Grameen Banks for the poorest of the poor
Guy Dauncey
The Grameen Bank was set up in 1977 by Muhammad Yunus. Instead of insisting on personal collateral, the Grameen Bank asks landless villagers to form into groups of 50 people of the same sex - Bangladesh being a Muslim country - and then to form into smaller groups of five. The ten groups of five each meet regularly with a bank worker for training, and with each other to discuss their business ideas. Each loan has to be approved by a smaller group of five, by the larger group and finally by the bank's officer in the field; Grameen does not believe in having huge city banks. Two people in a small group can then apply for a loan. The average loan size is L35, equivalent to about L5,000 in Britain, given the annual incomes of landless peasants. Women borrowers use their loans for such things as buying a milch cow, paddy husking and cattle fattening, while men tend to invest in paddy and rice trading, cattle fattening and setting up grocery shops. After six weeks, if the first two have been regular in their payments, the next two members get their loan, and after another six weeks, the final member. The loans are not analysed by the bank - they leave it up to the villagers to do the analysis. As they depend on each other's success in repaying them, the system works. The default rate is only 2.7% - a 97.3% on-time repayment record, and in recent years the bank has made a profit on its activities.
The bank is active in 15,000 villages, employing 8,000 workers, and lending to half a million people, and it is growing all the time. Grameen banking operations are being developed in India, and in South America, where people in 60 cities and towns in 12 countries are benefiting from loans organised by Accion International. The South Shore Bank in Chicago is experimenting in rural Arkansas with Grameen principles, linked to other community economic development strategies. The annalists of the twenty-third century may be able to write that for the poorer people on the earth the invention of social collateral and peer-group lending was the single most significant economic breakthrough of the twentieth century.
'The annalists of the twenty-third century may be able to write that for the poorer people on the earth the invention of social collateral and peer-group lending was the single most significant economic breakthrough of the twentieth century'
- Extracted from Guy Dauncey's book, 'After the Crash - The Emergence of the Rainbow Economy' (published by Green Print/Merlin Press, 10 Malden Road, London NW5 3HR, tel 071 267 3399, 1988, L6-99, 312 pages, ISBN 1-85425-004-3).
- The South Shore Bank in Chicago is tel 312 288 1000.
- Grameen Dialogue, newsletter of the Grameen Trust (Grameen Trust, Mirpur Two, Dhaka 1216, Bangladesh, tel 880-2-801138; fax 880-2-803559).
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