Organization Model : Grameen Bank

The Grameen Bank is a Nobel Peace Prize-winning micro-finance organization and community development bank founded in Bangladesh. It makes small loans (known as microcredit or "grameencredit") to the impoverished without requiring collateral. 

Micro-credit loans are based on the concept that the poor have skills that are under-utilized, and with incentive, they can earn more money. A group-based credit approach is applied to use peer-pressure within a group to ensure the borrowers follow through and conduct their financial affairs with discipline, ensuring repayment and allowing the borrowers to develop good credit standing. The bank also accepts deposits, provides other services, and runs several development-oriented businesses including fabric, telephone and energy companies. The bank's credit policy to support under-served populations has led to the overwhelming majority (98%) of its borrowers being women.

Grameen Bank originated in 1976, in the work of Professor Muhammad Yunus, Professor at University of Chittagong, who launched a research project to study how to design a credit delivery system to provide banking services to the rural poor. Based on his positive results, in October 1983 the Grameen Bank was authorized by national legislation as an independent bank. In 2006, the bank and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize.

Grameen’s origins are sourced to a discussion Yunus had with Sufiya Begum, a young mother who, he recalled, "was making a stool made of bamboo. She gets five taka from a business person to buy the bamboo and sells to him for five and a half taka, earning half a taka as her income for the day. She will never own five taka herself and her life will always be steeped into poverty. How about giving her a credit for five taka that she uses to buy the bamboo, sell her product in free market, earn a better profit and slowly pay back the loan?" Describing Begum and the first 42 borrowers in Jobra village in Bangladesh, Yunus waxed eloquent: "Even those who seemingly have no conceptual thought, no ability to think of yesterday or tomorrow, are in fact quite intelligent and expert at the art of survival. Credit is the key that unlocks their humanity."

To his credit, Yunus had also battled backward patriarchal and religious attitudes in Bangladesh, and his hard work extended credit to millions of people. Today there are around 20,000 Grameen staffers servicing 6.6 million borrowers in 45,000 Bangladeshi villages, lending an average of US$160 per borrower (about US$100 million/month in new credits), without collateral, an impressive accomplishment by any standards. The secret to such high turnover was that poor women were typically arranged in groups of five: Two got the first tranche of credit, leaving the other three as "chasers" to pressure repayment, so that they could in turn get the next loans.

Organization Highlights :

• Poor borrowers without collaterals making profits and repaying 
• Financing out of his own pocket 
• Yunus convinced the Bangladesh central bank to help him set up a special branch that catered the poor of Jobra 
• Grameen went nation wide, village by village, thanks to donor agencies : IFAD, Ford foundation and the governments of Bangladesh, Norway and the Netherlands 

Group lending methodology 

• Joint Responsibility: If a member defaults all members have to pay for her or else the entire group excluded from future loans 
• 'Agency costs' were reduced as the bank delegated screening, monitoring and loan enforcement onto the borrowers via 'social sanctions' 

Grameen bank differs from other banking organizations in major aspects like:

• Purpose driving the organization is upliftment of poor and  not making profits 
• Loans not secured by collateral but based on group lending methodology 
• Monitoring on repayment enforced on borrowers, reducing effort by bank