Bangladesh Grameen Bank – Pioneer in Microfinance

THE GRAMEEN BANK MODEL Contd...

FIGURE I
GRAMEEN BANK'S ORGANIZATIONAL STRUCTURE

Source: Case Studies and Management Resources.

Grameen Bank adopted an innovative Group Lending Technique for extending loans to the rural poor. Under this technique in the first stage, around six to eight groups were formed. Each group consisted of 5 women who became members of the Grameen Bank. All the members were given training for a week, which included introducing them to the rules of the bank and the bank's social contract. It was mandatory for the members to abide by the social contract known as Sixteen Decisions for getting loans from Grameen Bank (Refer Exhibit IV). These sixteen decisions helped in increasing awareness about social issues among the rural poor.

Every group had to pass an oral examination, which tested the members'understanding of the bank's rules and decisions. After the group cleared the oral examination, two financially weak members were chosen for loans. After choosing members for loans, each group had to submit proposals for loans to the branch. All the groups discussed the loan proposals in the branch's weekly meetings and approved loans were sanctioned in sequence.

The loan amount usually ranged between 1000 to 3000 Taka^[8] , which had to be repaid in 50 weekly installments spread over one year. Initially, a 16% interest rate was charged on the declining balance; in 1992, the interest rate was increased to 20%. In addition to paying interest, every member of the group was bound to contribute 5% of the loan amount to the group fund. The group fund was utilized during emergencies. In addition to this, in order to mobilize savings among the poor, each member had to save 1 Taka every week and buy non-saleable Grameen Bank shares.

In 1984, apart from offering loans for entrepreneurial ventures, Grameen Bank also started extending housing loans to its members. Unlike the traditional methods followed by banks and financial institutions, Grameen Bank did not demand any collateral against the housing loans. Initially, Grameen Bank offered housing loans of upto US $312.5 (around 15,000 Taka) in its Moderate Housing category. Later on the amount was increased to US $520.83 (around 25,000 Taka). In 1987, Grameen Bank introduced a new housing loan – Basic Housing Loan up to US $145.83 (around 7,000 Taka), which became very popular. In 1989, another type of housing loan, the Pre-Basic Housing Loan, was introduced in the northern part of the country (Refer Exhibit III). Grameen Bank also provided loans for buying land for constructing a house. Grameen Bank charged 8% interest per annum on housing loans and repayment was in weekly installments spread over 10 years.