Grameen Bank has come a long way since it began its journey in the village of Jobra in 1976.
During this quarter of a century it has faced many operational and organisational problems, gained a lot of experience through its successes and failures. It incorporated many new features in its methodology to address various crises and problems, or utilise new opportunities; discarded and modified the features which became unnecessary or less effective. There were a number of major natural disasters in Bangladesh during the life span of Grameen Bank. The 1998 flood was the worst of all.Half of the country was under flood-water for ten long weeks.
Water flowed over the roof-tops for a prolonged period. Grameen borrowers, like many other people of Bangladesh, lost most of their possessions including their houses because of the flood. Grameen Bank, which is owned by the borrowers, decided to take up a huge rehabilitation program by issuing fresh loans for restarting income-generating activities and to repair or rebuild their houses. Soon borrowers started to feel the burden of accumulated loans.
They found the new installment sizes exceeded their capacity to repay.They gradually started to stay away from weekly centre meetings. Grameen Bank repayment started to show quick decline. We tried to improve the situation, but it did not produce desired result.
Impact of the post-flood repayment crisis was compounded by its overlap with a recovery problem from an earlier crisis. In 1995, a large number of our borrowers stayed away from centre meetings and stopped paying loan installments. Husbands of the borrowers, inspired and supported by local politicians, organised this, demanding a change in Grameen Bank rules to allow withdrawal of "group tax" component of "group fund" at the time of leaving the bank.It continued for months. At the end we resolved the problem by creating some opening in our rules, but Grameen's repayment rate had gone down in the mean time.
Many borrowers continued to abstain from repaying their loans even after the matter was resolved. These external factors reinforced the internal weaknesses in the system. The system consisted of a set of well-defined standardised rules. No departure from these rules was allowed. Once a borrower fell off the track, she found it very difficult to move back on, since the rules which allowed her to return, were not easy for her to fulfill.
More and more borrowers fell off the track. Then there was the multiplier effect. If one borrower stopped payments, it encouraged others to follow. 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".The action research demonstrated its strength in Jobra (a village adjacent to Chittagong University) and some of the neighboring villages during 1976-1979. With the sponsorship of the central bank of the country and support of the nationalized commercial banks, the project was extended to Tangail district (a district north of Dhaka, the capital city of Bangladesh) in 1979. With the success in Tangail, the project was extended to several other districts in the country.
In October 1983, the Grameen Bank Project was transformed into an independent bank by government legislation. 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.Nobel Laureate, Muhammad Yunus, the bank’s founder: The Norwegian Nobel Committee has decided to award the Nobel Peace Prize for 2006, divided into two equal parts, to Muhammad Yunus and Grameen Bank for their efforts to create economic and social development from below.
Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means.Development from below also serves to advance democracy and human rights. Muhammad Yunus has shown himself to be a leader who has managed to translate visions into practical action for the benefit of millions of people, not only in Bangladesh, but also in many other countries.
Loans to poor people without any financial security had appeared to be an impossible idea. From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty.Grameen Bank has been a source of ideas and models for the many institutions in the field of micro-credit that have sprung up around the world. Every single individual on earth has both the potential and the right to live a decent life. Across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development.
Micro-credit has proved to be an important liberating force in societies where women in particular have to struggle against repressive social and economic conditions.Economic growth and political democracy can not achieve their full potential unless the female half of humanity participates on an equal footing with the male. Yunus's long-term vision is to eliminate poverty in the world. That vision can not be realised by means of micro-credit alone.
But Muhammad Yunus and Grameen Bank have shown that, in the continuing efforts to achieve it, micro-credit must play a major part. Application of Microcredit: The word "microcredit" did not exist before the seventies.Now it has become a buzz-word among the development practitioners. In the process, the word has been imputed to mean everything to everybody. No one now gets shocked if somebody uses the term "microcredit" to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from the savings and loan associations, or from credit unions, or from money lenders. When someone claims microcredit has a thousand year history, or a hundred year history, nobody finds it as an exciting piece of historical information.
This is creating a lot of misunderstanding and confusion in the discussion about microcredit. We really don't know who is talking about what. I am proposing that we put labels to various types of microcredit so that we can clarify at the beginning of our discussion which microcredit we are talking about. This is very important for arriving at clear conclusions, formulating right policies, designing appropriate institutions and methodologies.
Instead of just saying "microcredit" we should specify which category of microcredit.
