WHEN SIMPLICITY CAN DO WONDERS: GRAMEEN BANK
“Money, says the proverb, makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little.” Adam Smith
INTRODUCTION • • • •
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Grameen bank, means the rural or The village bank A microfinance organization Began as a research project by Muhammad Yunus and the Rural Economics Project at Bangladesh in 1974. It provides credit and financial services : 1. Exclusively to the rural poor in Bangladesh 2. without any collateral for creating self employment opportunities to quickly increase their income and empower the poor. As of August, 2009, it has 7.94 million borrowers, 97 percent of whom are women. With 2,559 branches, GB provides services in 84,652 villages, covering more than 100 percent of the total villages in Bangladesh. www.grameen-info.org/
Process of giving loans
Interest Rates of Grameen Bank Loan
Savings
Income Generating Loans : Flat rate -10%.
Housing Loans : 8%
Higher Education Loan :
On study - 0% After study - 5%
For Struggling Members (Beggars) : 0%
Center House Construction : 0%
Savings : 8.5% Fixed Deposit : 8.75 - 9.50% Double in Seven Years : 10.40% Fixed Deposit (5 years) with monthly income : 10.04% Fixed Deposit (10 years) with monthly income : 10.67% Grameen Pension Savings (Five Years) : 10% Grameen Pension Savings (Ten Years) : 12%
Essentials Features of Grameen Credit Delivery System 1 2 3 4 5 6
Exclusive focus on bottom poor Borrowers organized into small homogeneous groups Loan conditional ties specially suitable for the poor Capable organization and management system Loan Portfolio to meet diverse development needs Social development program • Sixteen Decisions
-Condt..
Reasons behind the success of gramEEn bank • • • • • • •
Banking as a new approach" class to mass” and thus reaching the poor Programmed participation to enable members to enhance their net worth and enhance their assets Customers as an internal stake holders via equity ownership thus provide protection against loan default Credit directly reaches to most poor segment by high woman involvement Credits based on self-employment in familiar rural non-farm activities and individuals access to credit via group repayment activities Thus has lead to increase in rural wages Creative and effective leadership
The concept of “low margins-high consumer base” Advantages • Relationship based banking • Association of savings with credit not perquisite • Group based credit approach decreases default rate Disadvantages • Huge investment in human resource • Relaying heavily on systems financial balance • Development based on the aspirations and commitment of the economic operators • Must be able to expand lending in more growth-oriented activities for its survival in long run
Above strategy as applied to other sectors • • •
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Rural insurance can be based on the above strategy of high volume and low margins Pooling the two end customer base (low and high) to create a synergy of risk as applied to insurance sector Conversion of Customers to internal stake holders via equity ownership thus provide a new domain to define relationship based marketing as relates to services sector and increase profitability Emerging sectors such as insurance can break the traditional approaches of customer identification and conversion and thus can break the jinx of pre-established techniques As we see in case of grameen bank Great human resource team can open new sectors for a company's growth via creativity, rigors, understanding and respect for the environment specially in rural markets.
Solutions on the negative aspects of gramin bank • • • • • •
Moving up the ladder i.e. from rural banking to generalized banking to pool in sub prime lenders and prime lenders and thus reduce risk of loan defaults. As the bank expands focus from traditional non-farm activities may need to be changed to other domains too. Increase or decrease in interest rate via credit rating can also lead to less default in loans and will have to be applied in long run. To break the vicious cycle of debt a continued check on the borrowers must be done. Technology must be relied upon to identify any such situations if they come up. Thus, relaying heavily on systems financial balance
Prepared by: Ravi Singh (XI09035) Priyanka Kumari (XI09030) XLRI JAMSHEDPUR PGPMI 2009-10 DATE 12-11-2009 ALL THE BEST