Grameen banking is intended and focused to do away with poverty. The bank and the Grameen Foundation make no bones about it: They are trying to eradicate a way of life that has impoverished men and women for hundreds of years, and they are doing this one micro-loan at a time.
Loans to Poor People
Grameen banking makes very small loans, usually $50 to $300, available to individual borrowers, and those borrowers will always be poor people, perhaps situated in a rural Bangladeshi village. These are people whom a bank officer has met personally to determine their character and their needs. It may be true, as well as a neat saying, that “The less you have, the more you get.”
Collateral Is Very Different
The rural poor who do business with Grameen are their own collateral. That is, they will not put up an automobile, a house, or even a cow in order to take a loan. The reason for this? They are the poor, and the bank intends to make them less so through the operation of a business venture that they will start by themselves. Taking tangible collateral from them would be difficult in most cases; they might not have anything to take.
A Borrower with Four Friends
If a prospective borrower can find four friends with whom she is comfortable working, she is on her way to success at finding a micro-loan from Grameen Bank. This is because the five friends are a working project group, and it is their pledge that they will support one another both in the production phase of their project, that is, making goods or providing services, and in the pay-back phase. Most loans are repaid in six or twelve months, and the groups will to succeed helps to make that repayment a happy reality.
One’s Default Is the Group’s Default
As in any business, there must be rules, though Grameen’s rules are as generous as the financial world will ever produce. Only one or two persons in a project group may take loans. After those are repaid, others may take loans, but only by proving that they will responsibly retire the debt in concert with their working group. It is thus peer pressure and the pride of achievement that keeps repayment rates for Grameen above 95 percent.
Grameen began a new way of approaching the situation of the world’s poorest inhabitants. Their initiative has paid off in millions of healthier, wealthier banking customers, who, as a result of their community work, now live in villages and towns less impacted by the terrible poverty they once knew.
Despite the fact that Grameen now has loaned the equivalent of more than a billion dollars, their bankers still do not work in high-end financial circles. Their intentions are still the same, to knock out world poverty by changing the situations of poor people for the better. They continue to give tiny loans, and the world sees corresponding changes to poor people’s hopes. It is working, as promised.
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