Credit where credit's due - The Grameen Bank in Bangladesh Case Study Click on the following links for further information about this case study: Teacher's Notes Student Activities   The poverty trap Most Australians who buy a home or a car or start a small business borrow the money to get started. Lending institutions won't lend to people unless they have some kind of security or "collateral" for the loan to ensure that if it's not paid back, the bank or other institution will get something. Because poor people everywhere don't have the collateral, they find it difficult to try to improve their situation through loans. In the past two decades, however, small loans for self employment (microcredit) for the poor, especially poor women, has proved to be one of the best ways of helping them out of poverty. This idea of microcredit for the poor was pioneered in Bangladesh by a Professor of Economics, Muhammad Yunus, who returned to Bangladesh in 1972 after studying in the USA for three years. Back home, he was dismayed that his theoretical economic knowledge didn't help him to combat the poverty and hunger he saw in his own country. He started to take action after he met a very poor woman in the local village, Sophia Khatoon, who worked seven days a week making finely woven bamboo furniture. It was skilled and time-consuming work, but Sophia earned practically nothing. Because she couldn't afford the 50 taka (less than A$2.00) for the raw material, she had to buy the bamboo on credit from a local trader to whom she then sold the finished product at a price he set. Professor Yunus calculated that Sophia was effectively paying interest at the rate of 10% a day, 3,000% a year! The Professor lent Sophia the 50 taka and within a few months she had established her own business, increased her income seven-fold and repaid the loan. A very different kind of bank Professor Yunus discovered that the poor are hardworking with many useful skills and creativity. With access to credit, they could create self-employment, generate income, pay back the loans and work their way out of poverty. When he approached formal banks to get loans for these people, the banks were not interested. They were certainly not interested in lending to women. So in 1983, Professor Yunus set up his own bank for the purpose of lending to the poor - The Grameen Bank ("Grameen" means "village" in Bengali). Over the past two decades, the Grameen bank has extended US$2.5 billion in tiny loans for self-employment to some of the poorest people in the world. It currently has more than 2.3 million borrowers, 94% of whom are women. It employs 12,000 people and has 1,100 branches in 40,000 villages. Most impressive of all, 98% of Grameen loans get paid on time and bad debts are less than half of one per cent. In terms of loan repayment, it outperforms all other banks in Bangladesh and most banks around the world. 62 other countries, including the USA, have established banks for the poor on the Grameen model. Credit to the women A woman cannot get a loan from Grameen on her own. She joins four others and group members guarantee each other's loans. They meet weekly to make repayments, including interest and discuss new loan proposals. These weekly meetings provide opportunities for education - the women learn about health and sanitation, family planning and child immunisation. Grameen believes that women are more credit-worthy than men and manage money better, using it in ways that benefit their families. 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 third of all Grameen borrowers have crossed the poverty line and another third are close to crossing it.   Women are benefiting significantly from this revolutionary lending system. Success stories One of the Bank's directors, Manjira Khatum, was destitute when she took out her first loan. Now she runs a tailoring shop as well as being a bank director. "We may be poor, but we're not poor in mind," she says. Before she took out a Grameen loan, Fatima had no land, was living with her brother-in-law and his family and couldn't afford regular meals for her family. She has been a borrower now for 11 years. She owns land, livestock, and a house with a tin roof. She provides regular meals for her family and sends her children to school. Sophia Khatoon, whose loan started the whole story, was interviewed by CBS 60 Minutes in 1989. By then, her income of $750 was twice the national average of Bangladesh. She had a solid tin roof house, her two children were in school and she had enough savings and assets so that she was unlikely to fall below the poverty line again.   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.   Top © Commonwealth of Australia