“Conventional banks look for the rich; we look for the absolutely poor.” Dr Muhamaad Yunus, founder of Grameen Bank.
Conventional banking is driven by profit and the interests of shareholders. Bankers lend to those with collateral who are assessed as good risks. The concept behind Grameen banking has always been different in that it grew from a belief that the poorest in society could improve their situation and opportunities if they were given small loans.
Dr Muhamaad Yunus, who founded Grameen Bank in the villages of Bangladesh, took an unconventional approach by offering loans to those deemed un-credit worthy by banks, believing credit is a human right. Loans were issued without the need for collateral, based on a system of trust, accountability, peer support and character.
Grameen microcredit loans are not charitable as interest is charged. Realising the social demands which the poor face, there are certain requirements which borrowers must meet. Repayment begins immediately and on a weekly basis: however the bank goes to the people, rather than people traveling to the bank. There are no penalties enforced if payments are late and there is a stipulation that any accrued interest cannot exceed the amount of the original loan.
Grameen Bank initiated a unique approach to lending by instituting a peer group of five people. Whilst the group is not collectively responsible for one individual’s loan, no one in the group will receive further credit if one loan is not met. Peer pressure and assistance encourages an individual to honor their loan commitments.
This concept resulted in an extremely low default rates, particularly as lending was targeted primarily towards women. Yunus understood that women took a broader view of dealing with finances by committing the benefits directly towards their family and home to improve their situation, rather than squandering any gains.
Conventional banks lend money without concerning themselves with more than the borrower’s ability to repay. Grameen Banking is founded on principles which encourage borrowers to commit to improving their situation. These principles incorporate changes in society which aim to reduce exploitive practices: thus traditional habits such as the dowry system become subject to change as families emerge from poverty.
As the poorest gain some security the need for large families is diminished and education becomes a priority. Yunus believes that “income earning opportunities that empower poor women… will impact on curbing population growth.”
At its most basic level Grameen Banks policies highlight the importance of clean sanitation and dry homes, whilst promoting minimizing expenditure and introducing savings. The four core principles of the bank are courage, hard work, discipline and unity: the bank now has sixteen principles which borrowers are encouraged to follow. The poorest women who were once ineligible for credit from traditional banking sources are now shareholders in the Grameen Bank.
Grameen Bank gave rise to the Grameen Foundation which helps to fight poverty in many areas beyond microcredit. The concept of microcredit began with the Grameen Bank and has influenced many other models of microcredit in many countries. Where it is established with an altruistic aim it has proved successful in helping the poorest take the first steps to become self sufficient. However not all organizations base microcredit on the Grameen example and in some areas it is exploiting the very people Yunus set out to help, by resembling predatory loan sharks.
As the Grameen Bank has grown into an international bank it has remained loyal to its core values and beliefs. It continues to expand by using methods in direct contrast to conventional banking methods which Yunus deems biased towards the un-creditworthy poor and women.
Sources: unesco.org
Grameen info
Grameen foundation
Yunus. org