Entrepreneurship Prof. Jorge Saguinsin By: Jane Labarrete
Background • Grameen bank is a microfinance organization and community development bank started in Bangladesh that makes small loans (known as microcredit or "grameen credit” to the impoverished without requiring collateral. • One of the first micro-lending institutions • Derived from the word “gram” rural or village • 94% owned by the poor, 6% government
History Founded from a project started in 1976 to look at the effect of giving credit to the poor “uncredit worthy” The project was transformed into a independent bank on October 2, 1983 In 2006, won Nobel Peace Prize More recently, Grameen has started bond sales as a source of finance.Muhammad YunusFounder, Grameen Bank
Grameen Credit a) It promotes credit as a human right.b) Its mission is to help the poor families to help themselves to overcome poverty. It is targeted to the poor,particularly poor women.c) Most distinctive feature of Grameencredit is that it is not based on any collateral, or legally enforceablecontracts. It is based on "trust", not on legal procedures and system.d) It is offered for creating self-employment for income-generating activities and housing for the poor, asopposed to consumption.e) It was initiated as a challenge to the conventional banking which rejected the poor by classifying them to be"not creditworthy". As a result it rejected the basic methodology of the conventional banking and created itsown methodology. f) It provides service at the door-step of the poor based on the principle that the people should not go to thebank, bank should go to the people.g) In order to obtain loans a borrower must join a group of borrowers. h) Loans can be received in a continuous sequence. New loan becomes available to a borrower if her previousloan is repaid.i) All loans are to be paid back in instalments (weekly, or bi-weekly).j) Simultaneously more than one loan can be received by a borrower. k) It comes with both obligatory and voluntary savings programmes for the borrowers. l) Generally these loans are given through non-profit organizations or through institutions owned primarily bythe borrowers m) Grameencredit gives high priority on building social capital.
Is Grameen different? Conventional banking is based on collateral, Grameen system is collateral- free. Conventional banking is based on the principle that the more you have, the more you can get. In other words, if you have little or nothing, you get nothing. Grameen Bank starts with the belief that credit should be accepted as a human right, and builds a system where one who does not possess anything gets the highest priority in getting a loan. Conventional banks are owned by the rich, generally men. Grameen Bank is owned by poor women. Overarching objective of the conventional banks is to maximize profit. Grameen Banks objective is to bring financial services to the poor, particularly women and the poorest — to help them fight poverty, stay profitable and financially sound.
Is Grameen different? Conventional banks do not pay attention to what happens to the borrowers families as results of taking loans from the banks. Interest on conventional bank loans are generally compounded quarterly, while all interests are simple interests in Grameen Bank. In case of death of a borrower, Grameen system does not require the family of the deceased to pay back the loan. Grameen believes that all human beings, including the poorest, are endowed with endless potential. Grameen system encourages the borrowers to adopt some goals in social, educational and health areas.
Micro Credit Strategy Objective: To promote financial independence among the poor. Loans offer the people the opportunity to take initiatives in business and agriculture Offered credit to many poor, women, illiterate and unemployed people. Access to credit on reasonable terms such as the group of lending system and weekly installment payment Charity is not the answer to poverty Encourages all borrowers to become savers
Micro Credit Strategy Known for “Solidarity Lending” Each borrower should belong to a 5 member group Not required to give any guarantee for a loan to its members No form of joint liability Incorporates a set of values embodied in Bangladesh by Sixteen decisions High Payback rates- over 98% More than half of its borrowers in Bangladesh (close to 50M) have risen out of acute poverty As of 2011, 83M borrowers, 97% women
Why Women? Women in Bangladesh are neglected by society They want to empower women through opportunity of self employment and the access to money Studies show that women are more likely to use their earnings to improve their living situations and to educate their children
95% to 98%Repayment Rate Higher repayment rates than in US Poor entrepreneurs know that microfinance is a tool to elevate them from poverty that’s why most of them are focused in repaying their debts
How Members are accepted? 16 DECISIONS 1. We shall follow and advance the four principles of Grameen Bank --- Discipline, Unity, Courage and Hard work – in all walks of out lives. 2. Prosperity we shall bring to our families. 3. We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest 4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus. 5. During the plantation seasons, we shall plant as many seedlings as possible. 6. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health 7. We shall educate our children and ensure that they can earn to pay for their education. 8. We shall always keep our children and the environment clean. 9. We shall build and use pit-latrines. 10. We shall drink water from tubewells. If it is not available, we shall boil water or use alum. 11. We shall not take any dowry at our sons weddings, neither shall we give any dowry at our daughters wedding. We shall keep our centre free from the curse of dowry. We shall not practice child marriage. 12. We shall not inflict any injustice on anyone, neither shall we allow anyone to do so. 13. We shall collectively undertake bigger investments for higher incomes. 14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her. 15. If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline. 16. We shall take part in all social activities collectively.
Micro Credit Programs Village Phone Programs Women entrepreneur can start a business providing wireless payphone service in rural areas In Bangladesh 2004 Petersburg Prize EUR 100,000
Micro Credit Programs Struggling Members Program Distributing small loans to beggars New programs targeted to beggars Interest free and long payment terms