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Grameen Bank: An Innovative Project

The grameen bank which has gone to scale in Bangladesh, is reported to be a process helping the poorest of the poor particularly the women (90 percent of the total clients) to move out of poverty. The bank started as a small village credit society with only $17, but has now grown to a big public sector organisation functioning as a legal entity under the Banking and Cooperative Acts, with new norms, financial discipline and sound management at all levels. The most important aspect is that the bank has overcome the constraints that usually restrict the conventional banks in reaching the poor. The bank does not ask for any collateral and relies on the personal contacts of its field staff with the clientele and has not so far faced any difficulty in recoveries (repayments are made weekly).

The Grameen Bank has five major objectives:


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  1. to extend banking facility to the poorest of the community;
  2. to eliminate exploitation by private money lenders;
  3. to create opportunities for self-employment;
  4. to provide simple organizational structure and working
  5. procedure easily understood by the common villager;
  6. to support low-income groups to follow the cycle of “low income, credit, investment, more income.

Process

Although Grameen Bank responds to the socioeconomic needs of the poor through a target-oriented approach, yet there is nothing “soft” or “charitable” about it. It totally rejects the idea of subsidy, arguing that the “poor needs only access to credit and is fully capable of making profits and honouring repayments of capital charged with 16 percent interest. The counter argument that if the bank availed borrowing facility at 2 percent since 1976 and continued to do so till 1995 (as reported by the management), why the poor (landless, widows/deserted women) are asked to pay 16 percent was nullified by stating that most of these poor people were since long paying more than 5 percent interest per month to the money-lenders; they were, therefore more than happy with the bank's offer. The bank insists that those who use the bank's services are not “clients” but members and the success is attributable to the attitude and behaviour of all the participants: the members, the bank workers, the managers, the government support services and the new kind of communication processes that the bank has been able to set in motion. Some salient features:

  • Activities start with the groups of poor and their centres. Five to six groups join to make a centre of about 30 persons. The village as such is not involved; only the poor are identified and made members. Each centre, which is the focal point for all investigation, dialogue and decisions, organises a regular weekly meeting which coincides with the weekly repayment of instalments. Through these centres (over 9,000 in number*) the bank had reached more than one million poor men and women.
  • A bank worker assists in group formation and then act as intermediary link between the group, the centre and the bank, monitoring the use of credit, repayments, etc. He meets each group once a week at the centre where all members get together and discuss procedures and rules governing the group activities. Complete set of rules applying to the groups and centres are specified in bank's by-laws (bidiwala). The groups take decisions and guarantee repayment through mutual accountability, used as alternative for material collateral. The process is based on trust and business is conducted in presence of all members.
  • Through an in-built monitoring and evaluation mechanism, the bank collects a great deal of socioeconomic data and is therefore able not only to assess the impact of its own operations, but also to anticipate difficulties and generate new ideas for further implementation. All this is done as integral part of the participatory process.
  • The bank performs a number of service functions for the groups, apart from its own general management and accounting which are very detailed. All these functions are performed by highly qualified individuals, who have an identity and commitment with the poor. Training function of these bank catalysts, for instance, is noted as “lifeblood” of the Grameen Bank. Some 80 percent of the training for all categories of persons is organised in the field rather than the head office, and involves mastering forms and simple accounting procedures as well as research methodology and cooperative values, The aim is attitude change and creation of awareness among the poor about their creativity and use of local resources and local knowledge. The great network of workers (15,000 to 20,000, 1990) and their extensive movement (63,000 km per day cycling) and attention to so many details appear to be costly overheads and time-consuming, but the payoff is reported high, in terms of service to the poor and building self-reliance.
  • Although there are about 400 purposes for which loans are extended, yet the loan pattern of the bank covers four broad fields:
  1. livestock (milk animals);
  2. Fisheries;
  3. Processing, manufacturing (handicrafts) and trade; and
  4. House loans (roofs, sanitation).
  • By concentrating on those who are the “greatest credit risks”, the bank now contends that the poor is bankable and specifically the poor women are able to borrow and repay if organised and educated in the above manner.
  • Grant of credit is closely linked with the savings of the members, simultaneously started with credit operations. There is the group fund, the emergency fund, children's welfare fund and individual savings deposits. Savings programme appears getting inspiration from Comilla's cooperative experiments like “Deedar” and the rest and protects the poor from resorting to money lenders as he/she starts feeling able to cater to the totality of his/her needs.
  • The bank interest rate structure is in accordance with the official money market (16 percent per annum for its loans and 8.5 percent on deoposits) and is deemed necessary to meet the overheads and future expansion needs. Loans are repaid in 52 weekly instalments. From a 50 taka loan to its first loanee (1976), currently 500 to 4,000 taka loans are extended (averaging 2,000 taka per loanee). For building a simple tin-roofed house a member may borrow up to 18,000 taka. About 2,000 houses were built by 1990, For joint enterprises, the limit may occasionally reach 500,000 taka. The rate of recovery was about 98 percent.
  • The high repayment rate can be explained by the facts that bans are given for felt-needs identified through the participatory process, the initial screening and training of group members, repayments re-improved by peer pressures, close supervision and dialogue with bank workers, the weekly repayment schedule and the continuous internal monitoring and participatory evaluation.

Agencies Supporting The Bank

In 1980, four years after its inception, the bank was helped by the Bangladesh central bank and six nationalised commercial banks to open additional branches. Simultaneously, IFAD granted a loan of $3.4 million matched by the Bangladesh Bank in association with the government. In 1983 IFAD approved a further loan of $11.3 million with an appropriate blend of loan and grant in a total funding package of $50.5 million. The Ford Foundation also funded a Studies, Innovation, Development and Experimentation (SIDE) Unit at a cost of $710,000.

In 1986, the bank took over the management of the Ningachi Aquaculture Project with some 800 fish ponds and made the hatcheries functioning within three months. The operation was treated as a joint venture owned by all members.

The expansion was made possible by continuous training/sensitisation of all those associated, but donors provided necessary mix of loan and grant funding to initiate the process, expecting that internally-generated savings will help sustain the programme. Donors are said to have been liberal not imposing their ideologies and procedures and followed rather the bank's leadership in evolving different mechanisms in response to the local environment and needs of the people. It appeared that donors were happy for the time being with the bank's efforts to popularise interest-based banking system in the highly conservative rural Bangladesh Muslim population.

Impact/ Reliability

Several external evaluations of the bank have been carried out by donors, academics and others searching the merits of this experiment. The consensus is that Grameen Bank is a major innovation in poverty alleviation, employment, income-generating activities and asset creation mainly for poor women. Incomes of the borrowers reported to have increased by about 60 percent or higher. Alternative sources of income have been developed away from agricultural wage labour. Intangible benefits to the members included group    solidarity, self-reliance and self-awareness, all having a cumulative consequential impact on improved nutrition, health and education of the poor families.

Keeping in view the essential ingredients of the process and the impact so far noted, the bank has attracted global attention, particularly in the neighbouring countries. A notable example is the North West Selangor Integrated Agricultural Development Project, of Malaysia.

Andreas Ferglesang and D. Chandler pose a question in their compilation, Participation As Process (1988); “Should the Grameen Bank approach be attempted in other countries”? The spontaneous answer given by them is, “Indeed, it should,” and both in the South, and North. They inform of two such initiatives in the United States and that “17 countries have asked the [Grameen] Bank for assistance to train teams of village bankers.” The caution they give is that the start should be “small action-research” and a commitment to the “autonomy of the process as it evolves.” They have also noted the concern of The Economist (18 October 1986) that “Takeover by the government would destroy Grameen Bank as surely as it destroyed the cooperative movement.”

With respect to replication of the model as such in Pakistan, a few areas of basic concern could be identified:

  1. If the target population is the “poorest of the poor,” then there is little justification in charging interest, least at 16 percent rate, even in the current money market system.
  2. The loan size of 2,000 taka per loanee (1990) may be appropriate in Bangladesh, but it appears insignificant, considering the level of economy and minimum earnings in Pakistan. The example of the ADBP reveals that banks in Pakistan, even if specifically established for the poor group, would not opt for loaning small amounts. On the other hand, increasing the loan size beyond certain limit attracts the business of proxy loaning.
  3. In Pakistan, such initiatives are always taken in the public sector (see the case of Kisan Bank) particularly when the project is service-oriented, and that means self-defeating the programme right in the beginning. In the case of Grameen Bank, the success, whatsoever, could be attributed to the fact it was a private sector enterprise.
  4. Past programmes designed specifically for the poor in Pakistan have rarely been able to reach the intended beneficiaries. Scandals have become so common (reference; cooperative case) that no credibility exists for any public sector programme. This again makes a case for private initiative.

Mohibul Haq Sahibzada

 

Source: Poverty Alleviation in Pakistan: Present Scenario and Future Strategy, Mohibul Haq Sahibzada. Republished with permission.