Grameen Bank

Introduction to Micro credit:

Microcredit is the extension of very small loans (microloans) to impoverished borrowers who typically lack collateral, steady employment and a verifiable credit history. It is designed not only to support entrepreneurship and alleviate poverty, but also in many cases to empower women and uplift entire communities by extension. In many communities worldwide, in developed and developing nations alike, women lack the highly stable employment histories that traditional lenders tend to require. This reality might result from factors such as leaving the paid workforce to care for children and elderly relatives. Microcredit is a division of microfinance, which is the provision of a wider range of financial services, especially savings accounts, to the poor. Modern microcredit is generally considered to have originated with the Grameen Bank founded in Bangladesh in 1983. Many traditional banks subsequently introduced microcredit despite initial misgivings. The United Nations declared 2005 the International Year of Microcredit. As of 2012, microcredit is widely used in developing countries and is presented as having "enormous potential as a tool for poverty alleviation." Microfinance has attained rapid growth in Bangladesh. It has emerged as a strong instrument of poverty alleviation. Both private and public sector organizations are involved in microfinance. The constituents of the sector include Grameen Bank, NGOs, Bangladesh Rural Development Board (BRDB) which is a public sector organization, nationalized commercial banks and some other government programmes. The Grameen Bank and NGOs are however, the leading actors in this field. Total participants in the microfinance programmes in Bangladesh stand above 13 million (Rahman: May 2000). Around 9 million of them are enrolled in NGO programmes. There are around 15,000 NGOs registered in Bangladesh. Of these, nearly 1000 NGOs are dealing with microfinance. In 1999, NGOs alone disbursed around US $ 400 million as credit. Microfinance, in simple terms, can be described as small loans offered to poor households to foster self-employment and income generations. The loans largely go to rural landless, underprivileged women and marginal farmers who depend largely on selling their labor. The terminology of Microcredit has undergone a change in recent time.

Features of microcredit program: No collateral is required to get loans. Group based approach. Small amount loan (100-150 US$).

Weekly attendance in the group meeting. Intensive credit monitoring. Participatory approach.

Introduction to Grameen Bank:

Grameen Bank (GB) has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust, accountability, participation and creativity. GB provides credit to the poorest of the poor in rural Bangladesh, without any collateral. At GB, credit is a cost effective weapon to fight poverty and it serves as a catalyst in the overall development of socio-economic conditions of the poor who have been kept outside the banking orbit on the ground that they are poor and hence not bankable. Professor Muhammad Yunus, the founder of "Grameen Bank" and its Managing Director, reasoned that if financial resources can be made available to the poor people on terms and conditions that are appropriate and reasonable, "these millions of small people with their millions of small pursuits can add up to create the biggest development wonder."

As of October, 2011, it has 8.349 million borrowers, 97 percent of whom are women. With 2,565 branches, GB provides services in 81,379 villages, covering more than 97 percent of the total villages in Bangladesh.

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).

How Grameen Bank helps poor people through Microcredit:

Grameen bank focusing on the women who can be easily converted as empowering women by giving them micro credit loans.

Empowering women by Microcredit

As envisioned by Mr. Yunus when he founded the Grameen Bank 30 years ago, microcredit involves the extension of small loans without securities to groups of poor people especially women so that they can invest in income-generating activities. It is a way of improving earning capacity and therefore reducing poverty.

But beyond providing these small loans, successful microcredit programmers give the borrowers and their children increased access to basic social services. As a result, they can focus on their business ventures without having to worry about their families sheer survival.

Microcredit also empowers women by enabling them to make economic decisions and bring in a larger proportion of household income.
.Benefits

of Microcredit:

Microcredit has been a popular means of development process in developing countries. It has many direct and indirect benefits to the society. Poor women who have limited opportunity of getting financial assistance find it very useful. It appears to them as an easy and effective source of finance. Though microcredit is not out of many criticisms, it contributes to the people in various ways. Some of the positive impacts of microcredit are described in the following section.

Reduction of Vulnerability
Microcredit programs aid against crises by building household assets for those in need. These assets can bring in extra profit if they need to because they can be sold. Also, they can be used to verify credit worthiness when dealing with lending agencies or businessmen. These additional assets provide more security for families because they are diversified; diversified assets cut the risks of loss. Furthermore, other aspects such as skills training and female empowerment also help families cope with crises. Microcredit teaches people to hold their own place in society, thus allowing the cycle of poverty to stop.

Increased Consumption
Microcredit programs cause an increase in household consumption. A researcher from Bangladesh found that forever 100 taka (unit of currency in Bangladesh) lent to a female borrower, their household consumption was raised by 18 taka. Even small increases in consumption can lead to better health and well being for the entire family. Providing a greater stability for families has huge long term positive effects for ending poverty cycles within families.

Reduced Income Poverty

Borrowers of Microcredit tend to make more money over time. Once the cycle of poverty stops, and there is stability in the household, many borrowers go on to make profitable investments and may be able to lift their entire family out of poverty altogether. On average, 15% of participants in Bangladesh rise up from poverty after three years of participation. The poorest of the poor will see a 25% reduction in poverty after the first year. Any rate of reduction of poverty certainly warrants optimism.

Boosting Self-Esteem
Simply put, participants experience a sense of pride when they create or expand a business successfully. Many learn new trades or management skills causing them to have a sense of ownership in what they have accomplished and they feel worthy of a place in society. This boost in self-esteem causes many women to want to continue being successful, causing a halt in the cycles of poverty that once surrounded their lives.

A way of getting women out of poverty

Lending to women has become an important principle in microcredit, with banks and NGOS, and catering to women exclusively. Though Grameen Bank initially tried to lend to both men and women at equal rates, women presently make up ninety-five percent of the banks clients. Women continue to make up seventy-five percent of all microcredit recipients worldwide. Exclusive lending to women began in the 1980s when Grameen Bank found that women have higher repayment rates, and tend to accept smaller loans than men. Subsequently, many microcredit institutions have used the goal of empowering women to justify their disproportionate loans to women. Women may borrow from the group fund for a variety of purposes ranging from household emergencies to school fees. Purposes ranging from household emergencies to school fees they may borrow from a local bank to invest in small business or farm activities.

Poor people are benefited from Micro credit

Poor household use microcredit for different purposes and creation/promotion of businesses for income enhancement is one of them access to microcredit offers several pathways to households to cope with poverty, which is bound to have an impact on their income levels subsequently. Thus, we should understand the contribution of microcredit to alleviating poverty in a much broader sense than just in increasing incomes. Microfinance is one way of fighting poverty in rural areas, where most of the worlds poorest people live. It puts credit, savings, insurance and other basic financial services within the reach of poor people. Through microfinance institutions such as credit unions, financial non-governmental organizations and even commercial banks,

poor people can obtain small loans, receive money from relatives working abroad and safeguard their savings. The microfinance revolution started with the recognition that poor people needed access to loans and that they could use these funds productively.