Credit where credit's due - The Grameen Bank in Bangladesh
Case Study
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| Teacher's Notes | Student Activities |
| Banking on the poor |
All over the world, poor people have trouble borrowing money from banks. Why? Because banks want to make sure you can pay back the loan, so they want to know you already own something before they lend you money to buy more. Poor people don't own much, so they don't have this security or "collateral" to get a loan. Whether you live in a rich country like Australia or a poor country like Bangladesh, it's almost impossible for you to get a loan from a commercial bank if you're poor.. Yet a very small loan can make all the difference to a poor person. The Grameen Bank in Bangladesh is helping millions of poor people, especially poor rural women, with tiny loans ("microcredit") so they can start small, create self-employment and improve their lives.
| Small start |
The idea for the Grameen Bank (Grameen means "village" in Bengali) started in 1976 when an Economics professor, Professor Muhammad Yunus, met a local village woman, 22 year-old Sophia Khatoon, who worked seven days a week making finely woven bamboo furniture. As Sophia had no money to buy the raw material, a local trader gave her the bamboo on credit, provided she sold the finished product to him at a price he set. The result was that she was making almost nothing despite her skills and hard work. She lived in abject poverty and looked twice her age.
Professor Yunus calculated Sophia was paying 10% a day - that's 3,000% a year- in interest to the trader. If she just had the money to buy the bamboo, she could sell to whoever would give her a fair price and keep the profit herself. All the capital she needed was 50 taka which is less than $2.00. Professor Yunus lent Sophia the money and within a few months she had increased her income seven fold and repaid the loan.
Professor Yunus found that there were many other poor people who could benefit from small loans just as Sophia had. He successfully provided loans to others and tried to convince bankers that the poor were credit-worthy and should be given loans. Bankers were still not interested, so Professor Yunus himself founded the Grameen Bank in 1983.
 Women are benefiting significantly from this revolutionary lending system. |
| Big growth |
The Grameen Bank currently has around two million borrowers, 95% of whom are women. It has 1,000 branches operating in nearly 40,000 villages and employs 12,000 workers. Each month, it lends approximately US$40 million in many of tiny loans. 98% of the loans get paid on time. In terms of loan repayment, this poor people's bank outperforms all other banks in Bangladesh and most banks around the world. Grameen believes that women are better borrowers than men and better managers of the money, using it in ways that benefit their families.
 The Grameen bank is changing the lives of the very poor helpiing them achieve self-employment and self-reliance and break out of the poverty trap. |
| Out of poverty |
The Grameen Bank operates very differently from a mainstream bank. A woman cannot get a loan on her own. She joins with four others and the members of the group guarantee each others' loans. Most of the loans are used for self-employment activities that suit women such as milk cow raising, seasonal crop trading, weaving, sewing and operating grocery shops. The women meet weekly to make their loan repayments, including interest, and discuss new loan proposals. At these meetings, the bank workers and the women discuss other issues such as health and hygiene, family planning and child immunisation. It is estimated that a third of Grameen borrowers have crossed the poverty line, and another third are close to crossing it.
Professor Yunus says: "Poor women recognise that loans from Grameen are a chance to lift themselves out of extreme poverty. They are so proud to be trusted to repay on time. It's amazing how such small sums can change people's lives." One of the Bank's directors, Manjira Khatum, was destitute when she received her first loan. Now she runs a tailoring shop. "We may be poor, but we are not poor in mind," she says.
| Success stories |
Before borrowing from Grameen, Fatima had no land and was living with her brother in law and his family. She couldn't afford regular meals for her family. She has been a borrower for 11 years. She now owns land, livestock, a house with a tin roof and she can provide regular meals for the family and send her children to school.
Maleakea Begum could afford only one or two meals a day as she relied on her husband's low wage as a labourer. After 10 years of loans from Grameen, she provides regular meals for her three children, supports her son's studies in Dhaka, owns land, livestock, a large fishpond (to breed fish for food) and a house with a tin roof.
And what of Sophia Khatoon who started it all? By 1989 Sophia's income was $US500 a year, twice the national average of Bangladesh. She had a tin roof house and her two children were in school. She had enough savings and assets to keep her above the poverty line.
"All the poor anywhere need is a decent chance," says Professor Yunus.
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