Grameen Bank

Grameen Bank

Continuing the Nobel theme, the Peace prize was recently awarded to the Grameen Bank and it's founder Muhammad Yunus ¹. I think this is one decision which the Nobel comittee have got spot on. The Grameen Bank movement entirely deserves this recognition and must be applauded for it's innovative and effective method to fight poverty and create economic and social development.

For those of you who haven't heard of the Grameen Bank (which planet are you from?), it's an organization which was founded in Bangladesh by Muhammad Yunus. Yunus got his Ph.D. in economics from Vanderbilt University in 1969, and after a brief stint in Tennessee State University moved back to Bangladesh. During the famine of 1974, he noticed that even small loans could play an important role to uplift impoverished farmers. At that time, traditional banks did not issue loans to poor people, because of the high risk of non repayment. In 1976, Yunus founded the Grameen bank to issue loans, even very small ones, to poor people such as beggars or fisher women.

To tackle the issue of repayment, the Grameen bank organized the poor into small groups. Each group elects an accountant who keeps track of the daily payments, the accounts of individual members, and issues loans. The group as a whole, then deposits the money at a local bank. Trust is formed within the members due to the nature of the small close-knit community, where each poor person can relate to other members. Every such group also has it's own set of rules which dictates how much each member can borrow, etc.

This system has an important advantage over other schemes, because, even small amounts of the daily earnings can be saved by a group member, rather than being spent on alcohol or other such consumables. Also, the loans issued by the Grameen bank are interest free, and the repayment time can be very long. These loans can also be used to manufacture and sell low-cost products, invest in equipment such as fishing nets, or even used for personal reasons like weddings. There's also an interesting trend which shows how money issued to women brings much more benefit to the family. As a consequence, over 97% of it's members are women!

The Grameen Bank is amazingly efficient in fighting poverty. The bank has loaned out more than 5 billion USD, with a repayment rate of over
98%!²

While the Indian Government is spending large amounts of money annually to fight poverty with no visible effects, the Grameen Bank sets an example on how to effectively and efficiently break the cycle of poverty.

Related external links

Grameen Bank at a glance
What is Microcredit? - Muhammed Yunus
Grameen Bank - wikipedia
Ten Indicators to Assess Poverty level - Muhammed Yunus