Grameen Bank — BrandWiki

Grameen Bank

Overview

Grameen Bank

native name	গ্রামীণ ব্যাংক
native name lang	bn
type	Statutory public authority‡R1R‡
founder	Muhammad Yunus
area served	Bangladesh
key people	Abdul Hannan Chowdhury‡R2R‡ (Chairman) Sarder Akhter Hamed‡R3R‡ (Managing Director)
industry	Bank
products	Microfinance Banking services Consumer Banking Investment Banking
net income	৳2360.49 million‡R4R‡
net income year	2022
aum	৳169.251 billion (members), ৳74.94 billion (non-members)‡R4R‡
assets	৳301.05 billion‡R4R‡
assets year	2022
equity	৳26.920 billion‡R4R‡
equity year	2022
num employees	18,203‡R4R‡
num employees year	2022
location	Dhaka, Bangladesh
num locations	2,568 branches (2022)‡R4R‡
homepage	grameenbank.org.bd

Grameen Bank is a microfinance, specialized community development bank founded in Bangladesh.[5][6] It provides small loans (known as microcredit or "grameencredit") to the impoverished without requiring collateral.

Grameen Bank is a statutory public authority. It is originated in 1976, in the work of Muhammad Yunus, a professor at the University of Chittagong, who launched a research project to study how to design a credit delivery system to provide banking services to the rural poor. In October 1983, the Grameen Bank was authorized by national legislation to operate as an independent bank.

In 1998, the Bank's "Low-cost Housing Program" won a World Habitat Award. In 2006, the bank and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize.[7]

The bank's success has inspired similar projects in more than 64 countries around the world, including a World Bank initiative to finance Grameen-type lending systems.[8]

History

Muhammad Yunus was inspired during the Bangladesh famine of 1974, to make a small personal loan of US$27 to a group of 42 families, as start-up money so that they could make items for sale, without the burdens of high interest under predatory lending.[9] Yunus believed that making such loans available to a larger population could stimulate businesses and reduce the widespread rural poverty in Bangladesh. Yunus developed the principles of the Grameen Bank from his research and experience. Grameen Bank is Bengali for "Rural" or "Village" Bank.[10] He began a research project, together with a national commercial bank and the University of Chittagong, extending microcredit to test his method for providing credit and banking services to the rural poor. In 1976, the village of Jobra became the first to be served by the project. Over the next two years, the project expanded to other villages in the area.[11] The project, with support from the Bangladesh Bank, was extended in 1979 to the Tangail District (to the north of the capital, Dhaka). The project's services expanded to other districts of Bangladesh over the next few years.[11]

Through an ordinance of the Bangladesh government dated 2 October 1983, the project was converted into the Grameen Bank.[12] Bankers Ron Grzywinski and Mary Houghton, of ShoreBank, a community development bank in Chicago, helped Yunus incorporate the bank under a grant from the Ford Foundation.[13] The bank's repayment rate suffered from economic disruption following the 1998 flood in Bangladesh, but it recovered in subsequent years. By the beginning of 2005, the bank had loaned over US$4.7 billion[14] and by the end of 2008, $7.6 billion[15] to the poor.

In 2011, the Bangladesh government forced Yunus to resign from Grameen Bank, saying that at age 72, he was years beyond the legal limit for the position.[16][17][18][19]

Grameen Bank soon began expanding into wealthy countries. As of 2017, Grameen America had 19 branches in eleven US cities, and its nearly 100,000 borrowers were all women.[5]

In 2024, Professor Abdul Hannan Chowdhury was appointed as the new Chairman of Grameen Bank.[20]

As of January 2025, a proposed ordinance aims to reduce the government’s stake in Grameen Bank from 25% to 5%, while amending the Grameen Bank Act of 2013. The changes would lower the number of government-appointed directors from three to one and shift the election of the chairman from the government to the 12-member board. These measures seek to restore the bank’s governance to its pre-2011 framework, increasing control for microcredit borrowers and decreasing state involvement.[21]

Application of microcredit

Grameen Bank is founded on the principle that loans are better than charity for reducing poverty. The bank believes that all people have the potential for upward social mobility.[25] Grameen has offered credit to traditionally underserved groups including the poor, women, illiterate, and unemployed people, who lack access to formal financial services. Access to credit is based on reasonable terms, such as the group lending system, and weekly-instalment payments, with reasonably long terms of loans.[25]

Grameen's goal is to foster financial independence among the poor. Yunus encourages all borrowers to become savers, enabling local capital to fund additional loans. Since 1995, 90% of Grameen's loans have been financed through interest income and customer deposits, aligning the interests of borrowers and depositor-shareholders. Deposits collected in villages are converted into loans for others in the same communities (Yunus and Jolis 1998).[26]

In a country in which few women may take out loans from large commercial banks, Grameen has focused on women borrowers; around 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 straightforward.[27]

Grameen has diversified the types of loans it makes. It supports hand-powered wells and loans to support the enterprises of Grameen members' immediate relatives. It has found that seasonal agricultural loans and lease-to-own agreements for equipment and livestock help the poor establish better agriculture.

Grameen Bank is known for its system of solidarity lending.[8] The bank incorporates a set of values embodied in Bangladesh, by the Sixteen Decisions (updated to Eighteen Decisions in 2023).[29] At every branch of Grameen Bank, the borrowers recite these Decisions, and vow to follow them. As a result of the Eighteen Decisions, Grameen borrowers are encouraged to adopt positive social habits. One such habit includes educating children by sending them to school. Since the 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 was used in more than 43 countries as of 1988. Repayment responsibility rests solely on the individual borrower. No formal joint liability exists, i.e. group members are not obliged to pay on behalf of a defaulting member. But, in practice the group members often contribute the defaulted amount with an intention to collect the money from the defaulted member at a later time. Such behaviour is encouraged because Grameen does not extend further credit to a group in which a member defaults.[30]

No legal instrument (i.e. no written contract) is made between Grameen Bank and its borrowers; the system works based on trust.[31] To supplement the lending, Grameen Bank requires the borrowing members to save very small amounts regularly in a number of funds, designated for emergency, the group, etc. These savings help serve as an insurance against contingencies.[8]

In other areas, Grameen has had high payback rates—over 98 percent. However, according to The Wall Street Journal, in 2001, a fifth of the bank's loans were more than a year overdue.[32] Grameen says 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 US$4) loan.[33]

The bank is also engaged in social business and entrepreneurship fields. In 2009, the Grameen Creative Lab collaborated with the Yunus Centre to create the Global Social Business Summit. The meeting has become the main platform for social businesses worldwide to foster discussions, actions and collaborations to develop effective solutions to the most pressing problems plaguing the world.[34]

Village phone program

The bank has diversified among different applications of microcredit. 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.[35] 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.[35]"

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.[36]

Criticism

Some analysts have suggested that microcredit can bring communities into debt from which they cannot escape.[56][57][58] Researchers have noted instances when microloans from the Grameen Bank were linked to exploitation and pressures on poor families to sell their belongings, leading in extreme cases to humiliation and ultimately suicides.[59]

The Mises Institute's Jeffrey Tucker suggests that microcredit banks depend on subsidies to operate, thus acting as another example of welfare.[60] Yunus believes that he is working against the subsidised economy, giving borrowers the opportunity to create businesses. Some of Tucker's criticism is based on his interpretation of Grameen's "16 decisions", seen as indoctrination, without considering what they mean in the context of illiterate peasants.[61]

The Norwegian documentary Caught in Micro Debt claims that Grameen evaded taxes. The Spanish documentary Microcredit also suggested this. The accusation is based on the unauthorised transfer of approximately US$100 million, donated by the Norwegian Agency for Development Cooperation (Norad), from one Grameen entity to another in 1996, before the expiry of the Grameen Bank's tax exemption. However, Norad published a statement in December 2010 clearing Yunus and the Bank of any wrongdoing on this point, following a comprehensive review of Norad's support commissioned by the Minister of International Development.[62]

Yunus denies that this is tax evasion:

"There is no question of tax evasion here. The Government has provided organisations with opportunities; we have made use of these opportunities with [the] aim of benefitting our shareholders who are the rural poor women of Bangladesh.[63]"

David Roodman[64] and Jonathan Morduch[65] question the statistical validity of studies of microcredit's effects on poverty, noting the complexity of the situations involved.[66] Yoolim Lee and Ruth David discuss how microfinance and the Grameen model in South India have in recent years been distorted by venture capitalism and profit-makers. In some cases, poor rural families have suffered debt spirals, harassment by microfinance debt collectors, and in some cases suicide.

Ethicist Peter Singer claims that microcredit has a limited ability to transform lives, and that other interventions are more effective.[67]