Bangladesh Grameen Bank

(BGB) Model
5 members groups, they must be neighbors but not
relatives
Joint Liability Groups (JLG) or Solidarity Groups (SG)
Individual lending within JLG model
7 groups constitute a centre at the village level
All loans must be approved by other group members
as well as all other centre members
Lending is in the order of 2:2:1 (leader being the
last)
Every member must contribute Rs. 5/week
Inability of a client to pay savings results in the
concerned group or centre paying up for that client
Bangladesh Grameen Bank
(BGB) Model
5 % of all productive loans disbursed to a group is
collected as tax and deposited in the group fund
From this group fund, member can access loans for
consumption purposes (maximum 75% of group
fund), no interest charge
There is also an emergency fund (optional) where
each member contribute Rs. 1/week.
Loan disbursement is done at the centre level.
Weekly repayment schedule (maximum 52 weeks)
Interest rate varies between 15-24 % p.a. on flat
basis and on a weekly basis.
SHG V/s BGB Model Client
Perspective
Strength for SHG Model
- Flexible internal operations
- can select cheaper supplier of funds
- can evolve from existing groups
- can evolve into Federations
- very empowering
- a major part of the interest is retained
within the group fund
SHG V/s BGB Model Client
Perspective
Weaknesses of SHG model
- Need management skills
- can be hijacked internally or externally
- cash may not be secure, if savings are
held within the group
SHG V/s BGB Model Client
Perspective
Strengths of BGB model
- No need for literacy
- Protected from internal exploiters
- Poorer are included
- Bank/MFI can offer tailor-made services
- savings are safe
- members are forced to accumulate reserves,
which can be used in emergencies
SHG V/s BGB Model Client
Perspective
Weaknesses of BGB model
- inflexible internal operations, very
rigid
- group composition not in members
control
- must meet frequently (weekly), more
time consuming
SHG V/s BGB Model
Bank/MFI Perspective
Strength of SHG model
- lower costs, (one account for whole
group) and (appraisal, recovery done by
members)
- groups can fit to any branch
- No social intermediation cost as
groups are promoted by SHPI
- large access to clients
SHG V/s BGB Model
Bank/MFI Perspective
Weaknesses of SHG model
- Need SHPI to promote the groups
- Groups may move to other bank
- more risks as hard to monitor the groups
- slow process to increase the scale of
business
- may be forced to link the groups under
some schemes
SHG V/s BGB Model
Bank/MFI Perspective
Strengths of BGB model
- Tight control over the groups, so less
risk
- standardized procedures
- members have the feelings of
belonging to bank/MFI
SHG V/s BGB Model
Bank/MFI Perspective
Weaknesses of BGB model
- Higher transaction costs
- members need continuous guidance
and presence
- needs dedicated system
SHG Model Suitable
Conditions
Existing bank network in rural areas
Communities are fragmented, with various
different groups based on caste, or wealth
level
There are credible NGOs or other community
development institutions to promote the
groups
Peoples opportunities and financial service
needs are diverse
BGB Model Suitable
Conditions
The prospective clients are very poor and
marginalized, and are vulnerable to
exploitation unless they are protected by a
rigid structure
Clients are illiterate
The area is densely populated, so that it is
practical for MFI staff to visit the groups
every week
The population is fairly homogenous
Federated SHG Model
Federation is apex institution of all SHGs in an
area (1000-3000 members)
SHG------Cluster------------Federation
Federation can be registered under Society
registration Act.
Helps in promotion of new SHG and
strengthening of existing SHGs
Facilitate inter-group exchange (financial and
non-financial)
Access of outside funds to member SHGs
Federated SHG Model
As the number of groups increases, it
becomes difficult for SHPI to interact directly
with each group
SHPI can start withdrawing and can
concentrate on other area
External funds for on-lending are routed
through federation
Federation can help SHGs in loan recovery
NBFC Model
Profit maximization through financial services
to rural/poor clients
Registered as profit making NBFC under the
Companies Act 1956
Diverse client group
Multiple channels
Sound financial intermediation, no social
intermediation
Diversified products for different clients