Executive summary :
The Grameen Bank of Bangladesh created the model for large-scale “micro lending” in the developing world, in the process becoming an institution known and respected internationally for a creative and effective approach to poverty alleviation. Grameen’s willingness to make extremely small loans at relatively modest rates of interest to borrowers without traditional forms of collateral has allowed it to reach nearly six million borrowers in Bangladesh—one of the world’s poorest countries—and to serve as exemplar for other micro-lenders serving the poor throughout the world. What’s more, its founder, Muhammad Yunus, became internationally-known for his management of the organization; Yunus became among the best-known of what is said to be a new breed of leader, a “social entrepreneur” who sought to combine sound financial practices and income generation with social objectives.
This case tells the story of how Grameen grew from a small local experiment into a major force in Bangladesh serving more than 60,000 villages. It describes the stages of that growth—from a small organization staffed by volunteers to a sophisticated one with more than 17,000 employees. It tracks Grameen from its origins as a part of the state-owned bank system in Bangladesh to its role as a major financial organization, with special attention to the forms of financing which made its growth possible and management approaches employed to ensure that high quality customer service and reliable loan repayment continued as Grameen expanded its reach. It presents and invites discussion of the view expressed by its founder that Grameen represents an important new type of organization, a hybrid he described as a “non-loss business” employing the methods of a for-profit venture but with social objectives.
Bangladesh ….where the magic happened :
Bangladesh covers 144,000 square kilometers. Most of this tropical and very flat country lies in the deltas of large rivers originating in the Himalayas. Every year over a third of the land is flooded during the monsoon season. Other natural catastrophes that regularly plague Bangladesh and hinder the economic development of the country are droughts and cyclones. About 141 million people live in Bangladesh. Half the population is less than 21.5 years old. The population grows by nearly 3 million each 63 year. The average life expectancy is a bit less than 62 years. 53 percent of the males and 32 percent of the females 15 years or older can read and write. Bangladesh is one of the poorest countries in the world. A third of the people live in poverty. Unemployment – including under-employment – measures 40 percent. Two thirds of the people who have jobs work in the agriculture industry. In 2000 Bangladesh received 1.5 billion dollars in international economic aid. Economic growth is encouraging, at a low level of 5 percent per year.
Mohamed Yunus from Jobra to Nobel prize …. flash points : Professor Muhammad Yunus was born on June 28, 1940. He is the founder and managing director of Grameen Bank, which pioneered microcredit. This is a method of banking where small loans are given to the poor, mostly to women, without collateral, for income-generating activities, to help them get out of poverty. The third of nine children, Prof Yunus was born in the village of Bathua, Chittagong. His father was Haji Muhammad Dula Mia Shawdagar, a jeweler, and his mother was Sofia Khatun. In 1944, his family moved to the city of Chittagong, and he studied at Lamabazar Primary School. Later, he passed the matriculation examination from Chittagong Collegiate School. During his school years, he was an active Boy Scout, and travelled to West Pakistan and India in 1952, to Europe, the USA, and Canada in 1955 and to the Philippines and Japan in 1959, to attend Jamborees. In 1957, he enrolled in the Department of Economics at Dhaka University and completed his BA in 1960 and MA in 1961.
Following his graduation, Prof Yunus joined the Bureau of Economics, Dhaka University. Later he was appointed as a lecturer in economics in Chittagong College in 1961. In 1965, he was offered a Fulbright scholarship to study in the United States. He obtained his PhD in economics from Vanderbilt University in the US in 1969. From 1969 to 1972, he was an assistant professor of economics at Middle Tennessee State University in Murfreesboro, TN.
During the Liberation War of Bangladesh in 1971, Prof Yunus founded a Citizen’s Committee in Nashville, TN, published a newsletter named Bangladesh Newsletter, and ran the Bangladesh Information Center in Washington DC with other Bangladeshis living in the US, to raise support for the liberation of East Pakistan and lobby at the US Congress to stop military aid to Pakistan. Inspired by the birth of Bangladesh in 1971, Prof Yunus returned to that country in 1972, and joined the Economics Department of University of Chittagong after a brief spell in the Planning Commission.
He became actively involved with poverty reduction after observing the famine of 1974, and established the Rural Economics Programme as part of the department’s academic programme. In 1975, he organized Nabajug (New Era) Tebhaga Khamar (three share farm), which the government later adopted as the Packaged Input Programme. In 1976, during visits to very poor households in the village of Jobra near Chittagong University, Prof Yunus discovered that very small loans could make an enormous difference to a poor person’s life. Jobra women who made bamboo furniture had to take out loans at usurious rates for buying bamboo, and had to give up their profits to the moneylenders. Shocked by this reality, he lent $27.00 from his own pocket to 42 people in the village to help them pay back their loans to the loan sharks and be free. When he approached traditional banks to lend to the poor, he found that they were not interested as the poor were not considered creditworthy.
Prof Yunus strongly believed that, given the chance, the poor would repay the borrowed money, and that it would help them work their way out of poverty. After many efforts, he finally succeeded in securing a credit line from Janata Bank, offering himself as the guarantor, for his project to lend to the poor in Jobra in December 1976. On October 2, 1983, the project was converted into a fully fledged bank named Grameen Bank (Village Bank), specializing in making small loans to the poor. As of May 2008, Grameen Bank (GB) has 7.5-million borrowers, 97% of whom are women. With 2515 branches, GB provides services in 82 072 villages, covering more than 97% of the villages in Bangladesh. It has lent over $7-billion to poor people since its inception and the repayment rate has been near 100%.
All its money comes from the depositors of the bank. Prof Yunus has also founded a number of companies in Bangladesh to address diverse issues of poverty and development. These include Grameen Phone (a mobile telephone company), Grameen Shakti (an energy company), Grameen Fund (a social venture capital company), Grameen Textile, Grameen Knitwear, Grameen Education, Grameen Agriculture, Grameen Fisheries and Livestock, Grameen Business Promotion, Grameen Danone Foods Ltd, and Grameen Healthcare Services. He is also the founder of Grameen Trust, which extends the Grameen microcredit system all over the world.
In October 2006, Muhammad Yunus was awarded the Nobel Peace Prize, along with Grameen Bank, for their efforts to create economic and social development. The Norwegian Nobel Committee stated: “Muhammad Yunus has shown himself to be a leader who has managed to translate visions into practical action for the benefit of millions of people, not only in Bangladesh, but also in many other countries. Loans to poor people without any financial security had appeared to be an impossible idea. From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty.” Prof Yunus became the first Bangladeshi and third Bengali to get a Nobel Prize.
He has won a number of other awards, including the Ramon Magsaysay Award, the World Food Prize and the Sydney Peace Prize. Within Bangladesh, he has received the President’s Award (1978), Central Bank Award (1985), and Independence Day Award (1987), the highest national award. The Bangladesh government brought out a commemorative stamp to honor his Nobel award. Prof Yunus was inducted as a member of the Legion d’Honneur by President Chirac of France.
In January 2008, Houston, Texas declared January 14 as Muhammad Yunus Day. He is one of the founding members of the Global Elders, chaired by Nelson Mandela. He was the commencement speaker at MIT on June 6, 2008. Prof Yunus has been awarded 28 honorary doctorates and serves on the board of many national and international organizations. He is the author of two New York Times bestsellers – Banker to the Poor (1997) and Creating a World Without Poverty, Social Business and the Future of Capitalism (2008). Muhammad Yunus is married to Dr Afrozi Yunus, and has two daughters, Monica and Deena.
The beginning of Gramen journey :
When Mohamed yunus went back to Bangladesh from US after finishing his PhD and working several years he started to spent as much time as possible among the people of Jobra, trying to learn what was holding them back.
One village woman named Sufiya Begum who taught him the nature of this problem. Like many village women, Sufiya lived with her husband and small children in a crumbling mud hut with a leaky thatched roof. Her husband worked as a day laborer, earning the equivalent of a few pennies for a day’s work—when any work at all was to be had. To provide food for her family, Sufiya worked all day in the muddy yard of her home making bamboo stools—beautiful and useful objects that she crafted with noticeable skill.
Yet somehow her hard work was unable to lift: her family out of poverty.Like many others in the village, Sufiya relied on the local moneylender for the cash she needed to buy the bamboo for her stools. But the moneylender would give her the money only if she agreed to sell him all she produced at a price he would decide. Between this unfair arrangement and the high interest rate on her loan, she was left with only two pennies a day as her income.
To response to that Mohamed yunus decided to make a list of the victims of this money lending business in the village of Jobra. The list had the names of forty-two victims who had borrowed a total amount less than $27 (U.S.). Immediately he offered the equivalent of those twenty-seven U.S. dollars from His own pocket to get these victims out of the clutches of those moneylenders. The excitement that was created among the people by this small action got him further involved in it.
So he decided to try to persuade the bank located on the university campus to lend money to the poor. But the bank said the poor were not credit-worthy. They had no credit histories and no collateral to offer, and because they were illiterate they couldn’t even fill out the necessary paperwork.
After all his efforts, over several months, failed, he tried a new tack. He offered to become himself as a guarantor for the loans to the poor. In effect, the bank would lend him the money, and he would turn around and give it to the poor villagers. The bank agreed to this plan. And when he started lending funds to the villagers, he was stunned by the result. The poor paid back their loans, on time, every time!
in 1977, Mr. A. M. Anisuzzaman, the managing director of one of the largest national banks in the country, the Bangladesh Krishi (Agriculture) Bank, became enthusiastic about the idea. He agreed to have a special bank branch created in Jobra to test the idea of lending to the poor. This was the first time that the students, who had been working as “bankers” on a volunteer basis, would have steady, formal employment. It was also the first time that the name Grameen (which means “village”) was used : they called the little project the Experimental Grameen Branch of the Agriculture Bank. It enjoyed the same kind of success as our earlier, informal efforts, including nearly perfect repayment rates.
The bankers started making excuses such as “The people you are serving must not be really poor,” some would say. “Otherwise, how can they afford to repay the loans?” ” your program must be successful because you and your students are so deeply involved with the clients. This isn’t banking, it’s babysitting! . Still other excuses were offered. “Your bank is too unconventional. You don’t have proper internal controls, financial benchmarks, or auditing procedures. Eventually your staff will begin cheating you. “The problem is that you are a professor, not a banker.”
The truth was that the “real bankers” wanted nothing to do with making tiny loans to the poor. Then Yunus decided to create a separate bank for the poor, one that would give loans without collateral, without requiring a credit history, without any legal instruments. Moreover, he kept on appealing to the government to allow us to convert the project into a special bank under a separate law. Finally, he succeeded. In 1983, the bank for the poor was born within the framework of a new law created especially for the purpose. They named it Grameen Bank.
The uniqueness of Gramen bank :
Grameen Bank has challenged the financial concept. It dared to give the poorest people bank credit. They included poor women who had never in their lives even touched any money. Grameen Bank expanded and reached more and more people. Today, it gives loans to over seven million poor people, 97 percent of whom are women, in 78,000 villages in Bangladesh. Since it opened, the bank has given out loans totaling the equivalent of $6 billion (U.S.). The repayment rate is currently 98.6 percent. Grameen Bank routinely makes a profit, just as any well-managed bank should do. Financially, it is self-reliant and has not taken donor money since 1995. Deposits and other resources of Grameen Bank today amount to 156 percent of all outstanding loans. The bank has been profitable every year of its existence except 1983, 1991, and 1992. And most significant of all, according to Grameen Bank’s internal survey, 64 percent of our borrowers who have been with the bank for five years or more have crossed the poverty line.
Rethinking the conventional Economic model :
Yunus Model involves rethinking many other assumptions in mainstream economics. One of them the fact that economic theory sketches a radically oversimplified image of human nature, assuming that all people are motivated purely by the desire to maximize profit. It only takes a few seconds of thought about the people we all know in the real world to realize that this is simply untrue. A second is the assumption that the solution to poverty lies in creating employment for all—that the only way to help the poor is by giving them jobs. This assumption shapes the kinds of development policies that economists recommend and that governments and aid agencies pursue.
Donor money is poured into massive projects, mostly government run. Private capital is invested in big enterprises that are supposed to jump-start local and regional economies, employing thousands of people and turning the poor into affluent taxpayers. It is a nice theory—except that experience shows that it doesn’t work because the necessary supportive conditions don’t exist. This is why Grameen Bank offers the poor not handouts or grants but credit—loans they must repay, with interest, through their own productive work. This dynamic makes Grameen Bank sustainable. Loan repayments supply funds for future loans, to the same individuals or to new bank members, in an ever-expanding cycle of economic growth. It also helps the poor demonstrate to themselves that they can change their world for the better—and it gives them the tools to do just that, for themselves. Supporting the social agenda :
One important way to support the social agenda in Bangladesh is through the Sixteen Decisions. This is a set of social and personal commitments that have evolved over time, initially through ideas that surfaced at intensive sessions among Grameen Bank borrowers and staff during the early 1980s. Versions of the Sixteen Decisions were created at various bank branches and centers around the country. These were shared with other branches over time. By 1984, they were accumulated into what became known as the Sixteen Decisions. They have become an integral part of the Grameen program. Every new member of the bank is expected to learn the Sixteen Decisions and to pledge to follow them.
The Sixteen Decisions:
1. The four principles of Grameen Bank—Discipline, Unity, Courage, and Hard Work—we shall follow and advance in all walks of our lives. 2. We shall bring prosperity to our families. 3. We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses as soon as possible. 4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus. 5. During the plantation season, 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 boil water before drinking or use alum to purify it. We shall use pitcher filters to remove arsenic. 11. We shall not take any dowry at our sons’ weddings; neither shall we give any dowry in our daughters’ weddings. We shall keep the center 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. For higher income we shall collectively undertake bigger investments. 14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help. 15. If we come to know of any breach of discipline in any center, we shall all go there and help restore discipline. 16. We shall take part in all social activities collectively.
As these examples illustrate, Grameen Bank is much more than a financial institution. They are creating a completely new generation that will be well equipped to take their families way out of the reach of poverty. They want to make a break in the historical continuation of poverty. Grameen Bank is a tool for doing so.
Why Grameen Lends Mainly To Women
From the beginning, Grameen wanted to have half of their borrowers be women. This was partly because, in the 1970s in Bangladesh, Yunus observed that less than 1% of all borrowers were women. If a woman wanted to borrow, the bank would insist that they must discuss the loan with their husband. Husbands generally wanted to control the money. In Bangladesh, as in much of the world, women are often taught that only the husband can and should handle the money. Husbands and religious leaders often actively oppose having a Grameen bank in their village.
As the years went by, however, experience showed that loans to women help eliminate poverty faster than loans to men. A woman’s focus is her family, and she uses the money she earns to benefit the household and to prepare her children to lead better lives. What men do with the money they earn often does not benefit the family. Women also pay more attention and make their loan payments more regularly.
The Grameen Bank grants 94 percent of its microcredit to women.
Different loan products :
Grameen Bank, like any other business, has had to evolve and adapt over time in order to serve its customers and their needs most effectively. Grameen Bank offers four different loan products at four different interest rates. All are simple interest, unlike the compound interest charged by conventional banks. The amount collected from the borrower in interest can never exceed the principal amount. Even if a borrower takes twenty years to repay her loan, she won’t pay a total of more than twice the sum she borrowed.
The basic income-generating loan—the classic product with which they started the program back in 1976—is offered at a rate of 20 percent. GB charge 8 percent for housing loans. Under a program that launched in the year 2000, GB offer student loans at a rate of zero percent during the study period, 5 percent after finishing the degree.
And in 2004 GB introduced a program that offers credit to the very poorest—beggars None of Grameen Bank’s ordinary rules apply to the beggars. The loans—typically in an amount around $15—are interest-free, and the borrowers can pay whatever amount they wish, whenever they wish. The struggling members use the loan to carry small merchandise such as snacks, toys, or household items, when they travel from house to house begging. They soon figure out which houses are best for selling to, which for begging.
Classifying microcredit programs :
Grameen borrowers are self-employed entrepreneurs – after ten years a third of them have permanently escaped poverty and another third have worked their way up to the poverty threshold.
Charity makes people passive:
Yunus not only criticizes that assistance money often gets absorbed in the wrong channels; he is against the principle of charity as a permanent means of support. “One shouldn’t just give people money. That is usually the wrong way to help. Free money makes the recipient passive and reinforces his belief that he should just sit there with his hand out. To give a beggar money is just another way of telling him to disappear. This type of help ensures only that one must later help even more. If we really want to solve the problem of poverty, we must get involved with the people it strikes.” Grameen is not a charity. The loans may be rescheduled, but are never cancelled even when Bangladesh suffers disaster by the frequent tempests. “Even if it’s only half a cent per week, our members must make their loan payments. This way they keep their pride and their dignity.”
Microcredit Spreads Internationally
In 2006, Yunus received the Nobel Peace Prize for his work. By this time, Grameen type banks had been started in many countries, including Malaysia, the Philippines, Poland, India, Vietnam, China, Latin America, and the USA. Since 1997, there have been a number of Microcredit Summits. At the 1997 Summit, a goal was set to reach the 100,000 poorest families with Microcredit. Based on the last figures available, this goal was probably reached in 2007.
From Microcredit to Social business :
Yunus continues his creativity and then he developed the concept of Social business which is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. The company must cover all costs and make profit, at the same time achieve the social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy, etc. in a business way. The impact of the business on people or environment, rather the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business. The objective of the company is to achieve social goal/s
Seven Principles of Social Business :
* Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization
* Financial and economic sustainability
* Investors get back their investment amount only. No dividend is given beyond investment money
* When investment amount is paid back, company profit stays with the company for expansion and improvement
* Environmentally conscious
* Workforce gets market wage with better working conditions
* …do it with joy
After almost twenty years of this experimentation, Yunus operates twenty-five organizations, often described collectively as “the Grameen family of companies.” (See the table below for a complete list.)
The Concept of Social Business Vs Modern Economic Theories:
Mohammad Yunus in his Nobel speech came up with a solution to create a poverty-free world called “social business”. He defined the social business as “Profit would be ploughed back into the company to expand its outreach and improve the quality of its product or service. A social business will be a non-loss, non-dividend Company” (Yunus, 2006).
The idea of social business sounds very good but seems to be very unrealistic at our present institutional framework. Firstly, in this capitalist world, we can not expect business without profit maximization objective. This objective is the key to competition or dynamicity in the market. If it is a low profit or no-loss business, then what will attract the investors?
Secondly, the decision of re-investment depends on whether it will be beneficial for the investors or not. On the other hand, a company has its optimum size depending on its business area, company culture, management quality etc. An investor must have right to take his dividend. An entrepreneur or investor must not keep all his money is one basket. Yunus also blamed our economic and social system and conceptual frame-work and asked for a change. Unfortunately, it is impossible to change our existing mindset. Social business is the Solution :
Yunus says : We started out by assuming a world with two kinds of people, one kind wants to make money, the other kind wants to do good. But in the real world there are not two types of people, but only one type of people with two types of interests, in varying proportions. Important thing is that we must recognize these two types of interests in our business world, because it is important for the mankind and the planet. This recognition will lead to building appropriate conceptual and institutional frameworks. Introducing SBE into the market place will be the most important part of this recognition process. Let us make a beginning.
The Nobel Peace Prize 2006 was awarded jointly to Muhammad Yunus and Grameen Bank “for their efforts to create economic and social development from below”
Political activity :
In early 2006 Yunus, along with other members of the civil society participated in a campaign for honest and clean candidates in national elections. He considered entering politics in the later part of that year. On 11 February 2007, Yunus wrote an open letter, published in the Bangladeshi newspaper Daily Star, where he asked citizens for views on his plan to float a political party to establish political goodwill, proper leadership and good governance. In the letter, he called on everyone to briefly outline how he should go about the task and how they can contribute to it.Yunus finally announced the foundation of a new party tentatively called Citizens’ Power (Nagorik Shakti) on 18 February 2007.
There was speculation that the army supported a move by Yunus into politics. On 3 May, however, Yunus declared that he had decided to abandon his political plans following a meeting with the head of the interim government. On 18 July 2007 in Johannesburg, South Africa, Nelson Mandela, and Desmond Tutu convened a group of world leaders to contribute their wisdom, independent leadership and integrity together to the world. Nelson Mandela announced the formation of this new group, The Global Elders, in a speech he delivered on the occasion of his 89th birthday.
Since late November 2010, several allegations have been made against Yunus. These allegations started when a documentary, titled “Caught in Micro Debt” was aired on Norwegian television on 30 November 2010, criticizing microcredit and blaming Grameen Bank on several points . They developed during a time when larger questions were being raised about the benefits of microfinance and its effects on poverty alleviation, particularly in regards to several microfinance institutions (MFIs) in India and Mexico . The allegations against Yunus turned political in nature when the government of Bangladesh who reportedly has viewed Yunus as a political rival since he looked into setting up a political party in 2007 suddenly turned against him and the concept of microfinance” .
The Government announced a review into the activities of Grameen Bank on 11 January 2011 ; this review is currently ongoing. In February, several international leaders, such as Mary Robinson, stepped up their defense of Yunus through a number of efforts, including the founding of a formal network of supporters known as “Friends of Grameen” . On 15 February 2011, the Finance Minister of Bangladesh, Abul Maal Abdul Muhith, declared that Muhammad Yunus should “stay away” from Grameen Bank while it is being investigated. On 3 March 2011, Muhammad Yunus filed himself a writ at the High Court challenging the legality of the decision from the Bangladeshi Central Bank to remove him as Managing Director of Grameen Bank .
The same day, nine elected directors of Grameen Bank filed a second writ petition . The High Court hearing on these petitions, initially planned on 6 March 2011, was postponed. On 8 March 2011, the Bangladeshi Court finally confirmed the dismissal of Yunus as Grameen Bank Managing Director . Following Hillary Clinton, John Kerry expressed his support to Yunus in a statement released on 5 March 2011 and declared that he was “deeply concerned” by this affair. In Bangladesh, thousands of people protested and formed human chains on 5 March 2011 to support Yunus .
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