholarships
• Grameen Bank-Created Companies
– Grameen Fund: Tk 373.2 million (US $ 6.38 million)
– Grameen Krishi Foundation: Tk 19 million (US $ .33
million)
– Grameen Motsho (Fisheries) Foundation: Tk 15
million (US $ .26 million)
– Grameen Shakti : Tk 9 million (US $ 0.12 million)
– Grameen Motsho (Fisheries) Foundation : Tk 8
million (US $ 0.11 million)
– Grameen Kalyan
Grameen Bank Membership
Patterns (women and men)

Men declined from

55% to 6%

Women borrowers
increased from
45% to 95%, (700 times)

Sources: Hossain 1988; Khandker, Khalily and Khan 1994

Growth in Grameen Bank
Membership, 1976-2001
Source: Grameen Bank Annual Report
Hierarchical Structure
 HOW IS IT DIFFERENT ???
• Grameen system is collateral- free.

• All human beings, including the poorest,

are endowed with endless potential.

• Grameen Bank is owned by poor women.

• Coming out of social and economic visions.

• Ownership of the houses built with Grameen Bank

loans remain with the borrowers, i.e. the women.
Contd…
• No provision in the methodology to enforce a contract by any
external intervention.

• Assist the borrower in difficulty, and makes all efforts to help

her regain her strength and overcome her difficulties.

• No interest is charged after the interest amount equals the

principal.

• No liability is transferred to the family.

What is Micro Credit ?

• “Microcredit" did not exist before the seventies

• Means agricultural credit, or rural credit, or cooperative credit,

or consumer credit, credit from the savings and loan
associations, or from credit unions, or from money lenders

• Labels to various types of microcredit

• To specify which category of microcredit

Classification of Microcredit
• Traditional informal microcredit

• Microcredit based on traditional informal groups

• Activity-based microcredit through conventional or

specialised banks

• Rural credit through specialised banks

• Cooperative microcredit
Grameen Credit
• It promotes credit as a human right.

• Its mission is to help the poor families to help themselves to

overcome poverty

• Most distinctive feature of Grameencredit is that it is not based on any

collateral, or legally enforceable contracts

• It is offered for creating self-employment for income-generating

activities and housing for the poor, as opposed to consumption

• In order to obtain loans a borrower must join a group of borrowers

Three C’s of CREDIT
• Character: Means how a person has handled past debt
obligations

• Capacity: Means how much debt a borrower can comfortably

handle

• Capital: Means current available assets of the borrower, such

as real estate , savings or investment that could be used to
repay debt
Role Of Microcredit
• Poverty eradication

• Empowering people

• Access to savings

• Led to non-conventional forms of lending

• Providing credit and savings services to the entrepreneurial

poor
Knowledge of the Area
• For the Grameen Bank to operate in an area and provide MF it is important to
know its clients and the area in which they operate

• Economics: No control over capital

• Demographics: Has half the area of Malaysia or Japan, but it has over 160
million people, almost 6 times more populated than Malaysia

• Social Structure: Muslims and Hindus live in peace and harmony in the
village

• State of Living: Family lives in a house worth at least Tk. 25,000

Understanding Dynamics Of
Local Market

• Agriculture

• Small Industry

• Trade

• Service & Finance

Poor Clients as Valued
Customers
• Human Bonsai

• Even beggars get special attention

• Raises status of poor women

• 97 per cent of Grameen Bank's borrowers are women

Institutional Ownership
Mission

To enable the poor, especially the

poorest,
the world without poverty.
Objectives
• To extend the banking facilities to the poor men and women.

• To eliminate the exploitation of money lenders.

• To create opportunities for the self- employment for the unutilized and
underutilized manpower resource.

• To bring the disadvantaged people within the folds of some organizational

format which they can understand and operate and can find socio-economic
and political strength in it through mutual support.

• To reverse the age-old vicious circle of poverty “low income, low capital
accumulation”
Owned by the Poor

• 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 per cent of the

total equity of the bank.

• Remaining 5 per cent is owned by the government.

Customers

• Total number of borrowers is 8.01 million,

• 97 per cent of them are women.

No Collateral, No Legal Instrument,
No Group-Guarantee or Joint Liability

• No 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.
Branches and employees

• Grameen Bank has 2,563 branches.

• It works in 81,343 villages.

• Total staff is 23,275

Amount of loan disbursed
• Total amount of loan disbursed by Grameen Bank,
is Tk 506.29 billion (US $ 8.86 billion).

• Out of this, Tk 450.20 billion (US $ 7.86 billion) has been repaid.

• Current amount of outstanding loans stands at TK 56.09 billion

(US $ 811.52 million).

• During the past 12 months (from February’09 to January'10)

Grameen Bank disbursed Tk. 81.20 billion (US $ 1176.20
million).
Amount of loan disbursed
contd
• Monthly average loan disbursement over the past 12 month
was Tk 6.77 billion (US $ 98.02 million).

• Projected disbursement for year 2010 is Tk 97.00 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).
Recovery rate

97 per cent  Loan recovery rate is

96.54 per cent 
Financing of loans
• Grameen bank finances 100% of its loans from its bank
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 160
per cent of loans outstanding.
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.
Credit lending models
• Associations • Credit unions

• Bank guarantees • Non-governmental

organizations
• Community banking
• Peer pressure
• Cooperatives
Grameen model
• A bank unit is set up with a Field Manager and a number of
bank workers, covering an area of about 15 to 22 villages.

• The manager and workers start by visiting villages to

familiarise themselves with the local milieu in which they will
be operating and identify prospective clientele, as well as
explain the purpose, functions, and mode of operation of the
bank to the local population.
Grameen model contd…
• Groups of five prospective borrowers are formed; in the first stage,
only two of them are eligible for, and receive, a loan.

• The group is observed for a month to see if the members are

conforming to rules of the bank.

• Only if the first two borrowers repay the principal plus interest over
a period of fifty weeks do other members of the group become
eligible themselves for a loan.

• Because of these restrictions, there is substantial group pressure to

keep individual records clear. In this sense , collective responsibility
of the group serves as collateral on the loan.
Organization and
Management
Products and Services
• Life Insurance • Retirement Benefits Paid
Out
• Deposits
• Micro-enterprise Loans
• Pension Fund for
Borrowers • Telephone-Ladies

• Loan Loss Reserve

Interest Rates
• For Government run microcredit programs flat interest rate of
11 % is decided.

• It amounts to about 22 per cent at declining basis.

• Four Interest Rates for loans

o 20% (declining basis) for income generating loans
o 8% for housing loans
o 5% for student loans
o 0% (interest-free) loans for Struggling Members (beggars)
Micro finance institutions (MFIs) charge interest which covers the high
cost of:
• making very small loans

• personally servicing each client every week

• the cost of managing the “center meetings”

• the peer support group process

• personal development and health

• other such activities which help improve the lives and future
for their clients
Profit and Loss Account
Property and Assets 2007 2008

(Average Taka/Dollar conversion rate) 68.62 68.72

Cash in hand 99,093 55,278

Balance with other Banks 13,547,042 19,276,189

Investment 356,540,508 418,077,768

Loans and Advances 547,165,254 666,282,856

Fixed assets-at cost less accumulated depreciation 16,241,875 16,927,661

Other assets 71,269,223 84,279,874

Total 1,004,862,995 1,204,899,626

Capital and Liabilities

Authorized 7,286,505 50,931,315

Paid Up 4,634,217 5,209,546

General and Other reserves 80,849,537 88,452,230

Revolving Funds - -

Deposits and Other Funds 810,853,326 994,096,656

Borrowings from banks and foreign 26,133,437 25,192,353

institutions

Other Liabilities 82,392,658 91,948,840

Profit and loss account - -

Total: 1,004,862,995 1,204,899,626

Contigent Liabilities 83,344 -

Appropriate MIS
• 2,395 out of 2,459 branches have been computerised.

• Branch staff are provided with pre-printed repayment figures

for each weekly meeting

• Thirty six zones, out of 39, are connected with the head office,
and with each other, through intra-net
• Policy For Opening New Branches
New branches are required to fund themselves entirely with the
deposits they mobilise

• Crossing the Poverty-Line

64 per cent of Grameen borrowers' families of Grameen
borrowers have crossed the poverty line.
Development of Human
Resource
• Oct 2 1983, grameen bank was transformed into an
independent bank.

• Today Grameen bank has a total of 2319 branches.

• 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 December 2006

• 1553 branches, out of the total of 2,319 branches, received stars (green) for maintaining 100 per cent
repayment record.

• 1627 branches received stars (blue) for earning profit.

• 1375 branches earned stars (violet) by meeting all their financing out of their earned income and deposits.

• 337 branches have applied for stars (brown) for ensuring education for 100% of the children of Grameen
families.

• 54 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.
• After this establishment, the bank started experiencing
tremendous demand from foreigners around the world, who
wanted to learn further about the operations of Grameen Bank.

• Due to overwhelming requests from abroad, Grameen Bank’s

Head Office created the “training program” for internationals.

• In 1987, the Managing Director officially inaugurated the

establishment of the Grameen Bank Training Program.
Objectives
• The objectives of GB’s training programs are to:

• Arouse curiosity

• Stimulate interest on the subject of Microfinancing

• Encourage responsibility of self-motivated learning

• Learn and share with others

• Discover individual role in the organization and the global community

• Recognizing the diverse backgrounds of participants

Training programs
Exposure Visit:

• Exposure visits are provided to gain first-hand knowledge on the

philosophy and operations of Grameen Bank and may be organized
any time, for any period.

• Participants may visit individually or in a group from a particular

institution.

• A standard exposure visit includes a one-day briefing at the head office

followed by a field visit (assignment to a branch), for few days and
finally ending with a review, again at the head office.
Grameen Basic Training
Program
• The Grameen Bank organizes basic training programs
from for replicators of the Grameen model in different
countries to impart training on the credit delivery-
recovery mechanism of Grameen.

• The basic training program includes rules, accounting,

and monitoring systems of Grameen Bank.

• For senior executives and field workers different courses

are offered. Duration of these courses is three to four
weeks.
MEDIA…
Press & Journalist:
This program is specifically designed for members of the press and
media interested in filming documentaries about Grameen Bank, its
operations, and its borrowers.

Research:
Researchers are also welcome to perform their research according
to their own objectives for any length of duration.
Researchers are required to send a Resume/CV along with an
introductory letter from their respective institutions, as well as the
purpose of their research, details of their research methodology,
expected time frame, and whether or not they will be using a
survey questionnaire.
Internship
• Students from various educational institutions from all over the world can
join as unpaid intern at Grameen Bank.
• Interns can learn in depth, through field visits, about the philosophy and
operational procedures of Grameen Bank, as well as the impact of
Grameen on the economic and cultural life of Grameen Bank members
and the community.
• Internship with Grameen Bank is open and flexible and there is no fixed
schedule for internship.
• The flexibility of the internship allows interns to supplement their already
established academic objectives.
• Interns are required to send a Resume/CV along with an introductory
letter from their respective institutions. Internship Program
Schedule/Itinerary
Jobs that interns are requested to do:

• Assistance in drafting and preparing official documents

• Correspondence
• Translating and editing documents
• Task specific internet research
• Assistance with and updating of websites
• Collection and writing of case studies for publications
Corporate Philosophy
• It varies depending upon the country and culture, the institutional
type etc.

• Nevertheless the basic philosophy remains the same.

• Trust, incentives, commitment, simplicity, and standardization, along

with service, transparency, flexibility, accountability, profitability,
training of staff, and knowledge of the local market.

• Sugianto said, “You can succeed in microfinance only if u love it.”

Founder’s foundation

• Muhammad Yunus is that rare thing: a bona fide visionary. His dream is the total
eradication of poverty from the world.

• 'Grameen', he claims, 'is a message of hope, a programme for putting homelessness

and destitution in a museum so that one day our children will visit it and ask how we
could have allowed such a terrible thing to go on for so long'.

• Credit is the last hope left to those faced with absolute poverty. That is why
Muhammad Yunus believes that the right to credit should be recognized as a
fundamental human right.

• It is an appeal for action: we must concentrate on promoting the will to survive and
the courage to build in the first and most essential element of the economic cycle —
Man
Corporate Philosophy

• Decisions
– Discipline, Unity, Courage and Hardwork
– Prosperity we shall bring to our families.
– We shall reconstruct our houses.

• Indicators
– Food
– Clothing
– Shelter
Problems faced by Grameen
bank
• 1995 Boycott Movement - Men in the communities joined local
politicians who disapproved of the bank’s mission of turning women
into entrepreneurs and pressured borrowers to stop repaying loans.

• 1998 Floods - Floods ravaged the country, leaving much of the

population without Homes and businesses; Resulting in lower
repayment rates and some dropouts

• Transparency and Credibility Issues - Under the classic Grameen

Bank model Borrowers who were late in their loan payments were
banned from the loan process until they had repaid in full. Critics
accused Grameen Bank of unwillingness to fully disclose the impact
of these crises on its financial position.
Conclusion
5 common elements of sustainable MFI’s are-

• Knowledge of the commercial microfinance business and its clients.

• Institutional ownership.

• Organization and management.

• Development of human resources.

• Corporate philosophy.