The Grameen Bank Housing Loan Project: Micro Credit

Housing System for the Landless Rural Poor

Hafiz AMIRROL (25209022)

Department of Architecture
Institut Teknologi Bandung, Indonesia

Abstract

The need to provide adequate, suitable and equitable housing has remained a major
priority of every country. This paper will examine the case of micro credit housing
loan system that has been introduced by Grameen Bank in Bangladesh. Even though
housing is a basic necessity of life, more than 60% of the population in Bangladesh
were landless and lived in poor condition houses, or no house at all, where they had
no access to adequate sanitary facilities, security and good health. It is the interest of
this paper to learn and analyze the successfulness of the micro credit system that has
been introduced since 1984, and has helped in providing access to the rural landless
poor in Bangladesh to adequate housing. This paper will discuss the background of
housing problem in rural Bangladesh, the financial system from the housing loan
project, and its implication to the development of housing system for the landless
rural poor.

Keywords: micro credit housing loan; rural landless poor; Grameen Bank; basic
housing

Introduction

Adequate housing is one of the most basic human rights and is one of the effective
means to alleviate poverty. It is also a pre-requisite for better health, security, safety
and dignity. This paper will discuss the issues of the rural poor in Bangladesh, where
access to basic housing is scarce, and how the micro credit housing loan system that
was initiated by Grameen Bank, has helped in combating this problem by giving
some of the poorest members of the rural community the means and materials of
improved housing.

Bangladesh is a country with one of the lowest per capita income in the world, which
is estimated around USD 280. With more than 60% of its population were landless
and lived in poor condition houses, the marginalized poor struggle very hard for
physical survival and basic human dignity (Chandra, 1999). These poor communities
find it beyond their means to own appropriate houses, and a specific banking system
is needed to help the poor to finance their houses, with a mechanism that will allow
them to repay the loan without any additional burden.

Responding to this problem, Professor Muhammad Yunus initiated Grameen Bank –

an independent banking institution that sets up micro-credit financing system to help
the rural landless poor to own appropriate house. The bank recognized that the poor
community lack access to capital rather than their capacity to repay that perpetuates

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their poverty. Parting apart from conventional system of financial institutions,
Grameen Bank ventured into giving loans to the homeless to build house for
themselves. The initiative started in a very small way in 1984 and expanded rapidly
due to its success.

Housing Loan For The Poor – a Vital Investment

Many believes that investing for shelter for the poor is unproductive and does not
bring profit to the loan provider (Hosseini, 2008). However, by seeing the problem of
homeless poor in a bigger scale, it is necessary to help them to finance themselves to
own basic house since it is a bigger investment in term of health, security and safety –
in which people with proper house to live in will become more productive and will be
able to self sustain themselves without needing government’s welfare or assistance.
Grameen Bank believes that by assisting these poor people with its own version of
micro-credit system, it will become a vital investment for the nation and its future.

To secure and sustain its program, Grameen Bank was initially supported by the
Bangladesh Central Bank, and also receives monetary support from Rome-based
International Fund for Agricultural Development. The government provided 60% of
the initial paid up share capital of the bank, while the loanees of the bank held 40%.
In 1986, the paid up share capital from the government was reduced to 25% and 75%
were from the borrowers. Due to its success and independent-based system, the ratio
now is government; 7% and borrowers; 93%. (Chandra, 1999)

There were two types of loan offered through the system – the Basic Housing Loan
and the Standard Housing Loan. Ninety percent of the borrowers started with the
Basic Housing Loan, worth 10,000 Tk (USD 333) and to be repaid at a rate of 1000
Tk (USD 33) per year. The Standard Housing Loan is worth 18,000 Tk (USD 580).
To ensure that the loan will be used efficiently for the purpose of building proper
homes, Grameen Bank has set up the regulation for the house to be constructed at the
minimal size of 20m2, covered with corrugated iron roof sheets, and built using four
reinforced concrete posts.

The Grameen Housing Technology

Grameen Bank developed a housing design that will suit the needs of the
beneficiaries and the context of Bangladesh in general. The basic module for the
house design reflect the concept of self-helped housing system that may allow the
houses to be constructed by the borrowers themselves, and that the houses are safe
enough to resist the harsh climate condition of Bangladesh. The houses vary in
appearance throughout the country, but they have the same basic structural
components design, and the designs allow for non-skilled workers (i.e. the owners of
the houses) to rapidly construct their own unit with minimum help from skilled
workers.

The main skeletal structure of the houses were made up of four reinforced concrete
pillars, supported on top of brick foundation at each corners of the house. These four
main columns have six intermediate bamboo posts to strengthen them, with bamboo
tie beams, wooden rafters and purlins supporting the corrugated iron roof. This design
provides stability and protection from heavy rain during the monsoon season, which

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hit Bangladesh regularly. Latrines and other sanitary facilities were supplied by
Grameen Bank as part of its support for the program.

Housing Loan and Repayment System

The main idea for the housing loan is to provide a micro-credit financing system that
is realistic for the borrowers to make installments and can be reached by those living
in rural areas. The housing loans were structured in a way that peer-to-peer pressure
will ensure repayment will be made. Loanees are required to form themselves into
groups of five in order to receive loans for which no collateral is required. The group
members will be interviewed to make sure that they are those from the social group
that really need the loan. Apart from the interview, prospects were also trained so that
they will understand the whole concept of the financing system.

Each group elects its own leader and secretary who must conduct weekly meetings.
Several groups in the same village were federated into a center from the leaders of the
small groups; a ‘center chief’ and a ‘deputy center chief’ were elected to coordinate
weekly meetings and economic support activities within the borrowers. This system
also helps bank officers to conduct their outreach program sufficiently, and
repayment process can be made more systematically. The loanees are expected to
repay the loans in weekly installments within a period that was calculated not to
burden them economically. This mean that one may take as many years to pay back,
but they were advised to liquidate the liabilities at a faster rate, which they normally
do by repaying the money in accelerated installments.

From this repayment system and a more approachable banking concept, Grameen
Bank has become synonymous with self-reliance and self-sustaining the network
between the borrowers and the bank itself. The loan also emphasize on the
importance of developing social empowerment of women by introducing specific
programs to support and facilitate their strengths. Land ownership is also another
important issue that had been resolved efficiently, and the system works on the basis
of incremental development approach in providing loans to those needed, and this
approach had impose positive impact for the development of the rural landless poor.

Conclusion

The housing loan program of Grameen Bank had made a significant impact on the
lives of its poor and landless borrowers in term of restoring confidence and human
dignity (Frampton, 2001). They can now feel their existence as human beings, and
this is very important in maintaining the sustainability cycle of social-economy-
environment concept for Bangladesh. With their new land and home, they now feel a
strong sense of protection and endeavor to build a decent life for themselves. The
program is being seen as an investment for good health and well being for humanity.
Grameen Bank also believes that poverty must be combated with support and not
charity.

From this philosophy, the system works on the platform that supports and helps must
not be a fully funded charity must be repaid to ensure progressive development for
the loanees. Through pay back agreement, the loanees will have to build their
economic strength through cooperative way, and this will sustain a long-life

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economic and social stability for them. By investing some portion of capital, giving
loans to groups of poor people and by choosing appropriate interest rates, the
program is very crucial in the sustainable development of the country. From the
success implementation of the program, it can be said that proper housing has
increased the capacity of the beneficiaries thus increases the productive capacity of
the community.

References

CHANDRA, D. (1999) The Experience of Grameen Bank Housing Program. Dhaka:

Grameen Bank.

FRAMPTON, K. (et al.) (2001) Modernity and Community: Architecture in the

Islamic World. Aga Khan Awards for Architecture, London :Thames & Hudson.

HOSSEINI, N. (2008) Breaking The Vicious Cycle of Poverty - Micro Lending. 16th
MIT-UAlbany-WPI System Dynamics PhD Colloquium, New York: University at
Albany.

End Note

The slide presentation for this paper can be downloaded from the author’s website at
www.scribd.com/doc/27973176/Grameen-Bank-Housing-Loan-Project