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In short
The Grameen Bank is an financial organization founded by Mohammad Yunus and operating in Bangladesh. It lends to very-low income borrowers who do not qualify for loans from conventional banks. The principle has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust, accountability, participation and creativity where no collateral is needed and repayment is based on an honor system using what is now known as microcredit.
Microcredit Indepth
The word "microcredit" did not exist before the seventies. Now it has become a buzz-word among the development practitioners. In the process, the word has been imputed to mean everything to everybody. No one now gets shocked if somebody uses the term "microcredit" to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from the savings and loan associations, or from credit unions, or from money lenders. When someone claims microcredit has a thousand year history, or a hundred year history, nobody finds it as an exciting piece of historical information.
Grameen's structure
In 1974, Mohammad Yunus, then an economics professor recently returned from the United States, lent a total of US$27 to 42 villagers who made bamboo furniture. The loans, which were all paid back, allowed them to cut out the middlemen and purchase their own raw materials. Yunus believed these small loans are an effective means of alleviating poverty and stimulate the economy from the bottom up.
Emboldened by his experiment, Yunus won government approval in 1983 to open Grameen, Bengali for "rural." The government of Bangladesh owns 6% of the bank while the borrowers own the other 94 percent. Since that time, the bank has handed out US$ 5.72 billion (€4.56 billion) since its inception to 6.61 million people and been repaid US$ 5.07 billion (€4.04). Women account for 97 percent of the loan takers. Grameen Bank has 2,283 branches, works in 73,609 villages and has a total staff of 18,795.
Anyone can qualify, but they must belong to a five-member group. Once the first two members begin to pay back their loans, the others can get theirs. While there is no group responsibility for returning the loans, the bank believes it creates a sense of social responsibility, ensuring all members pay pack their loans.
Other Grameen entities
Besides the bank, the Grameen foundation has several divisions.
- The Grameen Trust, founded in 1989,
- The Grameen Fund (1994) which is a not-for-profit emphasis is on providing finance to ventures that are risky or technology.
- The Grameen Communication branch has been providing complete systems solution through developing software products and services, internet services, hardware & networking services and IT education services since its inception in 1997 under the Companies Act, 1994.
- The Grameen Shakti/Energy, which is a power company whose purpose is to supply renewable energy to unelectrified villages in Bangladesh.
- The Grameen Shikkha/Education, established in 1997, promotes mass education in rural areas, provide financial support in the form of loans and grants for the purpose of education, use IT for alleviation of illiteracy and development of education, promote new technologies and innovate ideas and methods for development of education.
- The Grameen Telecom empowers rural population with a high-tech device. It has planned to provide GSM 900/1100 cellular mobile phone service up to 100 million rural inhabitants in 68,000 villages of Bangladesh by financing 60,000 members of Grameen Bank to provide village pay phone service and providing direct phones to potential subscribers.
- Grameen Knitwear Limited, located in the vicinity of Dhaka, the capital of Bangladesh, is a 100% export oriented company specializing in knitwears.
- Grameen Cybernet has been Bangladesh's leader in Internet service provision since it commenced operation in July 1996.
The Grameen effect !
Grameen Bank's positive impact on its poor and formerly poor borrowers has been documented in many independent studies carried out by external agencies including the World Bank, the International Food Research Policy Institute (IFPRI) and the Bangladesh Institute of Development Studies (BIDS).
Critics of the microcredit concept
The bank claims a 99% repayment rate. According to a recent Grameen survey, such a system has lead 58% of the families of Grameen borrowers to cross the poverty line. But critics are skeptical about the "99%" figure and charge that the system conducts the borrower become dependent on the loans. Yunus has also been criticized for the level of interest rates that climb as high as 20 percent for loans to businesses that generate income.