For those new to microfinance who are reading the blog, Grameen Bank was created in the 1970s with the goal of achieving widespread financial inclusion for those who do not qualify for services from commercial banks. The story of its inspiration, inception and growth over the years is best captured by its founder himself, Dr. Muhammad Yunus, in his book Banker to the Poor. I’m going to humbly slide away from summarizing the basic operations of the bank, rather than steal his thunder, because he puts it much more poetically and accurately. It’s a quick read—but if not, hopefully this blasting of random information won’t chase you away from my blog.
The bank’s structure is split into 4 zones: the head office, 40 zonal offices, 268 area offices and 2565 branch offices. The head office is where we arrive for work every day, where Dr. Yunus is most often present, and where the bank locates its accounting and services departments, monitoring and evaluation, and about 20 other departments that range from Grameen Telecom, to Grameen Kalyan—operating with about 200 employees daily. As the majority of the Grameen’s work takes place in the villages, they also have 144,619 centers where bank meetings are held, and where the bank interacts most with their borrowers.
The structure of Grameen Bank is important as it highlights that the majority of its activity takes place within the villages. The most central to their operations are their branch offices and centers, as this where money is lent and installments are collected. The structure also helps to explain how Grameen can serve the growing number of women that they do today. With 5-10 women making up a solidarity group (on average 6-7), 8-10 groups make up a center. I want to double check that number though, because even though I have heard it explained at least 7 times, the center meetings we have attended are much more logical as there have been only 25-50 women present. Anyways, to organize themselves from the bottom up, each solidarity group of at least 5 women are made up of 1 chairman (who is nominated by their group members to be in charge of collecting repayments from the other women and ensuring attendance at meetings), one secretary, and the rest are considered general members. All positions are re-elected each year.
60-70 centers then make up a branch office, which must be located within 2 km of the village. Despite the majority of paperwork, preparation and training taking place in the centers, the women collect their loans at the branch offices, and then pay their weekly installments during their center meetings. Each center has 6-7 center managers which are responsible for monitoring and supporting the groups, and sending messages and paperwork back to the branch office. Each center manager works with roughly 600 borrowers, as they must attend 2 center meetings daily/5 days a week, which typically have 60 women in each. This 600 number seemed large at first, but then watching the meetings unfold while in the villages, it is actually quite manageable. 8-10 branch offices then make up an area office, and then 6-8 area offices comprise a zonal office.
Each of these departments are organized to support and control Grameen’s current 1,284,606 solidarity groups that are sprinkled throughout the country. They also serve as checks and balances, and allow for the bank’s structure to resemble that of a widespread, constantly interacting network rather than a top down pyramid with an ugly disconnect.
This structure and the roles of different officials has become one of my favorite things about Grameen, as I have come to see that even those in some of the highest ranks, are mandated to attend at least one center meeting and visit one branch office daily. One, this serves as supervision and enforces accountability as each branch can expect to have a visitor from their superiors at least once a week; and two, it keeps the upper management in touch with the needs of its clients.
Despite wearing many different hats in their jobs, Grameen staff have very well defined roles and duties. Center Managers arrive at the branch office around 7am to speak with the second officer, who is responsible to account for all financial activity and handle the cash. If a borrower completes a proposal for a new loan,( which is an easy but long process to describe as new loans are dependent upon cross-referencing past performance), then the center manager notifies the second officer on the day of disbursement if the loan proposal has been accepted. The center manager must also forward requests for withdrawals greater than 20,000tk. These requests are calculated, and if the amount is greater than the 70,000tk that is anticipated to arrive in the office in the form of borrowers’ installments, the second officer goes to the local commercial bank and withdraws the amount needed from the branch’s specific fund—designated and overseen by the zonal office. This doesn’t always have to happen, as the second officer usually keeps 20-50,000tk to buffer moments when the demand for the day was miscalculated. After coming to the branch office, the center managers travel to the locations of each of their two center meetings they attend each day. They hold a session with the borrowers, collect installments and savings deposits, and then travel back to the office to re-calculate and input the numbers onto a collection sheet. Around 1 o’clock the branch office is very busy, as borrowers come in to collect new loan disbursements or make greater deposits and withdrawals from their accounts. The branch manager is responsible for signing off on each transaction, and sits at a desk waiting for borrowers to approach with their central manager—finished paperwork in hand. He/she counts out the money, verifies the borrower’s government-issued ID, speaks with the borrower, initials the paperwork after review, and the borrower is free to leave after counting the money themselves before leaving the office. The branch managers are typically ex-center managers, and have simply moved into more of an administrative role that serves primarily as supervision. Area managers are vaguely similar. Each area office has three employees: the area manager and second officer—whose duties do not differ, except the manager has administrative power—and a messenger. Both the area manager and the second officer attend two center meetings a day and typically one branch office. They attend to new loan proposals, and most importantly oversee the transfer of branch paperwork into their electronic database. Each area office has a separate office employed by Grameen Communication, that inputs all of the branches information. Zonal offices are also similar in that the manager attends one center meeting and visits one branch office a day, but deals more directly with correspondences from the area and head office. We were fortunate to have interviews with both one zonal manager and one area manager—that filled in many of the gaps in the poor descriptions I am providing you with a 2 o’clock in the morning.
One key difference between Grameen and commercial banks is that it is a non-loss, non-dividend bank that is owned by its borrowers. Currently 95% of Grameen is owned by the borrowers, with 5% owned by the government of Bangladesh.
In order to ensure that their voices are heard within the management of the bank, 9 out of 13 seats on the board are elected by Grameen borrowers, while 3 are elected by the government (including the chairman of the board), and one is held by Dr. Yunus—an ex-officio member, who has no voting power.
The voting begins within the groups. Each solidarity groups elects a chairman within their own group annually, who then is able to vote for a center leader. Each of the groups’ chairmen elect one of themselves to become a center leader every 3 years. The meetings are held at the branch to elect new members of the board, and each regional member then becomes a board member. Representing the 9 regions of Bangladesh, there are 9 election regions—providing the board with great diversity and representatives from villages throughout the country.
Mr. Humuan explained that Grameen sees 4 key reasons why they lend primarily to women:
1. It is harder for men to attend the center meetings because they tend to work outside of the villages
2. Females in village have better time management, and are more concerned about their agreements and attending center meetings.
3. Culturally, males are head of the households, and own the only income-generating activities…therefore it increases household production to help a woman start a business.
4. Women invest more in their families.
As is emphasized time and time again, Grameen Bank is specifically a bank for the poor, to such an extent that prospective borrowers have to meet a list of criteria that ensures that the bank is truly serving the poorest of the poor within Bangladesh. Borrowers must be landless and asset-less, and be willing to form a group with 4 other women who live in their village. As Grameen’s model is dependent upon solidarity lending, these group formations are one of the most important stages within the process, as the responsibility for loan repayment is diluted throughout the group. Some of the non-negotiable agreements within group formation, is that all members must be landless and asset-less, must live within the specified village, are neighbors of their chosen group members, and yet are not related to them…making it impossible to have more than one household within a group.
Loan Products:
1. Basic Loan: Firstly, Grameen does not lend money to create businesses that are negative for society (such as liquor stores). A basic loan can be given to any group member, and can be for any amount up to 12,000 taka (about $170 USD). As the costs of delivering and managing these micro-loans are often very high, Grameen charges 20% interest on a declining balance, or 10% flat rate. Therefore if a member borrows 1000 taka, their weekly installment is 25 tk over a period of 44 weeks—paying overall 1,100 tk. For those of you reading who have not studied microfinance or heard of these rates, a 20% interest rate is one of the best in the sector.
All borrowers begin with a basic loan, and take out another up to 12,000 taka after their first is repaid.
2. Microenterprise Loan: These loans are given to borrowers who wish to expand their current business, or need a larger amount of capital to start a new business. In order to receive a microenterprise loan, the borrower must have repaid their primary basic loan. These loans start at 700,000tk ($10,000), are paid back in weekly-installments, and have a 2-3 year repayment schedule, with no limit at the amount of money that can justifiably be taken out. They too, have a 20% interest rate, and borrowers can also opt for the 10% flat rate. These enterprise loans come with training if the business the borrower is starting is new to them, but if they already had the business prior to the loan there is no training requirement.
One key detail to MELs is that the borrower must have been with Grameen for at least 2 years.
3. In order to help borrowers repair their housing and reach dignified levels of accommodation, Grameen offers their borrowers housing loans after 4 years of membership with the bank. Grameen typically lends 18,000-20,000tk, with an 8% interest rate—lower as this loan is not for an income-generating activity. These loans can be paid back over 4-6 years, and installments are paid back weekly at the center meetings. If the borrower is able to pay within 1 year, Grameen offers a 4% flat rate.
4. My favorite loan, and one of the newest additions to Grameen’s loan products, is the higher education loan for children of Grameen borrowers. In order to help borrowers’ children surpass higher secondary schooling (12thgrade) and cover all expenses of schooling, Grameen offers up to 200,000tk to each child who qualifies so that they can attend university. For 6 years the loan requires no installments, and accrues no interest—5 years for the child to go to school, and 1 year for them to search for a job. (Blew my mind as I sat in the office considering SIMPLY the interest I already have on my own student loans). After 6 years, they charge 5% interest, and the students pay monthly installments for up to 5 years—so if a student took out 100,000tk they would pay around 1,500tk a month (about $20). Both the child and the borrower sign the documents. Working for equality within the educational system, Grameen treats both males and females the same and willingly lends both the money they need for schooling.
5. Acknowledging the difficulty of finding employment within the job market after graduation, Grameen encourages students to not become an employee, but rather an employer. They offer graduates a New Entrepreneur Loan for self-employment, with a 5% interest rate. Not much data is currently available on the success of these loans as of yet, as the product is only 6 months old.
6. Understanding the innumerable risks associated with a life of poverty, Grameen offers flexible loans to help protect borrowers against these risks. Bangladesh is a center of natural disasters, and often faces flooding and cyclones, in addition to their problems of infrastructure and malnutrition. After a death or a disaster falls upon a family, a loan officer visits the borrower to renegotiate the terms of the loan. For example, if a family member passes away or a business is destroyed, the borrower can tell the loan officer what their ability to pay is, and that becomes the new weekly installment for up to a year. They sign a new contract, and do not pay interest during that time. Grameen offers flexible loans as an opportunity to reduce installments if the officer verifies the problem, and to ensure that their borrowers do not become over-indebted.
7. Their final product, is the Beggar Loan, for struggling members –the poorest of the poor within the society. 1,000-2,000tk is offered at 0 interest to women who subsist on begging door to door or in the streets—a profession, which sadly, is a common trade here in Bangladesh (or at least, in Dhaka). Grameen’s perspective, is that if women are already going door to door, they should be going with a product, so that they have an opportunity to earn a little more, and restore their dignity. They hope to teach them that business is better than begging, and therefore offer them up to 4,000tk with no bindings attached. If they are able to repay, they are given the choice to take out a basic loan, and become full members of Grameen Bank.
That first day at Grameen we also learned more about their savings products in greater detail, but as I have already thrown a lot of information out there I’ll let it sit, and come back to savings and insurance on a later day.
At our first village trip to Dhakuli, each woman typically had 1-2 outstanding loans. The majority were seasoned borrowers (had already surpassed basic loans) and had microenterprise loans, housing loans and higher education loans.
The morning of the village trip we set out at 8am in a microbus, and watched the clutter and confusion of Dhaka gradually fade away. Despite the emptier roads, the absence of horns and yelling, the smog and overcast sky pursued us. It was amusing how quickly we left Dhaka behind. When you’re in the city, you almost feel as if that is all there is. The city’s skyline always seems to drift and blend into the dirt. But in our van, we were over a bridge and finally into the landscape that I came here for. There were rice paddies—some green, and yet some flooded with water—and brick factories set up alongside various shorelines. Yes, I came here for the brick factories. Seeing them however added some light to the 30 or more smoke stacks we had seen from the airplane, pumping insanity into the air every mile or so. Bricks were everywhere. Stacked alongside the roads, rushing past us unstably in 4 or more pickup trucks, atop of men’s heads balanced upon baskets…it’s ironic because I don’t know where they are all headed. Most of the buildings I have been in are made out of cement or metal.
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