Letter of Transmittal

June 2, 2013
Asif Mahbub Karim
Assistant Professor
Faculty of Business Administration
Stamford University Bangladesh
Sub : Submission of Assignment.
Dear Sir,
We would like to take this opportunity to thank you for the guidance and
support you have provided me during the course of this report. Without your
help, this report would have been impossible to complete.
To prepare the report we collected what we believe to be most relevant
information to make my report as analytical and reliable as possible. I have
concentrated my best effort to achieve the objectives of the report and hope
that my endeavor will serve the purpose. The practical knowledge and
experience gathered during report preparation will immeasurably help in our
future professional life. We request you to excuse us for any mistake that
may occur in the report despite of my best effort.
We would really appreciate it you enlighten us with your thoughts and views
regarding the report. Also, if you wish to enquire about an aspect of my
report, we would gladly answer your queries.
Thank you again for your support and patience.

Yours Sincerely,
Aulad Hossain
ID- BBA 042 13284
Md. Abu Sayed
ID- BBA 042 13301
Khandakar Mynul Azad ID- BBA 042 13261
Department of Business Administration

ACKNOWLEDGEMENT
First of all we would like to thank the Almighty for giving us the
strength, and the aptitude to complete this report within due time.
We are deeply indebted to our course teacher, mentor, and
counselor, Asif Mahbub Karim for assigning us such an
interesting topic named The Review and Concept of Grameen
Bank in Bangladesh. We also express the depth of our
appreciation to our honorable course teacher for his suggestion and
guidelines, which helped us in completing this report.

Executive Summery
In the early 1970s, Professor Muhammad Yunus envisioned a means of alleviating poverty by
circumventing the major impediment to lending to the poorest in societythe need for collateral.
He tested this instinct in an experiment in 1976, when he lent about $27 to 42 women in an
ordinary Bangladeshi village. Just 30 years later, Grameen Bank has more than 3.2 million
borrowers (95 percent of whom are women), 1,178 branches, services in 41,000 villages and
assets of more than $3 billion.
The main aim of the Grameen Bank is to reduce poverty from Bangladesh. Grameen Bank has
discovered Micro-finance (based on their tried and tested program) is a very effective instrument
to empower the poor, particularly the poor women, in all cultures and economies of the world.
This paper explores Grameen Banks origins, model, challenges andopportunities, and
performance and efforts to expand and broaden Grameen Bank activities. In this report a wide
discussion is given on Grameens success in implementing Yunuss vision in the light of various
challenges and conclude that the short-run effects of microcredit have been positive and that
microfinance will continue to make important contributions to poverty reduction. Admittedly, an
assessment of Grameen solely in terms of financial viabilitythat is, without also taking into
account the social benefits in terms of the empowerment of women and its positive impact on
human capitalmust question whether such an institution will ever generate sufficient returns to
profit-driven shareholders to attract the sort of capital required to enable it to reach all segments
of the poor. The legacy of Grameen Bank will ultimately be not what it has done for
shareholders, but how it has impacted society.

Table of Content
History of Grameen Bank

06

Benefits of Grameen Bank

06

Major Challenges Facing Grameen Bank

08

Challenge 1: Urbanization

08

Challenge 2: Rural / urban

08

Challenge 3: Emerging middle-class borrowers

09

Model of Grameen Bank

10

Literature Survey of Grameen Bank

12

Biblioghaphy

13

History of Grameen Bank

The origin of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus,
Head of the Rural Economics Program at the University of Chittagong, launched an action
research project to examine the possibility of designing a credit delivery system to provide
banking services targeted at the rural poor. The Grameen Bank Project (Grameen means "rural"
or "village" in Bangla language) came into operation with the following objectives:

extend banking facilities to poor men and women;

eliminate the exploitation of the poor by money lenders;
create opportunities for self-employment for the vast multitude of unemployed people in
rural Bangladesh;
bring the disadvantaged, mostly the women from the poorest households, within the fold
of an organizational format which they can understand and manage by themselves; and
Reverse the age-old vicious circle of "low income, low saving & low investment", into
virtuous circle of "low income, injection of credit, investment, more income, more
savings, more investment, more income".

(A Short History of Grameen Bank, http://www.grameen.com)

Grameen Bank has reversed conventional banking practice by removing the need for collateral
and created a banking system based on mutual trust, accountability, participation and creativity.
GB provides credit to the poorest of the poor in rural Bangladesh, without any collateral. At GB,
credit is a cost effective weapon to fight poverty and it serves as a catalyst in the overall
development of socioeconomic conditions of the poor who have been kept outside the banking
orbit on the grounds that they are poor and hence not bankable. Professor Muhammad Yunus, the
founder of 'Grameen Bank' and its Managing Director, reasoned that if financial resources can be
made available to the poor people on terms and conditions that are appropriate and reasonable,
'these millions of small people with their millions of small pursuits can add up to create the
biggest development wonder.' Key Dates:
Key Dates:
1976: Professor Muhammad Yunus begins micro-credit experiment by loaning $27 to 42
villagers in need.
1977: The Janata Bank loans Yunus money to start the Grameen Project.
1983: Grameen Bank created as its own official entity; relocates headquarters from
Chittagong to Dhaka.
1987: U.S. visit by Yunus garners extensive support and media coverage.
1991: Bank's worst year complicated by horrific cyclone.
1998: Bank reaches $2 billion in total loans disbursed; seeks outside support after severe
flooding.
(A History of Grameen Bank, Retrieved May 29, 2013, http://www.grameen.com)

Benefits of Grameen Bank

Grameen Bank believes that lack of access to credit is the biggest constraint for the rural poor. If
the poor are provided credit on reasonable terms, they themselves best know how to increase
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their incomes. Grameen Bank targets and mobilizes the poor and creates social and financial
conditions so that they receive credit by identifying a source of self-employment in familiar rural
non-farm activities. There are some benefits of Grameen Bank as follows:
1. Owned by the Poor: Grameen Bank Project was born in the village of Jobra,
Bangladesh, in 1976. In 1983 it was transformed into a formal bank under a special law
passed for its creation. It is owned by the poor borrowers of the bank who are mostly
women. It works exclusively for them.
2. No Collateral, No Legal Instrument, No Group-Guarantee or Joint Liability:
Grameen Bank does not require any collateral against its micro-loans. Since the bank
does not wish to take any borrower to the court of law in case of non-repayment, it does
not require the instrument. Borrowers to sign any legal.
3. 100 per cent Loans Financed From Banks Deposits: Grameen Bank finances 100 per
cent of its outstanding loan from its deposits. Over 56 per cent of its deposits come from
banks own borrowers. Deposits amount to 145 per cent of the outstanding loans.
4. Borrower-Deposits Keep Growing: Besides building financial strength of the poor
women by encouraging them to build up significant amount of personal savings,
borrower deposit is also a very important element in Grameen Bank.
5. Low Interest Rates: Government of Bangladesh has fixed interest rate for governmentrun microcredit programmes at 11 per cent at flat rate. It amounts to about 22 per cent at
declining basis. Grameen Bank's interest rate is lower than government rate.
6. Deposit Rates: Grameen Bank offers very attractive rates for deposits. Minimum interest
offered is 8.5 per cent. Maximum rate is 12 per cent.
7. Micro-enterprise Loans: Many borrowers are moving ahead in businesses faster than
others for many favourable reasons, such as, proximity to the market, presence of
experienced male members in the family, etc. Grameen Bank provides larger loans, called
micro-enterprise loans, for these fast moving members.
8. Scholarships: Scholarships are given, every year, to the high performing children of
Grameen borrowers, with priority on girl children, to encourage them to stay ahead to
their classes.
9. Education Loans: Students who succeed in reaching the tertiary level of education are
given higher education loans, covering tuition, maintenance, and other school expenses.
10. Loans Paid Off At Death: Grameen offers an optional insurance programme called Loan
Insurance Programme. Those who sign up for this programme in case of their death, all
outstanding loans are paid off.

11. Pension Fund for Borrowers: Another optional, but enormously popular programme in
Pension Fund Programme. As borrowers grow older they worry about what will happen
to them when they cannot work and earn any more.
(Grameen Bank at a Glance, Retrieved May 29, 2013, http://www.grameen.com)

Major Challenges facing Grameen Bank

The Key Findings can be summarized into the following 3 groups:
1. Urbanization of the younger generation.
2. Rural / urban divide in living standards.
3. Growing group of asset-owning middle- class borrowers.
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Challenge 1: Urbanization: GB is in danger of losing a generation of clients that move to the

city. The trend of urbanization is driven by both positive and negative factors.
Pull-factors:
Higher salaries
More opportunities for employment
More opportunities and freedom for women
Availability of transport, goods and services
Opportunities to socialize with young people
Push-factors:
Lower salaries
Few employment opportunities
Little opportunity for women
Difficulty accessing transport, goods and services
Dominated by conservative older-generations
Challenge 2: Rural / urban: Growing Rural / Urban divide is GB serving an increasingly
outdated way-of-life? Lifestyle is changing rapidly in the cities spurred on by economic
development and globalization; the villages are being left behind.
1. Modern Bangladeshi Lifestyle
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Geographically and socially mobile nuclear families living apart from family
and older generations.
A weaker sense of community with ones neighbors long-distance
relationship networks enabled through telecommunications.
Women juggling job and family, doing business independently from husband
and family.
Income from services
Choice of employment
Lots of consumer choice

2. Traditional Bangladeshi Lifestyle

Family members living together in close proximity for generations.
A strong sense of community the neighbors know each others history and
business.
Seen as the homemaker husband is the sole earner of income.
Income from agriculture.
Cannot choose employment family.
Few consumer choices.
The existing Grameen model depends on characteristics of a traditional
society
1. Collateral-substitution the celebrated innovation of GB - depends on the close sense of
community and peer-group pressure which can be cultivated in a traditional Bangladeshi
village:
Neighbours know each others business so Branch Managers can assess the loanworthiness of new borrowers, check loan utilisation. verify genuine repayment
problems by interviewing neighbours.
Groups of 5 borrowers are formed to generate peer-group effect: including peer
pressure to honour loan-repayments, group members helping each other with
repayments and early identification of problems.
2. A great number of existing loans extended by GB are used to fund male dominated
business activities (e.g. cultivation, clothes shops)- the borrower gives the loan to her
husband or brother who then utilises the loan.
There are few business suitable for women to operate alone in the traditional
agricultural sector.
At the same time, as technology and increasing demand for food from urban areas
increase the incomes of farmers, there is a growing demand for provision of local
services.
Women are well-positioned to serve in the new rural service economy.

Challenge 3: Emerging middle-class borrowers

GB does not offer more sophisticated financial products for asset-owning clients. As successful
GB borrowers begin to accumulate business and household assets, they can find very little
financial support.
1. GB currently has many asset-owning clients who have alternative access to capital.

2. GB is focused on serving the asset-less rural classes and currently ignores the
specific needs of asset-owning rural residents.
3. Currently. many borrowers may be content banking with their local GB branch,
making occasional trips to urban commercial banks.
4. However, when the commercial banks develop greater presence in the countryside and begin to offer alternatives to micro- credit products - they will create a major
challenge for GB to keep on to their more economically successful customers.
(Grameen Bank Internship Report, February 2012, www.slideshare.net/teddysun2/grameen-bankinternship-report-feb-2012)

Model of Grameen Bank

Credit Delivery System
Grameen Bank targets the poorest of the poor, with a particular emphasis on women, who
receive 95 percent of the banks loans. Women represent a suitable clientele because, given that
they have less access to alternatives, such as traditional credit lines and salaries, they are more
likely to be credit constrained and they have an inequitable share of power in household decision
making. Lending to women also generates considerable secondary effects, including
empowerment of a marginalized segment of society (Yunus and Jolis 1998).
Borrowers are organized into small homogeneous groups
Such characteristics facilitate group solidarity as well as participatory interaction. Organizing the
primary groups of five members and federating them into centers has been the foundation of
Grameen Bank's system. The emphasis from the very outset is to organizationally strengthen the
Grameen clientele, so that they can acquire the capacity for planning and implementing micro
level development decisions. The Centers are functionally linked to the Grameen Bank, whose
field workers have to attend Centre meetings every week.
10 Indicators
Every year GB staff evaluates their work and check whether the socio-economic situation of GB
members is improving. GB evaluates poverty level of the borrowers using ten indicators. A
member is considered to have moved out of poverty if her family fulfills the following criteria:
1. The family lives in a house worth at least Tk. 25,000 (twenty five thousand) or a house
with a tin roof, and each member of the family is able to sleep on bed instead of on the
floor.
2. Family members drink pure water of tube-wells, boiled water or water purified by using
alum, arsenic-free, purifying tablets or pitcher filters.
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3. All children in the family over six years of age are all going to school or finished primary
school.
4. Minimum weekly loan installment of the borrower is Tk. 200 or more.
5. Family uses sanitary latrine.
6. Family members have adequate clothing for everyday use, warm clothing for winter, such
as shawls, sweaters, blankets, etc, and mosquito-nets to protect themselves from
mosquitoes.
7. Family has sources of additional income, such as vegetable garden, fruit-bearing trees,
etc, so that they are able to fall back on these sources of income when they need
additional money.
8. The borrower maintains an average annual balance of Tk. 5,000 in her savings accounts.
9. Family experiences no difficulty in having three square meals a day throughout the year,
i. e. no member of the family goes hungry any time of the year.
10. Family can take care of the health. If any member of the family falls ill, family can afford
to take all necessary steps to seek adequate healthcare.
(Grameen Bank at a Glance, Retrieved May 29, 2013, http://www.grameen.com)

The 16 decisions of Grameen Bank

1. We shall follow and advance the four principles of Grameen BankDiscipline, Unity,
Courage and Hard workin all walks of our lives.
2. Prosperity we shall bring to our families.
3. We shall not live in dilapidated houses. We shall repair our houses and work towards
constructing new houses at the earliest.
4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the
surplus.
5. During the plantation seasons, we shall plant as many seedlings as possible.
6. We shall plan to keep our families small. We shall minimize our expenditures. We shall
look after our health.
7. We shall educate our children and ensure that they can earn to pay for their education.
8. We shall always keep our children and the environment clean.
9. We shall build and use pit-latrines.
10. We shall drink water from tubewells. If it is not available, we shall boil water or use
alum.
11. We shall not take any dowry at our sons' weddings; neither shall we give any dowry at
our daughters wedding. We shall keep our centre free from the curse of dowry. We shall
not practice child marriage.
12. We shall not inflict any injustice on anyone; neither shall we allow anyone to do so.
13. We shall collectively undertake bigger investments for higher incomes.
14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help
him or her.
15. If we come to know of any breach of discipline in any centre, we shall all go there and
help restore discipline.
16. We shall take part in all social activities collectively.
(Source: The 16 decisions of Grameen Bank, http://www.grameen-info.org/bank/the16.html (October 17, 2005).

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Simultaneous undertaking of a social development agenda addressing basic needs of the

clientele
This is reflected in the "sixteen decisions" adopted by Grameen borrowers. This helps to:
1. Raise the social and political consciousness of the newly organized groups.
2. Focus increasingly on women from the poorest households, whose urge for survival has a
far greater bearing on the development of the family.
3. Encourage their monitoring of social and physical infrastructure projects - housing,
sanitation, drinking water, education, family planning, etc.
Expansion of loan portfolio to meet diverse development needs of the poor
As the general credit programme gathers momentum and the borrowers become familiar with
credit discipline, other loan programmes are introduced to meet growing social and economic
development needs of the clientele. Besides housing, such programmes include:
1. Credit for building sanitary latrines.
2. Credit for installation of tubewells that supply drinking water and irrigation for kitchen
gardens.
3. Credit for seasonal cultivation to buy agricultural inputs.
4. Coan for leasing equipment / machinery, ie., cell phones purchased by Grameen Bank
members.
5. Finance projects undertaken by the entire family of a seasoned borrower.\
(Source: http://www.grameen.com)

Compensation/Recognition
Once a year, Grameen Bank rates its branches according to a five-star system designed to
promote core Grameen values, notably savings, prudence and education. Branches are awarded
stars of different colors based on their achievements against the following five benchmarks:

Green Stara 100 percent repayment rate.

Blue Starprofitability.
Violet Stardeposits exceed loans.
Brown Starall children of borrowers attend school.
Red Starborrowers have crossed over the poverty line.

(Grameen Bank: Taking Capitalism to the Poor, EMainsah04@gsb.columbia.edu).

Literature Survey of Grameen Bank

The history of the creation of Grameen Bank is now well known. However, very few of these
accounts are able to articulate the early struggle the Bank faced to establish its legitimacy. To
provide the right context. it will be useful to revisit a bit of the early part of the history of
Grameen Bank as well as the history of state intervention in the provision of credit in
Bangladesh.

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The British Colonial Government got involved in dispensing credit in rural areas in the
nineteenth century. This was in response to its belief that indebtedness caused by the oppressive
informal credit market was the cause of periodic famines. The Strachey Famine Commission of
1880 recommended that the Government of British India should advance loans to the rural poor
and subsequently the Government enacted the Land Improvement Loans Act of 1883 and the
Agricultural Loans Act of 1884 (Roy and Rafiquddin, 1994). These Acts enabled the government
to advance loans to the rural poor. The Famine Commission of 1901 recommended the
establishment of mutual credit associations to provide agricultural credit. This led to the
enactment of the Co-operative Societies Act of 1904 and later the Bengal Co-operative Societies
Act of 1940 in order to satisfy the credit demands of rural people.
The British Colonial Government got involved in dispensing credit in rural areas in the
nineteenth century. This was in response to its belief that indebtedness caused by the oppressive
informal credit market was the cause of periodic famines. The Strachey Famine Commission of
1880 recommended that the Government of British India should advance loans to the rural poor
and subsequently the Government enacted the Land Improvement Loans Act of 1883 and the
Agricultural Loans Act of 1884 (Roy and Rafiquddin. 1994). These Acts enabled the government
to advance loans to the rural poor. The Famine Commission of 1901 recommended the
establishment of mutual credit associations to provide agricultural credit. This led to the
enactment of the Co-operative Societies Act of 1904 and later the Bengal Co-operative Societies
Act of 1940 in order to satisfy the credit demands of rural people. After partition. The East
Pakistan Provincial Co-operative Bank Ltd. was established in 1948. Later the Government of
Pakistan set up the Agricultural Development Finance Corporation in 1952 and the Agricultural
Bank of Pakistan in 1957.
After Bangladesh gained independence in 1971. ADBP was renamed Bangladesh Krishi Bank
(BKB). In 1986. Rajshahi Krishi Unnayan Bank (RAKUB) was created with the BKB branches
of Rajshahi Division assigned to meet credit demands in northern rural areas of the country.
Commercial banks were nationalized in 1971 and the Government directed them to open more
rural branches to supply credit to the priority sectors such as agriculture and industry. As of
March 31. 1994. out of 5.762 total bank branches. over two-thirds were located in rural areas.
The special agricultural credit program initiated by the government in 1977, under which banks
were required to open two rural branches for every new urban branch. was responsible for such
rapid expansion of nationalized commercial banks (NCBs) in rural areas. This ultimately resulted
in unplanned proliferation and sub-optimal geographical coverage by rural branches and most of
these branches were hardly making any profit. In 1982-83. BKB was asked to take over more
than one hundred loss making branches of some NCBs. In 1994 more than 70 percent of BKB
branches incurred losses.
Grameen Bank started as an action research project by Muhammad Yunus, a Bangladeshi
economist in Chittagong in 1976. The objective of the project was to test whether the poor are
creditworthy and if credit can be supplied without any collateral. Later with the help from some
Nationalized Commercial Banks (NCBs). Professor Yunus was able to provide a formal structure
to his experiment essentially serving as an intermediary lender, by lending bank funds to the
rural landless. Collecting repayments and depositing them with the NCBs. Soon the bank became
a project of the central bank and it supported this work by facilitating funding from the

13

International Fund for Agricultural Development (IFAD). After seven years of experimentation.
in 1983, Grameen Bank was established as a specialized bank with its own charter to work
exclusively with the poor defined as individuals owning less than half an acre of land.
(Journal of Socio Economics, 2005)

BIBLIOGRAPHY
I have used many websites to collect relevant information such as

www.grameen.com
www.slideshare.net
www.grameen-info.org

I have also used some articles to find relevant information such as Journal of Socio Economics,
Taking Capitalism to the Poor etc.

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