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 word "Grameen",
derived from the word "gram" or "village", means "of the village".
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 the
borrowers follow through and use caution in conducting their
financial affairs with strict discipline, ensuring repayment
eventually and allowing the borrowers to develop good credit
standing. The bank also accepts deposits, provides other services,
and runs several development-oriented businesses including fabric,
telephone and energy companies. Another distinctive feature of the
bank's credit program is that a significant majority of its
borrowers are women.
of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus, a Fulbright scholar at Vanderbilt
University and 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.
1983, the Grameen Bank Project was transformed into an independent
bank by government legislation. The organization and its founder,
, were jointly awarded
the Nobel Peace Prize
in 2006; the
organisation's Low-cost Housing Programme won a World Habitat Award
Muhammad Yunus, the bank's founder, earned a
doctorate in economics from Vanderbilt
University in the United States.
He was inspired during
the terrible Bangladesh famine
to make a small loan of USD
$27.00 to a group of 42 families so
that they could create small items for sale without the burdens of
. Yunus believed
that making such loans available to a wide population would have a
positive impact on the rampant rural poverty in Bangladesh.
Nobel Laureate Muhammad Yunus, the
The Grameen Bank (literally, "Bank of the Villages", in Bangla
) is the outgrowth of Yunus' ideas.
The bank began as a research project by Yunus and the Rural
Economics Project at Bangladesh's University of Chittagong
his method for providing credit and banking services to the rural
poor. In 1976, the village of Jobra and other villages surrounding
the University of Chittagong became the first areas eligible for
service from Grameen Bank. The Bank was immensely successful and the
project, with support from the central
Bangladesh Bank, was introduced in
1979 to the Tangail
District (to the
north of the capital, Dhaka).
bank's success continued and it soon spread to various other
districts of Bangladesh. By a Bangladeshi government ordinance on
October 2, 1983, the project was transformed into an independent
bank. Bankers from ShoreBank, a community development bank in
Chicago, helped Yunus with the official incorporation of
the bank under a grant from the Ford
The bank's repayment rate was hit following
the 1998 flood of Bangladesh before recovering again in subsequent
years. By the beginning of 2005, the bank had loaned over
USD 4.7 billion and by the end of 2008, USD 7.6 billion
to the poor.
The Bank today continues to expand across the nation and still
provides small loans to the rural poor. By 2006, Grameen Bank
branches numbered over 2,100. Its success has inspired similar
projects in more than 40 countries around the world and has made
World Bank to take an initiative to finance Grameen-type
The bank gets its funding from different sources, and the main
contributors have shifted over time. In the initial years, donor
agencies used to provide the bulk of capital at very cheap rates.
In the mid-1990s, the bank started to get most of its funding from
the central bank of Bangladesh. More recently, Grameen has started
bond sales as a source of finance. The bonds are implicitly
subsidised as they are guaranteed by the Government of Bangladesh
and still they are sold above the bank rate.
Application of microcredit
- We shall follow and advance the four principles of Grameen
Bank: Discipline, Unity, Courage and Hard work – in all walks of
- Prosperity we shall bring to our families.
- We shall not live in dilapidated houses. We shall repair our
houses and work towards constructing new houses at the
- We shall grow vegetables all the year round. We shall eat
plenty of them and sell the surplus.
- During the plantation seasons, we shall plant as many seedlings
- We shall plan to keep our families small. We shall minimize our
expenditures. We shall look after our health.
- We shall educate our children and ensure that they can earn to
pay for their education.
- We shall always keep our children and the environment
- We shall build and use pit-latrines.
- We shall drink water from tubewells. If it is not available, we
shall boil water or use alum.
- We shall not take any dowry at our sons' weddings, neither
shall we give any dowry at our daughter's wedding. We shall keep
our centre free from the curse of dowry. We shall not practice
- We shall not inflict any injustice on anyone, neither shall we
allow anyone to do so.
- We shall collectively undertake bigger investments for higher
- We shall always be ready to help each other. If anyone is in
difficulty, we shall all help him or her.
- If we come to know of any breach of discipline in any centre,
we shall all go there and help restore discipline.
- We shall take part in all social activities collectively.
Grameen Bank is best known for its system of solidarity lending
. The Bank also
incorporates a set of values embodied in Bangladesh by the Sixteen Decisions.
branch of Grameen Bank the borrowers recite these Decisions and vow
to follow them. As a result of the Sixteen Decisions, Grameen
borrowers have been encouraged to adopt positive social habits. One
such habit includes educating children by sending them to school.
Since the Grameen Bank embraced the Sixteen Decisions, almost all
Grameen borrowers have their school-age children enrolled in
regular classes. This in turn helps bring about social change, and
educate the next generation.
Solidarity lending is a cornerstone of microcredit and the system
is now at work in over 43 countries. 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 a repayment problem. There is no form of joint liability,
i.e. group members are not obliged to pay on behalf of a defaulting
member. However, in practice the group members often contribute the
defaulted amount with an intention of collecting the money from the
defaulted member at a later time. Such behavior is facilitated by
Grameen's policy of not extending any further credit to a group in
which a member defaults.
There is no legal instrument
written contract) between Grameen Bank and its borrowers, the
system works based on trust. To supplement the lending, Grameen
Bank also requires the borrowing members to save very small amounts
regularly in a number of funds like emergency fund, group fund etc.
These savings help serve as an insurance against
In a country in which few women may take out loans from large
commercial banks, Grameen has focused on women borrowers as 97% of
its members are women. While a World Bank
study has concluded that women's access to microcredit empowers
them through greater access to resources and control over decision
making, some other economists argue that the relationship between
microcredit and women-empowerment is less straight-forward. In
other areas, Grameen's track record has also been notable, with
very high payback rates—over 98 percent. However, according to the
Wall Street Journal, a fifth of the bank's loans were more than a
year overdue in 2001. Grameen claims that more than half of its
borrowers in Bangladesh (close to 50 million) have risen out of
acute poverty thanks to their loan, as measured by such standards
as having all children of school age in school, all household
members eating three meals a day, a sanitary toilet, a rainproof
house, clean drinking water and the ability to repay a 300 taka
-a-week (around 4 USD) loan.
Village Phone Program
Among many different applications of microcredit by the bank, one
is the Village Phone program, through which women entrepreneurs can
start a business providing wireless payphone service in rural areas
of Bangladesh. This program earned the bank the 2004 Petersburg
Prize worth of EUR
100,000/-, for its
contribution of Technology to Development. In the press release
announcing the prize, the Development Gateway Foundation noted that
through this program:
...Grameen has created a new class of women
entrepreneurs who have raised themselves from poverty. Moreover, it
has improved the livelihoods of farmers and others who are provided
access to critical market information and lifeline communications
previously unattainable in some 28,000 villages of Bangladesh. 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 program
In 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 existing rules of banking are not
applied, the loans are completely interest-free, the repayment
period can be arbitrarily long, for example, a beggar taking a
small loan of around 100 taka (about US $1.50) can pay only 2.00
taka (about 3.4 US cents) per week and furthermore the borrower is
covered under life insurance free of cost.
The bank does not force borrowers to give up begging; rather it
encourages them to use the loans for generating income by selling
low-priced items. Based on a paper presented in the Global
Microcredit Summit in 2006 by one of the bank's managers, as of May
2006, around 73,000 beggars have taken loans of about Tk 58.32
million (approx. USD 833,150) and repaid Tk. 34.78 million
(about USD 496,900).
One unusual feature of the Grameen Bank is that it is owned by the
poor borrowers of the bank, most of whom are women. Of the total
equity of the bank, the borrowers own 94%, and the remaining 6% is
owned by the Government of Bangladesh.
The bank has grown significantly between 2003-2007. As of October
2007, the total borrowers of the bank number 7.34 million, and 97%
of those are women.The number of borrowers has more than doubled
since 2003, when the bank had only 3.12 million members. Similar
growth can be observed in the number of villages covered. As of
October 2007, the Bank has a staff of over 24,703 employees and
2,468 branches covering 80,257 villages, up from 43,681 villages
covered in 2003.Since its inception, the bank has distributed Tk
347.75 billion (USD 6.55 billion) in loans. Out of this, Tk
313.11 billion (USD 5.87 billion) has been repaid. The bank
claims a loan recovery rate of 98.35%, up from the 95% recovery
rate claimed in 1998. The Wall Street Journal, in November, 2001,
published an article expressing doubt about the 95% recovery rate
from 1996 and the accounting practices that Grameen used to
determine this rate.
Nobel Peace Prize
Grameen Bank received several prestigious awards including the
highest civilian award in Bangladesh, the Independence Day Award
, in 1994.
However, the greatest recognition of the bank's achievements came
on October 13, 2006, when 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." The award
announcement also mentions that: 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.On December 10, 2006,
Mosammat Taslima Begum, who used her first 16-euro (20-dollar) loan
from the bank in 1992 to buy a goat and subsequently became a
successful entrepreneur and one of the elected board members of the
bank, accepted the Nobel Prize on behalf of Grameen Bank's
investors and borrowers at the prize awarding ceremony held at
Oslo City Hall.
Grameen Bank is the only business corporation to have won a
. In a speech given at the
presentation ceremony, Professor Ole Danbolt Mjøs, Chairman of the
Norwegian Nobel Committee, mentioned that, by giving the prize to
Grameen Bank and Muhammad Yunus, the Norwegian Nobel Committee
wished to focus attention on dialogue with the Muslim world, on the
women's perspective, and on the fight against poverty.
The Nobel prize announcement was celebrated with a lot of
enthusiasm in Bangladesh. Some critics asserted that the award
The Grameen Bank has grown into over two dozen enterprises
represented by the Grameen Family of Enterprises. These
organizations include Grameen Trust
, Grameen Communications
, Grameen Shakti
(Grameen Energy), Grameen Telecom
, Grameen Shikkha
Grameen Baybosa Bikash
(Grameen Business Development), Grameen
, Grameen Software
, Grameen CyberNet
, Grameen Knitwear
, and Grameen Uddog
of the brand Grameen Check
On July 11, 2005 the Grameen Mutual Fund One (GMFO), approved by
the Securities and Exchange Commission of Bangladesh, was listed as
an Initial Public Offering
. One of the first
mutual funds of its kind, GMFO will allow the over four million
Grameen bank members, as well as non-members, to buy into
Bangladesh's capital markets. The Bank and its constituents are
together worth over USD 7.4 billion.
The work of Grameen Bank in Bangladesh Inspired the creation of the
Grameen Foundation, which aims to share the Grameen philosophy and
accelerate the impact of microfinance on the world’s poorest
people. Grameen Foundation, which has an A-rating from Charity
Watch, not only provides microloans in the USA itself (the only
rich country where this is done), but also supports microfinance
institutions worldwide with loan guarantees, training, and
technology transfer. As of 2008, Grameen Foundation supports
microfinance institutions in the following regions:
- Asia-Pacific: Bangladesh, China, East Timor, Indonesia, India, Lebanon, Pakistan, Philippines, Saudi
- Americas: Bolivia, Dominican
Salvador, Haiti, Honduras, Mexico, Peru, USA
- Africa: Cameroon, Egypt, Ethiopia, Ghana, Morocco, Nigeria, Rwanda, Tunisia, Uganda
Sudhirendar Sharma, a development analyst, claims that the Grameen
Bank has "landed poor communities in a perpetual debt-trap", and
that its ultimate benefit goes to the corporations that sell
capital goods and infrastructure to the borrowers. It has also attracted
criticism from the former Prime
Minister of Bangladesh, Sheikh Hasina, who
commented, "There is no difference between usurers [Yunus] and
Hasina touches upon one criticism of
Grameen Bank: the high rate of interest that the bank demands from
those seeking credit. Similar to all microfinance institutes, the
interest charged by Grameen Bank is higher compared to that of
traditional banks, as Grameen's interest (reducing balance basis)
on its main credit product is about 20%. The Mises Institute
's Jeffrey Tucker
has criticized the Grameen
Bank, asserting that the Grameen Bank and others based on the
Grameen model are not economically viable and depend on subsidies
in order to operate, thus essentially becoming another example of
welfare. However, they disregard Yunus claims that he is working
against subsidized economy, giving borrowers the opportunity to
make business. Another source of criticism is that of the Grameen's
Sixteen Decisions.Critics say that the bank's Sixteen Decisions
force families and borrowers to abide by the rules and regulations
set forth by the bank. However, they don't make clear why the
leading principles (Unity, courage, discipline and hard work) and
some sound rules set up by the bank, like living in healthy houses
in good repair, not drinking unsafe water or refusing to give
dowries for daughters can be bad for borrowers. They mostly object
to the requisite of having to make a borrower club to cover
defaults, which they disqualify as a totalitarian tool, instead of
a community building strategy.David Roodman and Jonathan Morduch
disagreed with a statistic once often cited by Muhammad Yunus, that
“5 percent of the Grameen borrowers get out of poverty every year.”
Reanalyzing the underlying study, they obtained opposite results.
But they did not interpret these to imply that lending to women
made families poorer. Rather, the negative causality may go the
other way: women in richer families may borrow less.
- Bornstein, David. The Price
of a Dream: The Story of the Grameen Bank. Oxford University
Press, NY: 2005, ISBN 0-19-518749-0
- Counts, Alex, Give Us Credit , Crown, 1996, ISBN
- Sachs, Jeffrey. "The End of Poverty". Penguin Books, NY: 2005,
- Yunus, Muhammad (with Alan Jolis),
Banker to the Poor: The Autobiography of Muhammad Yunus, Founder of
Grameen Bank, Oxford University Press: USA, ISBN
- "Micro Loans for the Very Poor", New York Times, February 16, 1997
- Cockburn, Alexander, "A Nobel Peace Prize for Neoliberalism?"
- Grameen Bank What is Microcredit
- Grameen Bank Historical Data accessed June 22,
- Siddiqui, Kamal, An Evaluation of the Grameen Bank
Operation (Dhaka: National Institute of Local Government,
- Where we work | Grameen Foundation