Micro-credit : programs that extend small loans or wider range of financial services to poor people to foster self-employment and income generations and improve their living standards .
Micro-finance : programs that provide credit for self-employment and other business and financial services, includes both credit and savings aspects of the program.
What is Micro-credit…
Main features of micro-credit…
Micro-credit generally involves :
Small loans, for both working capital and assets
Collateral free, substituted by group guarantee or compensatory savings
Access to repeat and larger loans
Intensive supervision and close monitoring
Loan period generally for one year, may go up to 3 years
Options available for weekly/monthly installment payment
Can combine social development with financial intermediation
Professor Muhammad Yunus, founder of the globally renowned Grameen Bank and architect of Grameen Model. Joint winner of 2006 Nobel Prize Winner for Peace Architect of Grameen Group Model
About Muhammad Yunus
He was born in an obscure village in Chittagong in June, 1940
In 1974, he was the head of the Economics Dept. at Chittagong University
At that time, there was a famine, and he established a rural economic program
In 1975, he also began a Gram Sarkar Programme, it acted as a fourth layer to the government, however it had to be shut as it was declared illegal and unconstitutional
Yunus, was unable to convince bank managers to lend money to the rural poor without collateral security. In 1976 he launched an action research project to examine the possibility of designing a credit delivery system to provide banking services targeted at the rural poor.
extend banking facilities to poor
eliminate the exploitation of the poor by money lenders
create opportunities for self-employment
bring the disadvantaged, mostly the women from the poorest
households, within the fold of an organizational format
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 Project Objectives were:
Designing credit delivery system to provide Banking Services targeted at the rural poor who were capable of self sustenance (initially started with funding women initiatives)
Organizing the un-organized sector largely dominated by the corrupt money lenders
Bring the disadvantaged, mostly the women from the poorest into the financial umbrella
Year 1976-79: Started with a pilot project in District Jobara, Bangladesh
He made his first loan of $27 to 42 women so that they could expand their bamboo business
Year 1980-83: Spread across the country with the help of Central Bank and the Nationalized Banks
Year 1983: Transformed into an Independent Bank by the Government Legislation
Grameen Bank vs Conventional Banks
To bring economic and social change to the poor.
Based on trust
Looks at what the borrower can have
Located in rural areas
The bank goes to the customer
Flexible payment scheme
Most owners and borrowers are poor women
Loans are for productive activity, not consumption
To make profit
Based on collateral
Looks at what the borrower already has
Located in urban areas
Customers have to go to the bank
Strict payment scheme
Most owners and borrowers are wealthy men
Loans could be used for consumption or other activities.
Structure of Grameen Bank Head Office Zonal Offices Area Offices Branches Centers Groups In Villages 1 ZO for 8 Area Offices 1 AO for 8 10-12 Branches 1 Branch for 50-60 Centers 1 Center for 6-8 Groups Each Group will have 5 members
How it functions
5 member group is formed, they must be neighbors but not relatives.
Group approves all loan requests, but liability lies with the individual.
8 Groups to a Center.
Lending is in the order of 2:2:1 (leader being the last).
Close supervision of credit by the group as well as the bank staff.
Group meets once in a week to plan out loan repayment.
Stress on credit discipline and collective borrower responsibility or peer pressure.
Very small loans given without any collateral, no legal instrument, no joint group guarantee or joint liability
Loans repayable in weekly installments spread over a year .
Eligibility for a subsequent loan depends upon repayment of first loan
Loans are given to Individual for quick income generating activities which employ the skills that borrowers already posses.
Interest rate varies between 15-24 % p.a. on flat basis and on a weekly basis.
How it functions (contd)
It is compulsory for every member to save one Taka per week which is accumulated in the Group Fund.
This account is managed by the group on a consensual basis, thus providing the members with an essential experience in the collective management of finances.
The amount in the Fund is deposited with Grameen Bank and earns interest.
A member can borrow from this fund for consumption, sickness, social ceremony or even for investment (if allowed by all group members).
For what purposes loans are granted
Average loan size is $120 and must be used for business venture
Self Employment- Income generating activities.
Credit for building sanitary latrines
Credit for installation of tube wells that supply drinking water and irrigation for kitchen gardens
Credit for seasonal cultivation to buy agricultural inputs
Loan for leasing equipment / machinery, i.e cell phones purchased by Grameen Bank members
Finance projects undertaken by the entire family of a seasoned borrower.
Value Creation & Impact
Eliminate the exploitation of the poor by money lenders by alternative financing facilities
Create opportunities for self-employment
Households, within the fold of an organizational format
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
Members : 6.83 million – 96 % are women, 1,086,744 groups Area Coverage : 73,609 villages through 121,755 centres, 2283 branches and 20,233 staff Deposits : Tk 41.22 b – 62 % from members , rates 8.5 to 12.0% Loans : Cumulative disbursement - Tk 301.72 b Loan Outstanding – Tk 32.66 b Annual disbursement – Tk – 49.46 b Vital Statistics Data as of Nov 2006. Source- Grameen Foundation
Sustainability Loan Recovery Rate : 98.91 per cent ROI on loans – Income generating activities – 20 % Housing Purposes – 8 % Student loan – 5 % All interest rate are simple interest & applied on declining basis. Interest collected not to exceed Principal After 1995 the Bank had decided not to receive anymore donor funds. It has become self reliant.
1. We shall follow and advance the four principles of Grameen Bank --- Discipline, Unity, Courage and Hard work – in all walks of our 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.
10 Indicators of measuring social impact
Family lives in a house with a tin roof
Family members drink pure water
All children in the family over 6 years go to school
Minimum weekly loan installment in Tk 200 or more
Family uses sanitary latrine
Family members have adequate clothing for everyday use
The borrower maintains an average balance of 5000 Tk
Family can take care of health
Family has no difficulty having 3 square meals a day
Family has sources of additional income
Two forms of replication
Extension of existing organization
Setting up new organization
Primary requirements of replication and scaling up:
1. Requirement of the service provided by the bank
2. Availability of required financial and governmental backing
3. Sustainability of the model
Advantages of scaling up of the same organization
1. With the growth of the organization its capacity to give loans of higher amount increases
2. The bank can employ better fund management techniques
3. The bank can employ the use of technology in its operations
4. The bank can diversify its operations into other areas that are of social importance (eg. The gramin family of organizations)
5. The bank can utilise the government policies in a more effective way
Requirement of setting up new organizations
1. Faster replication
2. world reach
3. Customization of policies according to the specific needs of the people of the country
4. More flexibility than one single organization
5. As the main aim is social welfare, too much power in the hands of a single organization is dangerous
Specific requirements for scaling up through setting up new organizations
1. Sufficient space of operations
2. Trust in the model
3. Availability if entrepreneurs to take the cause further
4. Is the model sustainable for organizations having smaller operation
Therefore actual scenario:
As of 31 December 2005: 3133 micro credit institutions are reaching 113.26 million clients. 68.99 million are women.
The Micro Credit Summit, held in 1997, adopted the goal of reaching 100 million families by the year 2005.
2006 summit goal à to reach 175 million people by 2015.
Some Grameen Replicators in India
Share Micro Fin Ltd, Hyderabad
Swyam Krishi Sangam, Hyderabad
Cashpor Micro Credit, Varanasi
Grameen Koota, Bangalore
Grameen family of enterprises
Grameen started to diversify in 1980 and these interests grown into separate organizations-:
Grameen Communications- not for profit IT company.
Grameen Shakti- promote and develop renewable energy technology.
Grameen phone- GSM based cellular operator
Grameen Fund- to provide capital to SMEs
Grameen Trust- Aid in replication of the model internationally
Grameen Danone Foods -joint venture between Grameen Bank and French food company
“ It’s not people who aren’t credit-worthy. It’s banks that aren’t people worthy.” Muhammad Yunus
Governance of Grameen Bank Governance : Managed by 13 Member Board comprising 9 Members from borrower shareholders, 3 nominees of Government, and 0ne Managing Director