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Yet another monsoon season was approaching; but Joshuna Begum (Begum) unlike her neighbours was not worried about her house getting damaged during the monsoon. Her house now had a tin roof, mud walls and wooden windows, a luxury in rural Bangladesh. Earlier, Begum's house had a straw roof and bamboo walls, which used to get damaged in the monsoon season, forcing the whole family to live in the kitchen. She got her hut repaired with a loan from the Bangladesh Grameen Bank (Grameen Bank)[4].
Begum wasn't the only one; there were thousands of people in rural Bangladesh who had improved their living conditions with the help of the microfinance programs of Grameen Bank, a pioneer in microfinance (Refer Exhibit I for more about microfinance). Grameen Bank helped thousands of poor Bangladeshi women to improve their lives by extending loans to them to start. their own enterprises. By 2003, it was reported that between 33-48% of Grameen Bank borrowers had moved above the poverty line[5] . By 2003, with 1,170 branches across Bangladesh, Grameen Bank was seen as a role model for microfinance all over the world.
The Grameen Bank model was replicated across the world -- not only in developing countries like India, Pakistan, and Vietnam, but even in developed countries such as Australia and the USA, where similar schemes were set up to improve the lives of the urban poor (Refer Exhibit II).
However, the Grameen Bank also attracted criticism from the media and economists all over world. Analysts pointed out that there was no proper monitoring of how the loans were utilized; it was reported that the loans availed of by women were used largely for consumption rather than for investment purposes. Analysts also pointed out that the accounting methods used by Grameen Bank were not in accordance with industry standards, and that the bank did not provide full details about its financial position and loan repayments position.
BACKGROUND NOTE
In the mid-1970s, Professor Muhammad Yunus (Yunus), then Head of the Rural Economics Program at the University of Chittagong, observed that banks did not extend their credit schemes to the rural poor as they were not considered creditworthy. In this situation, the rural poor were forced to approach moneylenders who charged exorbitant rates of interest. In 1976, Yunus launched The Grameen Bank Project, on an experimental basis to study the framework of banking services for the rural poor. The objectives of the Grameen Bank Project were:
• Providing banking services to the rural poor
• Eliminating exploitation of the rural poor by moneylenders
• Facilitating self-employment projects for unemployed rural people
• Making women self-reliant by providing them opportunities through Grameen Bank
• To reverse the vicious cycle of – low income, low saving & low investment, into a new cycle of "low income, credit, investment, more income, more credit, more investment, more income."
To start with, Yunus took loans from commercial banks and extended the money to 42 needy women in Jobra village in Chittagong district (Refer Exhibit III). The project spread to surrounding villages between 1976 and 1979. However, bankers were skeptical about the project and argued that it was initially successful because Yunus implemented it around the university campus where he had a good reputation. In order to convince bankers about the project's long-term viability, Yunus took two years leave from the university and started working in the Tangail district. The Bangladesh Central Bank provided financial support for the Tangail project and Yunus was appointed as the Project Director.
The project was started in 1979. With the successful implementation of the Grameen Bank project in the Tangail district, it was extended to other districts in the country. By 1980, Grameen Bank had disbursed $1.10 million as loans to the rural poor. In 1983, Grameen Bank was given the status of an independent bank by a special ordinance of the Bangladesh Government. Initially, government contributed around 60% of the bank's capital and bank members held the remaining 40%. However, by 2003, government held only 7% and members held a 93% stake in the bank.
Initially, Grameen Bank raised funds through bonds issued to the commercial banks and it also borrowed from Central Bank at subsidized interest rates. Grameen Bank also got funds from international agencies like the World Bank and the Ford Foundation[6]. Foreign governments also provided funds for the Grameen Bank at subsidized rates.
In the late 1980s, Grameen Bank diversified into a number of different fields. It started leasing unutilized and underutilized fishing ponds and irrigation pumps. At the same time, it also started training and extending support to people from other developing countries to replicate the Grameen Bank model in their countries.
When it was successful in leasing fishing ponds to the poor, Grameen Bank started expanding its non-banking activities. The Grameen Fisheries Foundation and the Grameen Krishi[7] Foundation were formed to oversee the leasing of fisheries and irrigation pumps. In 1989, the Grameen Trust was formed to provide training and support to people from other countries to start micro finance programs. By the mid-1990s, Grameen Bank had expanded its activities to areas such as venture capital, textile industry and Internet Service Provider (ISP). All the non-banking ventures of Grameen bank were grouped under the Grameen Family (Refer Table I).
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