The word "Grameen", derived from the word "gram" or "village", means "of the
village". 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. Grameen bank is founded by Professor Muhammad
Yunus in 1976 as a project. The bank was turned to an independent bank in 1983.
The main aim of the Grameen Bank is to reduce poverty from Bangladesh. Grameen has
discovered Micro-finance (based on their tried and tested program) is a very effective instrument
to empower the poor, particularly the poor women, in all cultures and economies of the world.
Some of the key features of Grameen Credit are that borrowers don't need to prove how much
wealth they have; they need to prove how poor they are and how little savings they have.
Grameen bank methodology is totally different from the methodology of Conventional banking
because Grameen Bank is a collateral free bank while Conventional banking needs collateral.
Conventional banks are owned by the rich, generally men. Grameen Bank is owned by poor
women which are 97% in the Grameen Bank. Grameen Bank branches are located in the rural
areas, unlike the branches of conventional banks which try to locate themselves as close as
possible to the business districts and urban centers.
In 2006, Grameen bank and Dr Muhammad Yunus were awarded Noble Peace Prize. This was
the moment for Dr Muhammad Yunus and people of Bangladesh.
In short Grameen Bank is a bank for the poor people .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 schemes.
Type Body Corporate (Bank Ordinance)
Headquarters Dhaka, Bangladesh
Area served Bangladesh
Key people Muhammad Yunus, founder
▲ 6,335,566,324 Taka (92.3 million
Operating ▲ 5,959,675,013 Taka (86.9 million
income USD) (2006)
▲ 1,398,155,030 Taka (20.3 million
Total assets 59,383,621,728 Taka (2006)
Employees 24,703 (Oct 2007)
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 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. Grameen Bank (GB) has reversed conventional banking practice by
removing the need for collateral and created a banking system based on mutual trust,
accountability, participation and creativity.
GB provides credit to the poorest of the poor in rural Bangladesh, without any collateral. At GB,
credit is a cost effective weapon to fight poverty and it serves as a catalyst in the overall
development of socio-economic conditions of the poor who have been kept outside the banking
orbit on the ground that they are poor and hence not bankable.
Professor Muhammad Yunus, the founder of "Grameen Bank" and its Managing Director,
reasoned that if financial resources can be made available to the poor people on terms and
conditions that are appropriate and reasonable, "these millions of small people with their millions
of small pursuits can add up to create the biggest development wonder."
As of October, 2009, it has 7.94 million borrowers, 97 percent of whom are women. With 2,560
branches, GB provides services in 84,787 villages, covering more than 100 percent of the total
villages in Bangladesh.
Grameen Bank's positive impact on its poor and formerly poor borrowers has been documented
in many independent studies carried out by external agencies including the World Bank, the
International Food Research Policy Institute (IFPRI) and the Bangladesh Institute of
Development Studies (BIDS). Grameen Bank operated on the principles: mutual trust,
supervision, accountability and member participation.....
History and Development:
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 of 1974 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 predatory lending. Yunus believed
that making such loans available to a wide population would have a positive impact on the
rampant rural poverty in Bangladesh.
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 to test 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). The 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 Shore Bank, a community development bank in Chicago, helped Yunus with
the official incorporation of the bank under a grant from the Ford Foundation. 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 schemes.
The key features of Grameen Credit:
Some of the key features of Grameen Credit are that borrowers
don't need to prove how much wealth they have; they need to prove how poor they are and how
little savings they have. The whole system works because it is the only opportunity they have to
break out of their poverty; they don’t have any cushion whatsoever to fall back on. If they fall
foul of this one loan how will they survive? The poorest people are afraid of everything so they
want to work hard and do a good job because they have to. They don't have a choice.
There is no legal instrument between the lender and the borrower. Grameen considers its
relationship to be with people, not with papers. They build up a human relationship based on
trust. Grameen succeeds or fails depending on how strong their personal relationship is with the
Their experience with bad debt is just 2.28%. Even then Grameen does not conclude that a
defaulting borrower is a bad person. Rather that their personal circumstances were so hard that
they could not pay back their tiny loan. Bad loans of 2.28% is seen by Grameen as the cost of
doing business and it also represents to them a constant reminder that they need to improve in
order to success.
Grameen has discovered Micro-finance (based on their tried and tested program) is a very
effective instrument to empower the poor, particularly the poor women, in all cultures and
economies of the world. It is cost-effective, sustainable and works in a business-way. It gives a
poor person a chance to take their own destiny into their own hands and get out of poverty with
their own efforts.
Strategies created by Grameen Bank:
Microfinance is the provision of financial services to low-income clients,
including consumers and the self-employed, who traditionally lack access to banking and related
More broadly, it is a movement whose object is ―a world in which as many poor and near-poor
households as possible have permanent access to an appropriate range of high quality financial
services, including not just credit but also savings, insurance, and fund transfers.‖ Those who
promote microfinance generally believe that such access will help poor people out of poverty
Principles of Microfinance:
Some principles that summarize a century and a half of development
practice were encapsulated in 2004 by Consultative Group to Assist the Poor (CGAP) and
endorsed by the Group of Eight leaders at the G8 Summit on June 10, 2004:
1. Poor people need not just loans but also savings, insurance and money transfer services.
2. Microfinance must be useful to poor households: helping them raise income, build up
assets and/or cushion themselves against external shocks.
3. ―Microfinance can pay for itself.‖ Subsidies from donors and government are scarce and
uncertain, and so to reach large numbers of poor people, microfinance must pay for itself.
4. Microfinance means building permanent local institutions.
5. Microfinance also means integrating the financial needs of poor people into a country’s
mainstream financial system.
6. ―The job of government is to enable financial services, not to provide them.‖
7. ―Donor funds should complement private capital, not compete with it.‖
8. ―The key bottleneck is the shortage of strong institutions and managers.‖ Donors should
focus on capacity building.
9. Interest rate ceilings hurt poor people by preventing microfinance institutions from
covering their costs, which chokes off the supply of credit.
10. Microfinance institutions should measure and disclose their performance – both
financially and socially.
Microfinance can also be distinguished from charity. It is better to provide grants to families who
are destitute, or so poor they are unlikely to be able to generate the cash flow required to repay a
loan. This situation can occur for example, in a war zone or after a natural disaster.
Strategies for Reducing Costs and Improving Efficiency:
For any program or organization, the issues of cost-
effectiveness and efficiency are important. It is very important for Microfinance Institutions
(MFIs) as well. In MFIs, it is not desirable to shift the burden of higher costs and inefficiency to
the poor clientele. The MFI management should be committed and should have the capacity to
provide financial services to the poor at the least cost. This is only possible if it has a dedicated
full-time leadership, an efficient and effective management system, a strategic plan and a
professional staff. How costs can be successfully reduced can be learnt from the innovative
approaches of best practices like Grameen. In Grameen Bank, for instance, each field staff is
well trained to provide financial services to 500 active borrowers and each branch is required to
mobilize enough deposits to meet its demand for on-lending funds. The measures thus ensure the
high productivity of each staff and reduce the cost of borrowing from the head office or other
Computerization of MIS and accounting system also helped Grameen in reducing its costs at all
levels. It has computerized 95% of its branches (1196 branches in total), serving 3.5 million
borrowers. Now the branch staff devotes more time for the borrowers rather than spending on
paper work. As an improved system, they are now provided with preprinted repayment figures
for each weekly meeting. If every borrower pays according to the repayment schedule, the staff
has nothing to put on the document, except his/her signature. Only the deviations are recorded.
The only paper work to be done at the field level is to enter figures in the borrower’s passbook.
Fourteen zones, out of 18 are connected with each other and the head office, through an Intranet.
This has made communications and data transfer easier and cheaper.
Changes in retirement policy, transportation and traveling, purchase and procurements and above
all the redesigning of loan and saving products and introduction of loan insurance savings fund
under the Grameen Generalized System (Grameen Bank-II), have contributed a lot in cost
reduction of Grameen operations. Given the continuous efforts for reducing costs, increasing
efficiency and attaining self-sufficiency, the new Grameen branches are expected to reach the
break-even point within first six months of their operation.
It is evident from the experiences of successful MFIs that strategies for reducing costs and
improving efficiency are not something that can be developed over night or may be
implemented once for all. This is a continuous process. This is possible if we really believe
in it and if we are committed to it. The question is whether we should reinvent the wheel
for this or we should learn from the experiences of others and concentrate on improving
the system through our creativity and collaborative efforts.
Strategies for Poverty Reduction:
Grameen Bank believes that lack of access to credit is the biggest constraint
for the rural poor. If the poor are provided credit on reasonable terms, they themselves best know
how to increase their incomes. Grameen Bank targets and mobilizes the poor and creates social
and financial conditions so that they receive credit by identifying a source of self-employment in
familiar rural non-farm activities. The Bank's method of targeting the poor is effective as it
mobilizes only those who are willing to bear the costs of group formation, training, and
monitoring each other's activities, and those who are satisfied with the relatively small sums they
can borrow and repay. To better meet its ultimate goal of social and economic development,
Grameen Bank targets women more than men. By doing so, it directly channels credit to the
poorest and the least empowered and helps improve the living standards of their families. Along
with providing credit, Grameen Bank offers guidelines to members for codes of conduct and
activities aimed at improving their social and financial conditions. It also provides training to
women in maternal health, nutrition, and childcare to generate greater demand for basic health
Village Phone Program:
Among many different applications of microfinance 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
...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,
Is Grameen bank different?
Grameen Bank methodology is almost the reverse of the conventional
banking methodology. Conventional banking is based on the principle that the more you have,
the more you can get. In other words, if you have little or nothing, you get nothing. As a result,
more than half the population of the world is deprived of the financial services of the
conventional banks. Conventional banking is based on collateral, Grameen system is collateral-
Grameen Bank starts with the belief that credit should be accepted as a human right, and builds a
system where one who does not possess anything gets the highest priority in getting a loan.
Grameen methodology is not based on assessing the material possession of a person; it is based
on the potential of a person. Grameen believes that all human beings, including the poorest, are
endowed with endless potential.
Conventional banks look at what has already been acquired by a person. Grameen looks at the
potential that is waiting to be unleashed in a person.
Conventional banks are owned by the rich, generally men. Grameen Bank is owned by poor
Overarching objective of the conventional banks is to maximize profit. Grameen Bank's
objective is to bring financial services to the poor, particularly women and the poorest — to help
them fight poverty, stay profitable and financially sound. It is a composite objective, coming out
of social and economic visions.
Conventional banks focus on men, Grameen gives high priority to women. 97 per cent of
Grameen Bank's borrowers are women. Grameen Bank works to raise the status of poor women
in their families by giving them ownership of assets. It makes sure that the ownership of the
houses built with Grameen Bank loans remain with the borrowers, i.e., the women.
Grameen Bank branches are located in the rural areas, unlike the branches of conventional banks
which try to locate themselves as close as possible to the business districts and urban centers.
First principle of Grameen banking is that the clients should not go to the bank; it is the bank
which should go to the people instead. Grameen Bank's 23,252 staff meets 7.94 million
borrowers at their door-step in 84,787 villages spread out all over Bangladesh, every week, and
deliver bank's service. Repayment of Grameen loans is also made very easy by splitting the loan
amount in tiny weekly installments. Doing business this way means a lot of work for the bank,
but it is a lot convenient for the borrowers.
There is no legal instrument between the lender and the borrower in the Grameen methodology.
There is no stipulation that a client will be taken to the court of law to recover the loan, unlike in
the conventional system. There is no provision in the methodology to enforce a contract by any
10 | P a g e
In case of death of a borrower, Grameen system does not require the family of the deceased to
pay back the loan. There is a built-in insurance programmer which pays off the entire
outstanding amount with interest. No liability is transferred to the family.
Grameen Bank is being criticized by different peoples. According to 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 corrupt people." 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%... David
Roodman and Jonathan Morduc disagreed with Muhammad Yunus's citation ―5 percent of the
Grameen borrowers get out of poverty every year,‖ They found the opposite to be true: lending
to women actually makes families poorer.
11 | P a g e
12 | P a g e
13 | P a g e