1. Muhhamed Yunus
Yunus is the 1st Nobel Prize winner from
Bangladesh
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Founder of Grameen (Rural) Bank in 1976
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Started microfinancing by giving out a loan of
$27 to 42 women in a village in Bangladesh.
World’s Banker to the Poor
“If society was structured for self-employment, there would be no
reason to fear being poor.” - Dr. Muhammad Yunus
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2. Microfinancing
• Supply of capital loans, consumer credit, savings,
insurance & other basic financial services to low income
households.
• People need to run their businesses, build assets, stabilize
consumption & shield themselves against risks.
•It’s a service in which the poor people desire & are willing
to pay for.
•Loans are typically less than $125 made to the rural poor
who normally do not qualify for traditionally banking
credit.
“say NO to poverty”
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3. • Microfinancing is very beneficial; it is a combination of
financial and non-financial education.
• Microfinancing used to be unknown, but it is now
worldwide.
• World Bank estimates that there are 7,000
microfinance institutions worldwide.
Microfinancing (continued)
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4. Micro-Credits & Micro-Banks
CREDITS
• The Grameen transactions take place at the village level, usually in a local hall or
temple.
• The borrowers will use a loan to buy tools and equipment to set up on their own.
BANKS
• Banks lend money to individual entrepreneurs in groups of five, each member
being responsible for their own loans before any one individual can re-apply for the
next level of funding.
• they use each other as collateral for their loans.
• This proven method has boasted over a 95% success rate in repayment and
flourishing businesses.
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5. Microfinancing Services
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6. _______________________________________________________________________
Why Targeting Women?
“One billion people in the world are illiterate and two thirds of those
people are women.”
- Muhammed Yunus
“One billion people in the world are illiterate and
two thirds of those people are women.”
-
Muhammed Yunus
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7. General Information
Micro-entrepreneurs:
• Don’t need collateral
• Small and shorter loans
• Group borrowing
– Reputation and Peer pressure
• Some criticism
Microfinance Institution:
• Higher operating expenses
– Rural costs are higher than urban
costs
• High transaction costs
– Because of the size of the loans
• Higher interest rates
Overall:
• Improves employment
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8. Different from traditional credit
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9. Broad Objectives
• To provide equity finance to the entrepreneurs
without capacity to mobilize capital and/or collateral
trying to setup innovative projects which holds
promise for future growth and have direct or indirect
impact on poverty alleviation, with preference to
businesses concentrating in information and
communication technologies and bio-engineering;
• To provide loans, equity or both to risky ventures
using untested technology and/or producing
untested products, either to new companies or
existing companies for balancing, modernization or
expansion;
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10. •
• To assist in management buy-ins or buy-outs of
existing companies needing finance and
management support, provided that
activities/products of such companies are socially
desirable and bring benefits to the poor; and
•
• To promote or develop enterprises having prospects
for export or import substitution that will use
indigenous raw materials, provide extensive
employment to the rural poor and/or help upgrade
the skills of the rural or urban poor
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11. Objectives of Grameen Bank
• 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".
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12. Mission
• Grameen Fund is dedicated to promoting,
managing and financing various enterprises,
which aim to create wealth for poverty
alleviation in the country.
• Grameen Fund's main strategy lies in venture
capital finance, especially in technology
based ventures. It equally lays stress on
providing collateral free fixed capital and
working capital loans to the micro-
enterprises run by those who are newly
emerging out of poverty.
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13. Successes and Failures
• Floods in 1998 had worst effect :
• 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.
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14. Difficulties faced
• They 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.
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15. Weaknesses in the System
• 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.
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16. Improvements in the System
• Pilot-tested the system quietly in a few
branches to fine-tune the design; tried
again in larger number of branches;
reworked it; and in the end, came up with
the architecture of a new system that all
liked
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17. Staff Participation
• All the 12,000 staff participated very actively in
designing the product at all the stages .
• Some were critical in the beginning, but by the
time it was ready, everybody loved it.
• The response from the borrowers was so
positive. Borrowers who did not show up at their
centre meetings for years, started showing up to
talk about the new system. Soon they were
signing up to start all over again and repay the
old loans with the accumulated interest. No
reduction in the debt was offered. Still they opted
to return.
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18. • Introduction of the New System became
effective
• Transition took place in more than 41000
villages
• Reluctance was replaced with enthusiasm
• Emergence of Grameen Bank II
• Change over from Grameen Classic
system to Grameen Generalised System
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19. Change
• The general loans, seasonal loans, family loans, and
more than a dozen other types of loans were done away
with; gone is the group fund; gone is the branch-wise,
zone-wise loan ceiling; gone is the fixed size weekly
installment; gone is the rule to borrow every time for one
whole year,
• Even when the borrower needed the loan only for three
months; gone is the high-level tension among the staff
and the borrowers trying to steer away from a dreadful
event of a borrower turning into a "defaulter", even when
she is still repaying; and gone are many other familiar
features of Grameen Classic System.
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20. Poor Always Pay Back
• Central assumption that the poor people always pay back their loans.
• On some occasions they may take longer time to pay back than it
was originally stipulated, but repay they will.. Many things can go
wrong for a poor person during the loan period. After all, the
circumstances are beyond the control of the poor people.
• It is always advocated that micro credit programs should not fall into
the logical trap of the conventional banking and start looking at their
borrowers as some kind of "time-bombs" who are ticking away and
waiting to create big trouble on pre-fixed dates.
• One can benefit enormously by having trust in them, admiring their
struggle for and commitment to have decent lives for themselves.
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21. Loan Products
• Basic Loan : Easy Loan : To meet all
credit needs without any difficulty
• Alternate to this is Flexible Loan with a
fresh repayment schedule . It is
upgradation of Loan
• Housing Loan
• Educational Loan
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23. “Sustainable development continuum for organic
microfarming”
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24. Job Creation
MFI’s do increase jobs in agriculture and transportation,
however they decrease construction and manufacturing
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25. Some negative results…
• Depend on microcrediting for
subsistence
• Engage in "copycat" behavior
– Thus leads to more sellers saturating
the market as more microcredit is made
available.
– low "barriers to entry."
• Largely, subsistence activities with
no prospect of comparative
advantage.
• Child Labor
– Child labor increases current income
but reduces future income
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26. Four Principles
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27. Prosperity to Family
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28. Repair or Construct New Houses
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29. Grow Vegetables – Surplus sell
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30. Plantation Season: Plant many
Seedlings
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31. Small Families , Minimize
Expenditure and Good Health
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32. Educate Children and Pay for the
same
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33. Keep environment Clean
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34. Build and Use laterines
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35. Drink Water from Tubewells or boil
water and drink
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36. No Dowry /No Child Marriages
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37. No Injustice tolrated
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38. Bigger Investments for higher
Income
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39. Ready to Help
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40. Restore Discipline
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41. • MFI’s are successful
• Increase profits and social prosperity
• Decrease risks, thereby increase loans
and the number of investors
• Number of lenders growing at 25% per
year
Is the future bright?
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42. Flexible Loan
• Flexible loan is simply a rescheduled basic loan, with its own set of separate
rules. As long as the borrower keeps her schedule, she moves forward
uninterrupted with ease and comfort on the micro-credit highway. She can pick
up speed according to the rules of the highway. If she drives well she can shift
to higher and higher gear. In other words, on the Grameen highway, a borrower
can routinely upgrade her loan size at each cycle of loan. This is done on the
basis of
• Predetermined rules. She knows ahead of time how much enhancement in loan
size is coming, and can plan her activities accordingly. But if a borrower faces
engine trouble (business slow-down or failure, sickness, family problems,
accidents, thefts, natural disaster, etc.) and cannot keep up with the highway
speed, she has to quit the highway and take an exit on to a detour called a
"flexible loan" or "flexi-loan". This detour will allow her a slower speed
consistent with her situation. Now she can reduce the installment size that she
can afford to pay, by extending the loan period. Taking a detour, however, does
not in any way imply that she has changed the objective of her journey. She
still proceeds with the same objective, but only through a winding narrow road
for a while. Her immediate goal is to overcome her problems
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43. • Under GGS loans are written off as a part of financial
prudence, but the amount is neither forgotten nor
forgiven. GGS treats all written-off loans as recoverable
loans. Under GGS, nearly 90 per cent of written-off loans
and interest will ultimately be recovered, because the
borrowers will pay them back, in their own interest, as
and when opportunity arises.
• Poor people always need money. Their interest is to
keep the door to money open. If this door shuts down for
any reason, they'll do their best to reopen it - if that
option is available. GGS provides this option.
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44. • There are many exciting features in GGS, but I
think removing tension from micro-credit and
permanently establishing full dignity to the poor
borrowers, are the two most important features
of them all. Tension-free micro credit is a great
gift of GGS. Now both sides in the micro-credit
system, the lender and the borrowers, can enjoy
micro-credit, rather than having occasional
nightmares created by one for the other.
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