GRAMEEN BANK, BANGLADESH

Nazrui Islam and Khadem Ali

Centre for Urban studies (CUS)

Background description
Grameen bank is a task oriented credit institution, an autonomous organization owned
jointly by the Government and the rural poor. It was created specifically for the purpose
of improving the economic status of rural land less persons, especially of the female
population, in Bangladesh. It was started as an action research project in search of new
alternatives to institutional credit for the poor in view of the lack of access to the existing
institutions. Several factors contributed to this unsatisfactory situation, which include
poor knowledge of the credit opportunities, complex and costly formalities for access, and
an inability to meet the existing norms of credit opportunities, complex and costly
formalities for access, and an inability to meet the existing norms of credit worthiness as
set by the existing formal sector lending institutions due to their inability to produce
collateral against loans and poor saving prospects. As a result, the poor are forced to turn
to the informal sector of private money lenders for their credit needs. Access is easy, but
the cost is very high. The high interest charged by the lender causes further
impoverishment and dependency of the poor borrower. The borrower is often encouraged
to be a defaulter, whereby his entire mortgage collateral is called in, making him a
destitute.

Based on a three-year action research project in the village of Jobra undertaken by the
Cittagong University under Prof.Muhammad Yunus from 1976-79, the model was
expanded to several districts. In 1983, the Grameen Bank project was transformed into an
independent bank by a special Government ordinance. The government of Bangladesh
provided 60 percent of the initial share capital, while 40 percent was held by the
borrowers of the Bank. Over time the Government share has been reduced to only 7
percent. The Board includes members elected from the shareholders as well as
government nominees.

Grameen Bank organization

The Bank’s organizational structure is of four tiers with the branch as the lowest unit.
The branch office is supervised by an area office and above that are the zonal offices and
the head office. It deals directly with the community structures which are comprised of
“groups” of five members each and centers which contain 2 to 10 groups. A given branch
deals with 40 to 60 such centers. Bank’s main innovations include the use of group
arrangement to replace the collateral requirements of formal institutions. There is
considerable freedom at the second lowest tier of the area office where loan sanctions are
done. The head office provides feedback to the lower levels and deals with the outside
institutions and government. Its role includes resource mobilization for the Bank. Over
the last decade the operations of the bank have grown to include over 1,000 branches with
almost 2 million members covering almost 2 million members almost 35,000 villages.
Cumulative disbursements by the Bank are over TK 41 billion (US$1 billion) with a
monthly disbursal of Tk 1.1 billion (US $29 million) by 1994. Cumulative disbursement
by the Bank are over Tk for housing loans has been about 11 percent of total.

Grameen Bank’s success relates to its organizational structure and its style of operations
which responds to the local needs. Its credit policy and rules for loan sanctions and the
special ‘collateral’ requirements have emerged from the ground realities. It must,
however, be understood that this is backed up by a rigorous information system and
proper maintenance of records. This brings in the needed transparency and accountability
in the entire process. The collective participatory planning and incorporation of the
members at the highest level of decision-making in the Board of Directors through a
democratic process also contributes to this success.

Grameen Bank’s lending for housing

Grameen Bank’s lending for housing has also evolved out of the needs of the borrowers.
Interestingly, the housing issue has been simplified to the barest minimum and focuses on
the construction of shelter and sanitary latrine. The construction technology is the
Bangladesh
Government / NGO cooperation
Grameen Bank
Loan
Housing Finance
Credit