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By Laxmi Murthy Bangladesh's Grameen Bank is credited with pioneering the micro-credit movement all over the developing world. The Bank brought credit to the poor, women and illiterate, creating a methodology and an institution around the financial needs of the poor
Started in 1976 as an experiment by Muhammad Yunus, Head of the Department of Economics at Chittagong University, the Grameen Bank has acquired the status of a place of pilgrimage for those interested in development and micro-credit and rural poverty. Grameen (village) Bank began with unusual traits for a lending institution: it required borrowers to fall below a certain income level, did not require collateral and forced clients to join five-member groups that met once a week and cross-guaranteed one another's loans; if one member defaulted, it damaged the entire group's access to credit. Responsibility for the loans of all the group members is crucial, because it is the group -- not the bank -- that initially evaluates loan proposals. Defaulters spoil things for everybody else, so group members choose their partners wisely. If all five repay their loans promptly, each is guaranteed access to credit for the rest of her life -- or as long as she elects to remain a customer. Credited with pioneering the micro-credit ‘movement’ and setting up the precursor to micro-finance programmes in several parts of the developing world, Muhammad Yunus has earned many accolades. Recipient of the 1994 World Food Prize, the Magsaysay Award and the 1993 Care Humanitarian Award, Yunus was also hailed in 1995 by AsiaWeek as one of the 25 most influential Asians. In the mid-’70s, Yunus’ ideas were revolutionary. Rather than donating billions to help large infrastructure ventures, Grameen Bank began to give small loans to poor rural women, who are traditionally not considered ‘credit-worthy’. The objectives of the Grameen Bank are: to extend banking facilities to poor men and women; eliminate the exploitation of the poor by moneylenders; create opportunities for self-employment for the vast multitude of unemployed in rural Bangladesh; bring the disadvantaged, mostly women from the poorest households, within the fold of an organisational format which they could understand and manage by themselves; and reverse the age-old vicious circle of ‘low income, low saving and low investment’ into a virtuous circle of ‘low income, injection of credit, investment, more income, more savings, more investment, more income’. Rural women today constitute about 95% of the bank's borrowers. Loans are used to buy assets to start up micro-enterprises such as cotton or bamboo to weave, or raw materials for bangles or a cow she can milk. Grameen brought credit to the poor, women and the illiterate: people with no experience of handling cash, leave aside investing it. This ‘barefoot bank’ created a methodology and an institution around the financial needs of the poor, and created access to credit on reasonable terms, enabling the poor to build on their existing skill to earn a better income in each cycle of loans. Today Grameen Bank is owned by the rural poor whom it serves. Borrowers of the Bank own 90% of its shares, while the remaining 10% is owned by the government. Grameen Bank, since inception has disbursed loans amounting to Tk 191.44 billion (US$ 4.18 billion), of which US$ 3.78 billion has been repaid. Grameen Bank’s projected disbursement for 2004 at Tk 26.0 billion (US $ 445 million) means a monthly disbursement of Tk 2.17 billion (US $ 37 million) through the Bank’s 1,195 branches. There are now more than 25 organisations within the Grameen family of enterprises including the replication and research activities of Grameen Trust, handloom enterprises of Grameen Uddog and fisheries pond management by Grameen Motsho or the Fisheries Foundation. Questioning the clubbing of varied forms of credit lending such as moneylender's credit, pawn shops, agricultural credit, livestock credit, rural credit or cooperative credit etc under the broad label of ‘micro-credit’, Yunus proposed a definition of ‘Grameencredit’ which embodies the principles of the Grameen Bank. ‘Grameencredit’ according to Muhammad Yunus, is based on the premise that the poor have skills which remain unutilised or under-utilised. ‘Grameencredit’ promotes credit as a human right and is targeted at the poor, particularly poor women. The most distinctive feature is that it is not based on any collateral, or legally enforceable contracts, but on trust. It provides service at the doorstep of the poor based on the principle that the bank should go to the people. In order to obtain loans a borrower must join a group of borrowers. A new loan becomes available to a borrower if her previous loan is repaid, and all loans are to be paid back in instalments (weekly, or bi-weekly). Another unique feature of ‘Grameencredit’ is that it gives high priority to building social capital through the formation of groups and centres, develops leadership qualities and undertakes a process of discussion among borrowers. It lays special emphasis on protection of the environment and children's education, and provides scholarships and student loans for higher education. For the formation of human capital it attempts to increase people’s access to technology, like mobile phones and solar power. It is definitely not the lack of skills which make poor people poor. Sources: http://www.grameen-info.org/agrameen/index.html
http://www.grameenfoundation.org/
http://www.grameen-info.org/ | The dark side of micro-credit | What is the other side of the rosy Grameen Bank picture? Some critics argue that micro-credit in many cases ends up covering daily household expenses rather than funding the development of small businesses and, in some cases, wives’ loans disappear into the hands of their husbands. Others contend that micro-credit is merely a drop in the bucket, yet it has become a fad at the expense of other development projects. As a result, critics argue, funding is flowing primarily to lending institutions rather than in the form of direct aid to poor communities. Moreover, in Bangladesh, there have been disturbing reports of group members occasionally resorting to aggression in pressuring fellow villagers to make weekly payments, seizing their properties or removing roofs from their homes. Alex Counts, president of the Grameen Foundation USA, acknowledges that the group model was “a very good idea, but it had a dark side ... . It brought a lot of solidarity but also brought an enormous amount of tension. If someone fell behind, people got very tense and even got hostile with each other.” Counts claims, however, that revisions to the original Grameen model have ironed out these glitches. (http://www.prospect.org/print/V14/5/polakow-suransky-s.html) Another matter of concern is the tie-up with corporations. In 1998 Grameen Bank began planning a relationship with the agricultural transnational, Monsanto Corporation. The planned collaboration was cancelled due to public pressure. The arrangement would have given the Bank $250,000 to provide loans to poor farmers to buy Monsanto ’ s agrochemical and biotechnology products. Canada-based Rural Advancement Foundation International (RAFI) wrote to Yunus calling upon him to drop the deal and to throw the Bank's support behind the right of farmers to save, exchange, and develop their own plant varieties -- a right that would be curtailed if farmers were forced to accept Monsanto's controversial Terminator Technology (www.rafi.ca/misc/terminator.html). In an email to Muhammed Yunus, environmental activist Dr Vandana Shiva said that the move would “push Bangladeshi peasants into debt as they have to spend more money on herbicides, seeds, royalties and technology fees. The $150,000 that Monsanto is giving to start the Grameen Monsanto Centre is a miserable 0.6% of the $1.6 billion that it is spending on an advertisement campaign against the consumers in Europe who have rejected Monsanto's genetically engineered foods.” (http://www.greens.org/s-r/17/17-15.html). The furore rekindled a range of much wider concerns regarding the role of micro-credit in community empowerment. |
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