22 http://www.hul.co.in/ . Accessed June 7, 2013.
23 http://www.hul.co.in/Images/USLP%E2%80%93India-2012-Progress-Report_tcm114-241468.
pdf . Accessed June 7, 2013.
24 This case was prepared by Tim Rolph under the direction of Patricia Werhane, DePaul University.
25 Bornstein, David. 1996. The price of a dream , 342 . New York: Simon and Schuster.
26 http://databank.worldbank.org . Accessed June 1, 2013.
The Grameen Bank and Muhammad Yunus
24The world has always visualized capitalism by saying that the driving force is greed.
But Grameen is a capitalist institution. We are gung-ho about maximizing profi ts. Now you cannot say that greed is moving this bank, so your theory will have a shock coming. 25
– Muhammad Yunus
The year was 1971 and Bangladesh had fi nally become independent from Pakistan.
Bangladesh’s population had almost passed 68 million, with 92 % living in rural areas. With a total land area slightly less than the state of Iowa, many areas of Bangladesh were facing overcrowding, with an average of 514 people per square kilometer. The country’s new government did little to combat the poverty, and even in 2012, with a population of 165 million, 76 % of the population lives on under
$2.00 a day. 26
Muhammad Yunus, a professor of economics at Chittagong University in Bangladesh, had returned to his native country in 1972 after receiving a Ph. D. in Economics from Vanderbilt University. That year Bangladesh was experiencing widespread famine, and Yunus spent a considerable amount of time speaking to people in the village of Jobra near his university. He began experimenting with
27 Bornstein, pp. 31–34.
28 Ibid., p. 39.
29 Ibid., pp. 44–47.
30 Muhammad Yunus, with Alan Jolis. 2007. Banker to the poor , 89. New York: Public Affairs.
several programs and innovations to increase and better manage the yield of the villagers’ crops. But these programs did not benefi t those most in need – the rural landless poor. 27 How could these people be best supported?
A New Model
Most of the population of Jobra was poor and these people had the fewest assets of all, though not because they lacked skills or ambition. They were at the mercy of those who rented them rickshaws, bought and sold them bamboo, and especially those who loaned them money. Once a worker’s operating costs were covered, he or she was often left with an income of several pennies per day. Yunus realized the landless poor lacked access to what they needed to overcome chronic poverty.
Yunus and his university students surveyed the villagers in Jobra to determine how much money would be required for them to purchase materials and work freely, without having to return most of their profi t to suppliers and lenders. They surveyed 42 people, and learned that they needed a total of 856 taka – just less than $27. 28
Yunus offered them his own money as a loan without interest, but realized that this was not a long-term solution. He approached the Janata Bank about lending small sums to impoverished populations, but they balked at the idea of lending to those without collateral or fi nancial history. After extended negotiations, the bank fi nally authorized a loan with Yunus as the guarantor. As a middleman, he lent over 100,000 taka to the villagers with near-perfect repayment rates, and made several key discoveries: that the lending opportunities needed to be extended to women, who were traditionally excluded from commercial activity; that the formation of self-supervising groups within the village would harness the culture’s effective social pressure and ensure high rates of repayment; that each borrower needed to save one taka per week. 29
While successful, facilitating the growing number of requests proved too much for both Yunus and his staff, as well as the Janata Bank, who did not anticipate the quantity of demand. So in 1977, Yunus spoke with A. M. Anisuzzaman, the manag- ing director of the large Bangladesh Krishi Bank. Anisuzzaman allowed Yunus to open a pseudo-branch in Jobra. Yunus named it the Experimental Grameen Branch. 30 As the loans were distributed and the groups formed, Yunus created savings funds within each group, for both small short-term loans and emergencies, that the members would pay into and then control the disbursement, giving them further fi nancial independence.
31 Bornstein
32 Ibid.
33 Yunus, Banker to the Poor , p. 127.
34 Muhammad Yunus, with Karl Weber. 2007. Creating a world without poverty , 57. New York,
Public Affairs.
Though Yunus wanted to expand his lending project to include an entire district, everyone he approached was convinced that his success in Jobra was unique, dependent on his personal involvement and reputation, and not reproducible on a larger scale. He took up their challenge and, taking a leave of absence from his professorship, relocated to Tangail, a district closer to Dhaka. Here, each of the seven national banks made several branches available to his project, though each lending decision had to be reviewed by the local branch, and larger project adjust- ments were subject to the input of all.
In 1981, anxious to continue expansion, Yunus traded on his success to secure
$800,000 from the Ford Foundation as a guarantee fund, and a $3.4 million loan from the International Fund for Agricultural Development, as well as a matching loan from the Bangladesh Central Bank. Grameen would expand to fi ve districts – by the end of 1981, its cumulative loan disbursement was $13.4 million, and during 1982, it increased by an additional $10.5 million. By the end of 1982, the Grameen bank had 30,000 members. 31 By 1998 it had repaid all its development loans. Since that time it has accepted no additional fi nancial assistance and has been and remains fi scally independent.
A Private Bank
In order to gain fl exibility and control, the next step was for Grameen to become a private institution. Many supporters believed, however, that Grameen would fail without the support of the cooperating national banks. But Yunus was in luck. A long-time friend of his became Minister of Finance following a government coup, and Yunus was allowed to privatize the Bank.
The Grameen bank offi cially became an independent entity on October 2, 1983. The bank could now hire permanent staff, and recruit young and enthusi- astic workers. Grameen continued to push for an increase in women borrowers, and without the skepticism of the national banks, by 1984, the number of women borrowers exceeded the number of male borrowers, 68,000 to 53,000. 32 Grameen opened approximately one hundred new branches every year 33 during the 1980s, and expanded to offer $300 housing loans. By 2007, 650,000 homes had been fi nanced. 34
35 http://www.grameen-info.org/index.php?option=com_content&task=view&id=22&Ite mid=109 . Accessed May 28, 2013.
The Sixteen Decisions
In 1984 at its annual workshop, the bank center leaders developed the Sixteen Decisions that became pledges that every member would take. This list of commit- ments, promises, and principles was, and continues to be, a cornerstone of Grameen culture and operation. The list is as follows:
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 tube wells. 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 infl ict 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 diffi culty, 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. 35
Yunus placed much emphasis on the sense of self and empowerment that borrow- ing and repaying from Grameen provides. Though any year in Bangladesh may be rife with natural disasters, Grameen does not forgive loans made to those affected.
Instead, it encourages borrowers to take a new loan to restart their activities at a reduced repayment rate. Yunus argued that, “This discipline is meant to boost the borrower’s sense of self-reliance, price and confi dence. To forgive a loan can undo
36 Yunus, Banker to the Poor , p. 137.
37 Ibid., p. 199.
38 http://www.grameenfoundation.org/what-we-do/microfi nance-basics
years of diffi cult work in getting that borrower to believe in his or her own ability.” 36 When women gain equality, the birth rate also declines, as being brought into industry and education curbs younger marriage and large families.
In April of 1996, Grameen gave its one-billionth dollar in loans, and 2 years later, its two-billionth dollar. 37 In the 1990s, Grameen again expanded its loan offerings to include cellular telephones, seasonal loans for sharecroppers, tube well loans for those without safe drinking water, and lease-to-own agreements for live- stock and equipment. It has since begun offering higher education loans at no inter- est during the education period and a 5 % interest rate after completion, and gives around 3,700 scholarships to children, especially girls, every year. Grameen’s loan repayment rates, from its inception to present day, have hovered between 95 % and 98 %. 38
Assessment
In an effort to assess whether borrower branches were “poverty-free,” Yunus and Grameen had to determine what “poverty-free” meant. After a series of interviews with borrowers, they developed ten indicators to evaluate whether a member has moved out of poverty. They are:
1. The family lives in a house worth at least Tk. 25,000 or a house with a tin roof, and each member of the family is able to sleep on a bed instead of on the fl oor.
2. Family members drink pure water of tube-wells, boiled water or water purifi ed by using alum, arsenic-free, purifying tablets or pitcher fi lters.
3. All children in the family over 6 years of age are all going to school or fi nished primary school.
4. Minimum weekly loan installment of the borrower is Tk. 200 or more.
5. Family uses sanitary latrine.
6. Family members have adequate clothing for everyday use, warm clothing for winter, such as shawls, sweaters, blankets, etc, and mosquito-nets to protect themselves from mosquitoes.
7. Family has sources of additional income, such as vegetable garden, fruit- bearing trees, etc, so that they are able to fall back on these sources of income when they need additional money.
8. The borrower maintains an average annual balance of Tk. 5,000 in her savings accounts.
39 http://www.grameen-info.org/index.php?option=com_content&task=view&id=23&Itemid=126
40 Yunus, Banker to the Poor , pp. 235–243.
41 Yunus, Creating a World Without Poverty , p. 65.
42 http://www.nobelprize.org/nobel_prizes/peace/laureates/2006/
43 Yunus, Banker to the Poor , p. 266.
9. Family experiences no diffi culty in having three square meals a day throughout the year, i.e. no member of the family goes hungry any time of the year.
10. Family can take care of its health. If any member of the family falls ill, family can afford to take all necessary steps to seek adequate healthcare. 39
Grameen II
In 2000, Grameen began to retool its existing structure and methods in response to a wave of loan defaults following the extreme fl ooding of 1998. Striving for greater fl exibility in both the bank’s savings and the borrowers’ repayments, the organiza- tion collaborated to develop improvements and solutions to problems in operations.
On August 7, 2002, every Grameen branch had transitioned to Grameen II. The new system featured improvements such as: a fl exible loan option for struggling borrow- ers who cannot meet their repayment schedule; a pension savings requirement for larger borrowers, wherein after 10 years, they receive almost double what they have saved; an insurance provision under which, following the death of a borrower, the family is not held accountable for the loan. 40
A program designed specifi cally for beggars was introduced in 2004. The loans are for around $15, with no interest and no timetable for repayment. They use this money to purchase small items to sell when they beg door to door. In the fi rst 3 years of the program, it had acquired 100,000 members, 10,000 of which were selling products full-time, and almost 63 of the 95 million taka borrowed had been repaid. 41 In 2006 Muhammad Yunus and the Grameen Bank were awarded the prestigious Nobel Peace Prize for, “Their efforts to create economic and social development from below.” 42
As of 2011, Grameen had 2,565 branches and almost 8.5 million members across 80,000 villages, 96 % of which are women. 2011 was a landmark year in that Yunus left Grameen as it transitioned to new management, focusing his efforts since on social business – a concept he had experimented with and honed in the implementa- tion of a series of Grameen-based companies that offer opportunities and services such as cellular phones, internet, fi sheries, health services, and technology training.
Yunus defi nes a social business as, “A non-loss, non-dividend enterprise, created with the intention to do good to people, to bring positive changes to the world, with- out any short-term expectation of making money out of it.” 43
As Yunus’ and Grameen’s achievements were recognized, microlending projects have spread throughout the world. The fi rst pilot projects were in Malaysia and the Philippines. While both, like Grameen in Bangladesh, had early struggles adapting to the culture and implementing a framework, they have been successful since.
Though more potential microlending institutions were devised for other countries, many encountered diffi culties fi nding funding. In response, Yunus started a specifi c fund within the Grameen Trust to fund replicator projects, which, as of 2013, total 150 organizations across 40 countries. 44
Bangladesh has come a long way since 1971, and while it remains extremely poor, the garment industry, Grameen’s programs, and other trade and agricultural- related programs have improved conditions. See World Bank for current statistics on poverty in Bangladesh at: http://data.worldbank.org/country/bangladesh
