Grameen Bank: The Grameen General Credit System

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Case Details:

Case Code : FINC045
Case Length : 14 Pages
Period : 1992-2006
Pub. Date : 2006
Teaching Note :Not Available
Organization : Grameen Bank
Industry : Banking
Countries : Bangladesh

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Grameen Classic System

Organizing people into groups of five members each and bringing together a few such groups to form a center was the keystone of GCS. Under the system, group liability replaced the collateral that was required by the banks to extend loans. The group had members from a homogeneous background, who knew each other, but were not related to each other. Six to ten such groups formed a center and each village had one or two centers. A branch of Grameen Bank, with branch manager and employees covered 15 to 20 villages, with the covered area not exceeding 50 square kilometers...

Need for a New System

The floods that ravaged Bangladesh in 1998 devastated most of the country, and several places were submerged under water for over two months. The floods affected more than 1.2 million Grameen members and most of the borrowers were unable to repay their loans. The bank relaxed the terms of repayment and tried to help the borrowers rebuild their lives by providing additional loans. It was not long before the borrowers faced the burden of paying higher installments, which was beyond their means. The repayment levels decreased and several borrowers stopped attending the weekly meetings. In order to cover the defaults, Grameen Bank obtained Tk 2 billion loan from the commercial banks and raised Tk 1 billion through bonds...

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The Grameen II Credit System

One of the major changes that was brought through GGS was that the group liability system was discontinued and the individual liability system was adopted. The loan of each member was secured against her word. Against the previous practice of providing the loans to only two of the needy people in the group, the loans could be provided to all the members of the group. The first basic loan provided to the new members was Tk 5,000; fellow members could recommend for a higher or lower loan amount. The final decision on the amount to be disbursed was made by the Kendra Manager...

Basic and Flexi-Loans

GGS consisted of one prime loan product called the basic loan. It provided flexibility to design the loan according to the requirements of the borrower. The term of the loan could range from 3 months to 3 years. When the borrowers had developed their skills, commitment and discipline for conducting small businesses and expanding existing businesses, larger loans were provided. If the members were regular in repaying their basic loan, saving, and attending the weekly meetings regularly, they could opt for business expansion or special production loans. The borrowers were also allowed to prepay the installments and loans...

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