Grameen Bank Expands its Horizon
Bank Serves the Poor at their Door Steps
In keeping with its avowed objective to stand by the poor to overcome the spectre of poverty that haunts them on daily basis, Grameen Bank continued its thrust to expand its network outreach in 2011 to bring new areas and new members within its operational fold. A fresh batch of 30,375 people joined the Grameen family in 2011.
The year under review saw the aggregate number of members reaching a staggering number of 8.37 million members. By the end of 2011, the total number of branches reached 2,565. With 40 Zonal, 266 Area and 2,565 branch level offices, Bank’s network now encompasses 81,380 or over 97% of the country’s nearly 84,000 villages spread across 479 upazilas or sub-districts in all the 64 districts of Bangladesh. Grameen’s network now literally dot the entire landscape of rural Bangladesh
Unlike conventional banks, Grameen Bank carries its services to the door steps of the poor to overcome their age old inhibitions and inconveniences associated with visits to a formal financial institution, usually located away from their homes. All banking transactions except loan disbursements are done in the meetings of the borrowers at the village level centres organized by the Bank’s centre manager. New branches are required to fund themselves entirely with the deposits they mobilize. No fund from head office or any other office is lent to them. A new branch is expected to break even in the first year of its operation.
Interest Rate Structure
The interest rates of the Bank are structured with an eye on the financial status and repayment capacity of the borrowers with zero or concessional rates for the special and underprivileged groups. The interest rates on loans for the 4 categories of Grameen Bank borrowers are:
- Loans for Income Generating Activities (IGA) 20% per annum (declining basis)
- Housing Loans 8% per annum
- Student Loans
- i. During the study period of about 3 - 5 years 0%
- ii. After the study period 5% per annum
- Struggling Members (beggars) 0
All interest rates are simple and are calculated on declining balance method to ease the debt repayment burdens of the borrowers. For instance, for an incomegenerating loan of say, BDT 1,000, the borrower repays the entire amount within a year by weekly installments; the total amount repayable works out BDT 1,100 (principal amount BDT 1,000+ interest BDT 100) equivalent to 10% at the flat rate. Grameen Bank offers very attractive interest rates for deposits with a minimum of 8.5 per cent and maximum of 12 per cent per annum.
Loans and Deposits
The cumulative disbursement of the Bank by the end of December, 2011 under various categories reached BDT 703 billion equivalent to USD 11.60 billion at the exchange rate that prevailed at the end of the year. The cumulative amount of savings deposited with the Bank by its members reached about BDT 66.55 billion by the end of year under review.
Financial Results for 2011
In spite of pursuing many poverty focused or socially desirable programmes at zero or subsidized interest rates, Grameen Bank continues to achieve significant growth in terms of operating and net profits. During the year the Bank earned a profit of BDT 684 million and declared 30% cash dividend for the year. The bank has also created a Dividend Equalization Fund to ensure a fair degree of stability for distribution of dividends over the years. Payment of attractive dividends serves as inspiration for shareholders to relentlessly work toward sustaining the momentum that has been a hallmark of GB’s performance year after year. One significant feature that contributed to the Bank’s sound financial health is that the borrowers are also the Bank’s shareholders.
The Grameen Generalized System
This system introduced in 2000 after long deliberations has stood the test of time and assists the borrowers to overcome their financial constraints arising from reversal of personal fortunes or due to natural calamities like flood, tsunami and draught. The system is simple and customer friendly that provides opportunity to a member to remain in the Bank’s mainstream rather than opting out of Bank. As mentioned earlier, the Grameen Generalised System offers four types of loan products: 1) the basic loan, 2) the housing loan, 3) the higher education loan, which runs parallel to the basic loan, and 4) the struggling members (beggars) loan programme. A basic loan is converted into a flexible loan or reschedule loan, if the borrower finds it difficult to pay the weekly installments. Flexible loan reduces the installment size to a tolerable level. At the end of 2011, nearly 9 per cent of the borrowers were on flexible loans. Flexible loan is not an independent loan. It is only a temporary detour from the basic loan. The borrower tries his or her best to go back to the basic loan. If a borrower fails to repay the basic loan and is unwilling to go into flexible loan, s/he is reckoned as a defaulter. In that event, 100 per cent provision is made against his/ her outstanding dues. If a Flexible loan is not paid back in two years it is considered as overdue; after three years, it is entirely written off. The rate of recovery of Basic Loan is close to one hundred per cent.
Housing for the poor
Introduced in 1984, housing loan has become a very popular programme for the borrowers aspiring to build a decent but inexpensive shelter over their heads. The ownership of a house infuses people with a sense of pride, security and self-respect that, in turn, provides a stepping stone to achieve economic prosperity and improved social status. The ceiling for a housing loan is BDT 15,000 for construction of a simple tin-roof house. The average size of the loan is BDT 13,055 (USD 164) per borrower. The interest rate is 8 percent per annum, repayable over a period of five years. During 2011, housing loans amounting to BDT 47.50 million (USD 0.60 million) were provided to build 3,991 houses. It brings the total number of houses built with the housing loans to 691,322 since inception.
Higher Education Loans
Grameen Bank introduced the Higher Education Loan programme in 1997 to open special windows of opportunities for talented children of its borrowers to pursue higher education in medicine, engineering, agriculture and other higher education programmes at the graduate (with honours) and postgraduate levels. The loans are intended to cover all expenses incurred by the students from the beginning to the end of the study period. The loans cover admission fees, course fees, cost of stationery, food and accommodation and other related expenses. By the end of the year under review 50,177 students pursuing courses in disciplines were provided loans under this programme.
Many borrowers have shown dynamisms to new opportunities to move ahead on the road to success in business ventures and have shown promises of success in bigger ventures. Grameen Bank provides larger loans, called micro-enterprise loans, to these fast moving members. There is no restriction on the loan size. So far 3,733,833 members availed of the micro-enterprise loans. A total of BDT 110.88 billion (USD 1603.97 million) has been disbursed under this category of loans. Average loan size is BDT 29,697 (USD 373 app). The maximum size of a single loan taken so far is BDT 7.5 million (USD 94,138) for land, saw mill & furniture business. The other major categories of activities financed are grocery shops, pharmacy, dairy farms, auto-rickshaw for transportation and stone business for construction.
Scholarships for the children of Grameen members
In addition to student loans mentioned earlier, the Bank offers scholarships to the children of Grameen members to ease their financial constraints for payment of school dues, purchase of books and stationery. At least 50% of the scholarship money must go to girls and the remaining 50% will given to both boys and girls based on overall performance. About 25,000 children, at various levels of school education, were awarded the scholarships during the year under review. It brings the aggregate number students since the inception of the programme to 165,264 up to December, 2011, involving an amount of BDT 264.92 million (USD 3.33 million).
Under this programme, all outstanding loans are paid off from the insurance fund in the event of death of a borrower. Insurance fund is created with interest generated through a savings account created by deposits of the borrowers on annual basis. Borrowers are required to put amount equal to 3.0 per cent of the loan amount in a designated savings account each time a loan is taken. If the borrower’s loan amount does not exceed the amount in the previous year, s/ he does not have to add any more money into this account. If it exceeds, then she pays 3.0 per cent of the incremental loan amount. Balance of deposits under loan insurance programme stood at BDT 7,281 million (USD 91.39 million) as on December 31, 2011. Up to that date, outstanding loans and interest amounting to BDT 2152.62 million (USD 31.20 million) due from 223,970 deceased borrowers was paid off under this programme.
Each year families of deceased borrowers of Grameen Bank are paid amounts ranging from BDT 17 to 20 million (USD 0.25 to 0.29 million) as life insurance benefits. Each family receives BDT 1,500 which the deceased was a Grameen Bank borrower. A total of 141,314 GB borrowers died by the end of 2011. Their families collectively received a total amount BDT 247.68 million (USD 4.82 million). Borrowers are not required to pay any premium for this life insurance. Borrowers come under this insurance coverage by being a shareholder of the bank.
Grameen Bank provided loans to 463,741 borrowers up to 2011 to buy mobile phones and offer telecommunication services in nearly half of the villages of Bangladesh .It is also generating revenue for Grameen Phone, the largest telephone company in the country. Village phones use 2.22 per cent of the air-time of the company, while their number is only 1.89 per cent of the total of telephone subscribers of the company.
Beggars As Members
Begging is the last resort for survival for a poor person, unless he/she turns into crime or other forms of illegal activities. Among the beggars there are disabled, blind, and retarded people, as well as old people with ill health. Grameen Bank introduced a special programme in 2002, called Struggling Members Programme exclusively for the beggars. By now over 110,902 beggars have joined the programme. Total amount disbursed stands today at BDT 159.13 million. Of this amount of BDT 128.96 million (81% of the amount disbursed) has already been repaid. GB is happy to note that 17,113 beggars have left begging and are making a living as door-todoor sales persons. Among them 9,131 beggars have joined Grameen Bank groups as main-stream borrowers.
Success of Members in Election of Local Bodies
Grameen system provides a flavour of election process to the borrowers of the Bank. They routinely go through electing group chairman, secretaries, centre-chiefs and deputy centre-chiefs every year. They elect board members for running Grameen Bank every three years. This experience provides them a launching pad to run for public offices with a fair degree of success. In 2003, for example, local government (Union Porishad) election 7,442 Grameen members contested for the reserve seats for women. Of the 3,059 members came out successful.
Policy for Opening New Branches
New branches are required to finance themselves entirely with the deposits they mobilize. No fund from head office or any other office is lent to them. A new branch is expected to break-even within the first year of its operation.
Computerized MIS and Accounting System
Accounting and information management in all the 2565 branches have been computerized. It has freed the branch staff from the routine paper work and devote more time to administer the loan portfolio and supervise the borrowers and use of loan funds. Branch staffs are provided with pre-printed repayment amount of dues for each weekly meeting. If every borrower pays according to the repayment schedule, the staff has nothing to write on the document except for putting the signature. Only the deviations are recorded. Paper work is done only at centre level to enter figures in the borrowers’ passbooks.
‘Stars’ for Achievements
Grameen Bank provides colour-coded stars to branches and staffs for 100 per cent achievement of a specific task starting from 2001. A branch or a staff having five stars indicates the highest level of performance. At the end of 2011, 599 branches got green stars for maintaining 100 per cent repayment record, 1,973 received blue star for earning profit, 1,904 branches earned violet stars by meeting all their financing out of their earned income and deposits, 347 branches have applied for brown stars for ensuring education for 100% children of Grameen families and 57 branches applied for red stars indicating branches those have succeeded in taking all its borrowers families over the poverty line. The stars are confirmed only after the verification procedure is completed.