Impact of Grameen Bank Microfinance on Poverty in Bangladesh

This term paper examines the impact of the Grameen Bank's microfinance program on the empowerment of poor people in Bangladesh. It provides an introduction to microfinance, its characteristics, and the Grameen Bank's structure and model. The study utilizes secondary data to analyze the objectives, methods, and characteristics of microfinance, including credit lending models. It explores the Grameen Bank's operations, its global impact, and its role in providing financial services to the marginalized. The report highlights the Grameen Model, various credit lending models, and the bank's focus on women borrowers. The objectives include identifying factors influencing membership and participation, comparing the performance of top MFIs, and suggesting improvements to reduce vulnerability to poverty. The paper also presents a comprehensive overview of the Grameen Bank's contribution to poverty alleviation and economic development in Bangladesh. The paper highlights the role of microfinance in providing access to capital for small business owners and entrepreneurs, particularly in developing countries, and the importance of microloans, micro-savings, and microinsurance.

Term Paper
On
Impact of Micro-Finance program on Empowerment of poor
people in Bangladesh: A Study on Grameen Bank.
Course Title: Management of NGOs and Social
Entrepreneurship (313)
Submitted to:
Dr. MD. Ruhul Amin
Associate Professor
Dept. of Public Administration
Comilla University.
Submitted by:
MD. Abdul Ahad Mamun
ID: 11803050
Session: 2017-18
Date of Submission:
31/03/2021

TABLE OF CONTENTS
SL. Name of Contents
1 Introduction
2 Methods of the Study
3 Objectives of the Study
4 About Microfinance
5 Characteristics of Microfinance
6 Grameen Bank
7 Structure of Grameen Bank
8 Grameen Bank in World
9 The Grameen Model
10 Credit Lending Models of Grameen Bank
11 Microfinance Programs of Grameen bank, at a Glance
12 Basic features of micro-credit program of Grameen Bank
13 Conclusions
14 Reference

1. Introduction:
Bangladesh has been perhaps the most important hearth on the globe for microfinance providing
organizations. In recent years, micro credit or in its wider dimension microfinance has become a
much-favored intervention for poverty alleviation in the developing and least developed
countries. Recognizing the importance and intensity of the problem of poverty the government of
Bangladesh has given top priority to poverty alleviation in all the past five-year plans and also in
the 15 years (1995-2010) perspective plan for the country. In recent decades, microfinance in
Bangladesh has been implemented by NGOs, Grameen Bank, different types of government-
owned banks, private commercial banks, and specialized banks. Almost all of these
organizations that include such a type of credit program for economic development have given
top priority to involve the poor women because they usually repay their loans regularly.
Women’s access to political, social, economic, and legal institutions is restricted which are
dominated and mediated by men. Men not only control decision-making in various areas of the
household arena, but they also exercise control over women’s income, their access to
employment, their income, their assets, and their choice of marriage partners. Average earnings
of women in most of the countries are lower than those of men. In several developing countries,
marriage is the only career for most women. Very few women get the opportunity to come out of
the four walls and enter professions like industry, engineering, trade, and economic activities.
But it is immensely needed that women should come forward and contribute to the economic
development of Bangladesh and alleviate poverty. Thus, this study tries to identify the problems
of women entrepreneurs in taking a loan as well as problems faced by the bankers in sanctioning
and recovery the loan and executing operations in Grameen Bank borrowers in Bangladesh.
(Rahman et al., 2015)
2. Methods of the Study:

This type of research method, It needed for mixed data collection means Primary data and
Secondary data. But for time limitation and the COVID-19 situation, I couldn’t collect primary
data for this paper. For this, I used here secondary data. I collected data from Books,
Newspapers, Thesis papers, journals, Articles, and Websites, etc.
3. Objectives of the Study:
The overall objective of this research is to identify the barriers and prospects of micro-finance
program in Bangladesh which is playing the vital role as the engine of growth in our economic
development efforts.
The general objectives of this research are given follows:
❏ Examine and highlight differences in socioeconomic status among the target groups.
❏ Identify the factors influencing membership in Grameen Bank.
❏ Identify the factors influencing depth of participation in Grameen Bank.
❏ Eliminate the exploitation of the poor by money lenders
❏ To compare the relative performance analysis of top three MFI: Grameen Bank, BRAC
and ASA.
❏ To suggest what components should be incorporated with the Microfinance program that
will reduce the risk of being vulnerable to poverty. (Amin & Sheikh, 2011)
4. About Microfinance:
Microfinance is a form of financial development that has primarily focused on alleviating
poverty through providing financial services to the poor. Most people think of microfinance, if at
all, as being about micro-credit i.e. lending small amounts of money to the poor. Microfinance is
not only this, but it also has a broader perspective which also includes insurance, transactional
services, and importantly, savings. Microfinance—also called microcredit—is a way to provide
small business owners and entrepreneurs access to capital. Often these small and individual
businesses don’t have access to traditional financial resources from major institutions. This
means it is harder to access loans, insurance, and investments that will help grow their business.
(Nilsson, 2007)

Essentially, microfinance is providing loans, credit, access to savings accounts—even insurance
policies and money transfers––to the small business owner and entrepreneur. There are many
such enterprises in the developing world.
Microfinance, pioneered by the Nobel-Prize winner Muhammad Yunus, helps the financially
marginalized by providing them with the necessary capital to start a business and work toward
financial independence. These loans are significant because they are given even though the
borrower has no collateral. However, the interest rates for these microloans are often very high
due to the risk of default. The term microfinance encompasses microloans, micro-savings, and
microinsurance. Microfinance institutions provide small loans and other resources to business
owners and entrepreneurs to help them get their businesses off the ground. Many of the
recipients are in developing countries, and could otherwise not obtain a traditional loan. Micro-
savings accounts are also under the microfinance umbrella. They allow entrepreneurs to have a
savings account with no minimum balance. And microinsurance provides these borrowers with
insurance, at a lower rate, and with lesser premiums. (www.thebalance.com )
5. Characteristics of Microfinance:
The characteristics of microfinance products include:
❏ Little amounts of loans and savings.
❏ Short- terms loan (usually up to the term of one year).
❏ Payment schedules attribute frequent installments (or frequent deposits).
❏ Installments made up from both principal and interest, which amortized in course of time.
❏ Higher interest rates on credit (higher than commercial bank rates but lower than loan-
shark rates), which reflect the labor-intensive work associated with making small loans
and allowing the microfinance intermediary to become sustainable over time.
❏ Easy entrance to the microfinance intermediary saves the time and money of the client
and permits the intermediary to have a better idea about the clients’ financial and social
status.
❏ Application procedures are simple.
❏ Short processing periods (between the completion of the application and the
disbursement of the loan).
❏ The clients who pay on time become eligible for repeat loans with higher amounts.
6. Grameen Bank:

Grameen Bank began as an experimental project in rural Chittagong in 1976. The project was
initiated by Muhammad Yunus, a university professor at Chittagong University in eastern
Bangladesh to provide affordable credit to the poor as a means of combating poverty in rural
Bangladesh. Yunus had observed that the poorest of the poor had no access to commercial credit
and were therefore being systematically exploited by moneylenders in the traditional money
markets, which further exacerbated their poverty. The project began by providing small collateral
free loans to the rural poor for income generating activities chosen by the borrowers themselves.
The borrowers were required to form groups of five persons which served as a screening and
monitoring mechanism replacing the need for collateral and ensuring that transactions costs
would below:
Yunus recognized that rural women were particularly vulnerable because of their restricted
access to and control over resources and the project which had begun lending to both and men
women, moved gradually towards lending primarily women demonstrated that they invested
more carefully and repaid more faithfully. (www.assignmentpoint.com)
7. Structure of Grameen Bank:
1. Head Office
➢ Zonal Office ( 1 ZO for 8 Area Offices )
➢ Area Office ( 1 Area Office for 8-12 Branches )
➢ Branch Offices ( 1 Branch for 50-60 centers)
➢ Centers ( 1 center for 6-8 Group)
➢ Groups in Village (Each group will have 5 members )
8. Grameen Bank in World:
Grameen Bank, in its long journey since its birth, has traversed a long path, inspiring numerous
societies and countries, and benefiting millions around the world. One of the most underline
achievements of Grameen bank is the Grameen Foundation. This was founded in 1997 as a
vehicle to replicate the model of Grameen Bank beyond the borders of Bangladesh and increase
the access of poor people to microcredit by millions worldwide. The success of the Grameen
Bank and similar micro credit efforts in India and Latin America eventually captured the
attention of President Clinton, who has made it a centerpiece of his strategy to lift people out of

poverty. In February of 1997, 2900 people from 137 countries gathered in Washington for the
first Micro-credit Summit and they launched a campaign with the remarkably ambitious goal of
providing credit for self-employment and other financial services to 100 million of the world’s
poorest families by 2005. (Nilsson, 2007)
9. The Grameen Model:
Grameen Bank is best known as an operating model of targeted, small scale rural credit.
Grameen is also a model of an experimental learning organization. While its present
experimental activities are not the focus of this research, it is important to establish that
innovation and experimentation are continuous. Grameen is structured in a way that buffers the
established credit activities from the uncertainties of new technologies and enterprises being
tested other units of the Bank.
Grameen’s basic model of small-scale credit has been fixed in its essentials since the mid-1980s.
The methods of group organization and group collateral for lending were established through
years of experimentation following from the initial effort in Jobra village in 1976. The model of
targeted rural credit is now so sufficiently tested that it has been expanded horizontally at a rapid
rate since 1983. The horizontal expansion is modular; new branches, areas and zones are opened
following the established pattern. One long-time observer of Grameen compares its expansion
pattern to that of MacDonald’s franchises. It is the management and organization of this basic
lending and savings operation that is the focus of this study.(www.assignmentpoint.com)
10. Credit Lending Models of Grameen Bank:
Microfinance institutions are using various Credit Lending Models throughout the world. a
number of the models are listed below.
1. Group Lending: Group-based lending is one among the foremost novel approaches of lending
small amounts of cash to an outsized number of clients who cannot offer collateral. the
dimensions of the group can vary, but most groups have between four to eight members. The
group self-selects its members before acquiring a loan. Loans are granted to chose member(s) of
the group first then to the remainder of the members. Most MFIs require a percentage of the loan
that's alleged to be saved beforehand, which points out the power to form regular payments and
function collateral. Group members are jointly in charge of the repayment of every other’s loans
and typically meet weekly to gather repayments. to make sure repayment, peer pressure and joint
liability work alright. the whole group are going to be disqualified and can not be eligible for
further loans, albeit one member of the group becomes a defaulter. The creditworthiness of the

borrower is therefore determined by the members instead of by the MFI.50 one among the best-
known institutions for lending and savings money, in Bangladesh, is that the Grameen Bank.
Grameen Bank mainly targets women (98% of their clients are women) on the idea that ladies
repay their loans better than men and thanks to the oppression they have more favor. it's believed
that loans expanded to women benefit all the household members with improved level of food
intake, health, and education.
2. Individual Lending: Unlike MFIs, there are only a few conventional financial institutions
which give individual loans to low-income people because poorer clients are considered higher
risk clients thanks to their lack of collateral, plus the labor-intensive nature of the credits and
hence the shortage of profitability of small-credits. BASIC BANK (Bangladesh), Bank Rakyat
Indonesia (BRI) in Indonesia, ADEMI within the Dominican Republic and are some samples of
successful lenders to poor clients. However, BRI does request collateral and a loan co-signer,
while ADEMI and BASIC BANK will take the simplest collateral it can.
3. Credit Unions: Credit unions are organizations that are formed on the idea of monetary
relation of savings and loans between its members. They accumulate savings from its members
and supply short-term credit to the needed members. The demand for loans generally exceeds the
availability of savings. In most rural areas credit unions are still the solitary source of deposit and
credit services, besides the informal financial market. Because credit unions have social also as
commercial objectives, they'll have a key role to play in offering pro-poor financial services. it's
been observed that some women haven't benefited much from the credit unions because the
extent of savings required is just too high.
4. Village Banking: Village banking may be a quite financial services model that assists poor
communities to determine their own credit and saving associations, or village banks. Village
bank provides non–collateralized loans to its members and an area to take a position savings and
promote social solidarity. The sponsoring agency provides loan for the village banks and village
banks successively provide individual loans to its members. Peer pressure and peer support
among the members are considered because the bank guarantees of those loans, to make sure
repayment where small capital is repaid every four to 6 months by its borrowers. Borrowers start
with a really small loan and gradually they establish loan ceiling.
5. Self Help Groups/Associations : Rotating Savings and Credit Associations (ROSCAs) exist in
several parts of the planet but recognized under different names, like as Tontines and Susus.
they're known to be female dominated organizations that save bit of cash and members can
borrow from common pool on a rotating basis. These sorts of organizations or self help groups,
have sometimes been employed by MFI for group lending among the members.
11. Microfinance Programs of Grameen bank, at a Glance:

Microfinance Programs of Grameen bank is given at a glance:
Numbers of Members 5,579,399
Percent of Women Members 96%
Number of Canters 99,502
Number of Villages covered 59,912
Number of Branches 1,735
Number of Areas 166
Number of Zones 21
Cumulative amount Disbursed since Inception 256,497.40 (Million Taka)
Cumulative Disbursed during 2005 39,183.49 (Million Taka)
Amount of Loan outstanding 27,970.31 (Million Taka)
Members 20,138.37 (Million Taka)
Non-Members 11,521.19 (Million Taka)
Portfolio Growth Rate 39.66%
Table: Grameen Bank, at a glance (Source: Grameen Bank annual report 2005)
12. Basic features of micro-credit program of Grameen Bank:
❏ Existing rules of Grameen Bank do not apply to beggar members; they make up their
own rules.
❏ All loans are interest-free. Loans can be for very long term, to make repayment
installments very small. For example, for a loan to buy a quilt or a mosquito-net, or an
umbrella, many borrowers are paying Tk 2.00 (3.4 cents US) per week.
❏ Beggar members are covered under life insurance and loan insurance programs without
paying any cost. Groups and centre’s are encouraged to become patrons of the beggar
members.

❏ Members are not required to give up begging, but are encouraged to take up an additional
incomegenerating activity like selling popular consumer items door to door, or at the
place of begging. (Amin & Sheikh, 2011)
13. Conclusions:
The present study examined the determinants of microcredit accessibility and the impacts of
access to microcredit on poor empowerment in Bangladesh. The findings indicate that income is
inversely related with microcredit accessibility. The findings indicate that microcredit in
Bangladesh mostly helps rural men in establishing their decision-making rights and increasing
legal awareness-related issues. It is suggested that microcredit providers in Bangladesh should be
fortified to review their program planning and redesign loan products by putting more
importance on poor people that have income generating sources, since a better income negatively
influenced access to microcredit. Moreover, credit delivery should be combined with non-
financial services within the programs like training on microcredit management, proper
monitoring, and build up social networks, which seem to be absent in microcredit programs of
the many institutions in Bangladesh but are crucial for women’s integration within the social
development.
14. Reference:

1. Rahman, F., Islam, R., Bhuiyan, A.B., & Khan, M.H. (2015). International Journal of
Business and Technopreneurship Volume 5, No. 2, June 2015 [205-224]
2. Amin, R., & Sheikh, R. I. (2011). European Journal of Business and Management ISSN
2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 3, No.4, 2011
3. https://www.thebalance.com/what-is-microfinance-and-how-does-it-work-4165939
4. https://www.assignmentpoint.com/business/finance/thesis-paper-on-grameen-bank-of-
bangladesh.html
5. Nilsson, P., (2007). Impact of Microfinance on Living Standards, Empowerment and
Poverty Alleviation of Poor People: A Case Study on Microfinance in the Chittagong
District of Bangladesh