Bangladesh Grameen Bank – Pioneer in Microfinance

TESTING TIMES Contd...

Grameen Bank also came up with a flexible loan option for borrowers who had failed to pay the installments of a basic loan and whose loans were classified as defaults. Under this option, a member was given a chance to reschedule his or her loan and set a new repayment plan. Under flexible loans, members could reduce the installment amount and increase loan repayment timeframe. It also had a 50% provision for the outstanding loan amount. If members failed to pay installments as per their repayment schedule, then a 100% provision was made for the loan and it was treated as overdue loan. Thus, under this system, members were given a chance to renegotiate the installments of an overdue loan and get it converted into a flexible loan.

However, Grameen Bank's overdue rate was not known as it reported only loans which were one or two years overdue as overdue loans, thus violating the CGAP 90-day rule. Grameen Bank defended its position, stating that its main objective was to bring the rural poor out of poverty, and in order to achieve this objective it had to create new practices and avoid conventional banking procedures. The bank said that it created new systems to balance its financial and human obligations. It also refuted charges that it concealed information. Bank sources pointed out that Grameen Bank had came out with monthly statements with all the information about its operations such as disbursement, repayment and number of borrowers, right from February 1980. They also pointed out that the bank published an annual report every year, containing information about the bank's operations and its financial position. They added that the bank got its accounts audited by two of the top auditors in Bangladesh.

Another point of criticism was that the Bank did not monitor the utilization of loans or the ventures into which members were investing. They pointed out that in some villages members took loans for starting businesses, but utilized those loans for consumption.

Whatever the criticisms, Grameen Bank has inspired microfinance movements in many other countries and its model has been replicated across the globe. According to a World Bank study, Grameen Bank was successful in improving the financial position and standard of living of the rural poor. Grameen Bank helped Bangladeshi women to improve their living conditions by providing them with opportunities to earn. The report also pointed out that Grameen Bank's sixteen decisions improved the social status of women in Bangladesh. Grameen Bank ushered in a new revolution of microfinance worldwide, providing a ray of hope to millions of poverty-stricken people all over the world, and particularly in the developing countries.

^[10] CGAP is a collective of 27 public and private donors, including the World Bank, the U.S. Agency for International Development and several U.N. agencies, that account for the vast majority of aid to microcredit institutions around the world

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