Bangladesh Grameen Bank – Pioneer in Microfinance

QUESTIONS FOR DISCUSSION:

1. According to analysts, Grameen Bank was successful because of its unique working model. Analyze the working model of Grameen Bank and discuss how it differs from the traditional commercial banking model?

2. Many analysts criticized Grameen Bank for its style of functioning. Analyze the drawbacks of the Grameen Bank model.

3. Microfinance has tremendous potential as an instrument for poverty reduction. Explain the role played by Grameen Bank in reducing poverty in Bangladesh. Do you suggest that the Grameen Bank model for poverty alleviation be emulated in other developing countries? Explain with reasons.

EXHIBIT I
ABOUT MICROFINANCE

Microfinance refers to providing loans and finance to poor people for self-employment. Generally, small amounts are disbursed as loans, and the timeframe for repayment of loans is longer compared to commercial banks. Together with providing financial services, many microfinance institutions work for social development in the areas in which they operate. For instance, Grameen Bank's sixteen decisions were intended to bring in social development in Bangladeshi villages.

Microfinance institutions generally have the following characteristics:

• Providing small loans for the working capital requirements of the rural poor.
• Minimal appraisal of borrowers and investments as compared to commercial banks.
• No collateral demanded; however, these institutions impose compulsory savings and group guarantees.
• Based on the loan repayment history of the members, microfinance institutions extend larger loans to the members repeatedly.

Though microfinance institutions provide the necessary monetary support and try to increase social awareness among their members, their activities do not include providing training for basic skills required for doing business. They do not extend any marketing facilities nor undertake activities to improve the literacy rate and health conditions of members.

Adapted from World Bank reports and various newspaper articles.