The Peoples Fund - A Progress Report
  Defining Grameen-style Microcredit

Over the years the term “microcredit” has come to characterize the work and strategies of an increasingly diverse movement. In a recent speech, Dr. Muhammad, the founder and Managing Director of the Grameen Bank of Bangladesh and a GF-USA Director, Addressed the confusion that sometimes results from the various uses of this term and dateiled to core values that characterize Grameen’s approach to micro-credit. The text of the entire speech, of which an edited excerpt appears below, can be found at

“The word “micro-credit” did not exist before the seventies, but since then it has become a buzzword among development practitioner. In the process the word has been imputed to mean many things to many people. No one now gets shocked if somebody uses “micro-credit” to mean agricultural credit, or rural credit, or cooperative credit or consumer credit or credit from the savings and loan associations, or from credit unions or even from money lenders. As a result, I think this is creating a lot of confusion in the discussion about microcredit and in the process of designing and institutions.

Whenever I use the word microcredit, I actually have in mind Grameen-type microcredit or Grameen credit. But if the person I am talking to understands it as some other category of microcredit, my arguments will not make any sense to him. Let me therefore list a few distinguishing features of Grameen-credit.

Defining Grameen-Style Microcredit

Mission: Its mission is to help poor families to help themselves to overcome poverty. It is targeted to the poor, particularly poor women. Reaching the poor is its non-negotiable mission. Reaching financial sustainability (or profitability) is a directional goal. It must reach sustainability as soon as possible, so that it can expand its outreach without funding constraints.

Purpose: It aimed to create self-employment for income generating activities and housing for the poor rather than for consumption.

Basis: The most distinctive feature of Grameen-credit is that it is not based on any collateral or legally enforceable instrument. It is based on “trust”.

Methodology: In order to obtain loans, a borrower must join a group of borrowers and make payments in weekly or bi-weekly installments. Compulsory and voluntary savings products are offered wherever possible. The bank is required to go to the people, rather than requiring the poor people to come to the bank.

Ownership and Cost: Generally Grameencredit is provided through non-profit organizations on institutions owned primarily by the borrowers. If it is done through for- profit institutions not owned by the borrowers. Efforts should be made to keep the interest rate as close as possible to the market rate prevailing in the commercial banking sector, without sacrificing sustainability.

Social Development: Grameencredit gives high priority to building social capital amongst the poor. This is done through the formation of self-governing groups and centers (federations of groups). To define the relevant social agenda, locally tailored versions of the “16 decisions” (Grameen Bank’s social constitution) are developed through an intensive process of discussion amongst the borrowers.

Grameencredit is based on the premise that the poor have skills that remain unutilized or under utilized With micro-credit, we simply supply them with the tools to apply their passions and creativity to lift themselves out of poverty.”

Excerpted from a speech by Professor Muhammad published in Grameen Connections, GF-USA.
For more information on GF-USA’s efforts to replicate the success of the grameen bank around the world please contact Dr. Mike Getubig, Jr. at [email protected] or 202-628-3560, ext, 106. To read the “16 Decisions”, visit decisions .

 Editor : Muhammad
Executive Editor : Khalid Shams 
Editorial Assistance :
Nazneen Sultana
Lamiya Morshed 
Editorial Advisory Board: Argentina : Pablo Broder, Buenos Aires     Australia : Shan Ali, Sydney     Chile : Benardo Javalquinto, Santiago     Colombia : Mauricio Fernandez, Bogota     France : Maria Nowak, Paris     Germany : Nancy Wimmer, Munich     Malaysia : David S. Gibbons, Kuala Lumpur     Philippines : Dr. Cecilia D. Del Castillo, Bacolod City     USA : Alexander Counts, Washington DC
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