Bangladesh Grameen Bank Pioneer in Microfinance
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TESTING TIMES Contd...In addition to the above
relaxations, Grameen Bank also offered various kinds of loans to members to
restart their normal lives. Most of the loans dispersed by Grameen Bank were
General, Seasonal[9] and housing loans. In the post-flood period, Grameen Bank
relaxed the terms of repayment for borrowers (Refer Exhibit V). Grameen Bank
stopped collection of installment payments for a period, resuming collection
from January 1999.
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However all these resulted in loan overdues for the
bank. Critics were quick to comment that Grameen Bank's performance was
not as good as claimed by bank officials. In 2001, a Wall Street Journal
(WSJ) article reported that that around 19% of bank's loans were overdue
by one year. It was also reported that by 1997, 4.6% of bank's loans
were overdue by around 2 years, and around 0.7% were overdue by more
than a couple of years. Grameen Bank's profits also declined in the
post-flood period. Profits were down by around 85% during 1999-2000 and
it recorded the highest operating costs of all the banks in Bangladesh.
The Tangail district (which was taken as a model for Grameen Bank's
success) was one of the worst regions with 32.1% of the loans from the
district turning into bad debts. |
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Yunus refuted the allegations by WSJ that the bank had
serious repayment problems, saying that WSJ had missed out on some facts.
According to Yunus, the repayment problem had cropped up when new loans were
disbursed in 1998, without the old loans being repaid. Yunus said that the Bank
had converted the old loans into long-term loans; new loans were treated as
current loans, and members were asked to repay their current loans first. But in
the account books, the old loans were not shown as long-term loans for easier
monitoring.
It was reported in WSJ article that with some members defaulting on weekly
installments, Grameen Bank faced a problem of increasing loan overdues. In order
to improve the loan repayment situation, a new flexible system (Grameen
Generalized System) was announced in September 2000. The new system focused on
the Basic Loan, along with housing loans and higher education loans.
A Basic loan was extended to members for starting entrepreneurial ventures.
Unlike the earlier system, where all loans were for a one-year duration, in the
new system, the bank and the borrower decided the duration of loan on a mutual
basis. The duration of basic loans could range between 3 months and 3 years.
Every member had to go through a six-month loan quality checkpoint. If a member
failed to pay installments for a six-month period, then the loan was classified
as a default', and the total loan amount was treated as overdue with 100%
provision being made.
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QUESTIONS FOR DISCUSSION
EXHIBIT I ABOUT MICROFINANCE
EXHIBIT II WORLDWIDE REPLICATION OF GRAMEEN BANK
EXHIBIT III MAP OF BANGLADESH
EXHIBIT IV SIXTEEN DECISIONS OF GRAMEEN BANK
EXHIBIT V RELAXATIONS ANNOUNCED BY GRAMEEN BANK IN 1998
ADDITIONAL REFERENCES & READINGS
[9] Under seasonal loans, Grameen Bank disbursed loans for agricultural
activities.
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