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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"Grameen Bank, one of the oldest micro-finance institutions in Bangladesh, is a good example of how the industry is changing and growing. In 2000, Grameen Bank, began to consider how it could introduce greater client choice while ensuring credit discipline and controlling costs. This led to the emergence of Grameen II in 2002, offering deposit services to the general public, greatly expanding the range of deposit services offered to members, including the very popular 'Grameen Pension Savings'." 1

- Praful C. Patel, South Asia Regional Vice-President, The World Bank, in 2006.

"Grameen General System (GGS) is not only a powerful and efficient system, capable of providing custom-made financial services to support the economic and social upliftment of each individual borrower family, but also it frees micro-credit from the usual stresses and strains." 2

- Prof. Muhammad Yunus, Founder and Managing Director of Grameen Bank, in 2002.


Saira Begum (Saira) became a member of Bangladesh-based Grameen Bank3 in 1994. With the loans given by Grameen Bank, she invested in dairy cattle, and with this investment, she earned regular income. When her outstanding loan was around Tk4 5,000, Bangladesh was ravaged by floods. Saira Begum lost heavily and was deep in debts.

She received a top-up loan from the bank, which increased the burden of weekly installments. Unable to repay the money she owed the bank, she stopped attending the mandatory weekly meetings of the bank, and she was not able to obtain any more loans. Later, the branch manager of Grameen Bank approached her and explained to her a new loan offering of the bank called flexi-loan, which required her to pay only Tk 25 a week as installment - a smaller amount than her earlier installment. Saira began paying the installments regularly and repaid her entire loan. This made her eligible for a fresh loan, and using this loan she started a small shop. She had plans to send her school-going son to college using the education loan provided by Grameen Bank.

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Several women like Saira were able to improve their living conditions because of Grameen Bank, which provided them small loans. For over 25 years, Grameen Bank has been following the Grameen model of micro-credit, later renamed the Grameen Classic System (GCS) to extend loans to the poor in the country.

Though the system was successful, it was criticized for its standardized rules, which were strictly enforced. The GCS rules required a strict adherence to repayment schedules. Once poor borrowers failed to pay their installments on time, they were not eligible for any further loans.

In order to address the drawbacks of GCS, Grameen Bank introduced a new credit system called Grameen General System (GGS) popularly known as Grameen II.

Elaborating on the need for the new system, Muhammad nus (Yunus), Founder and Managing Director of Grameen Bank said, "The system (GCS) consisted of a set of well-defined standardized rules. No departure from these rules was allowed.

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1] "Micro-Credit: The Way Forward," The Daily Star, January 22, 2006.

2] Muhammad Yunus, "Grameen Bank II Designed to Open New Possibilities,", October 2002.

3] Grameen Bank, a pioneer in microfinance, provides collateral free loans to the poor in Bangladesh. Grameen Bank firmly believes that credit is a cost effective weapon to fight poverty. Grameen Bank extended facilities to the poor who were not given loans by any other banks. As of April 2006, Grameen Bank had more than six million borrowers.

4] Taka (Tk) is the currency of Bangladesh. As on June 20, 2006, 1 US$ = 70.73 Taka.


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