Grameen Bank vs Conventional Banks
Grameen Bank
- To bring economic and social change to the poor.
- Based on trust
- Looks at what the borrower can have
- Located in rural areas
- The bank goes to the customer
- Flexible payment scheme
- Most owners and borrowers are poor women
- Loans are for productive activity, not consumption
Conventional Banks
- To make profit
- Based on collateral
- Looks at what the borrower already has
- Located in urban areas
- Customers have to go to the bank
- Strict payment scheme
- Most owners and borrowers are wealthy men
- Loans could be used for consumption or other activities.
Structure of Grameen Bank
How It Functions:
- 5 member group is formed, they must be neighbors but not relatives.
- Group approves all loan requests, but liability lies with the individual.
- 8 Groups to a Center.
- Lending is in the order of 2:2:1 (leader being the last).
- Close supervision of credit by the group as well as the bank staff.
- Group meets once in a week to plan out loan repayment.
- Stress on credit discipline and collective borrower responsibility or peer pressure.
- Very small loans given without any collateral, no legal instrument, no joint group guarantee or joint liability
- Loans repayable in weekly installments spread over a year .
- Eligibility for a subsequent loan depends upon repayment of first loan
- Loans are given to Individual for quick income generating activities which employ the skills that borrowers already posses
- Interest rate varies between 15-24 % p.a. on flat basis and on a weekly basis.
Savings programs:
- It is compulsory for every member to save one Taka per week which is accumulated in the Group Fund.
- This account is managed by the group on a consensual basis, thus providing the members with an essential experience in the collective management of finances.
- The amount in the Fund is deposited with Grameen Bank and earns interest.
- A member can borrow from this fund for consumption, sickness, social ceremony or even for investment (if allowed by all group members).
Purpose of Granting Loans
- Average loan size is $120 and must be used for business venture
- Self Employment- Income generating activities.
- Credit for building sanitary latrines
- Credit for installation of tube wells that supply drinking water and irrigation for kitchen gardens
- Credit for seasonal cultivation to buy agricultural inputs
- Loan for leasing equipment / machinery, i.e cell phones purchased by Grameen Bank members
Indicators for Measuring Social Impact
- Family lives in a house with a tin roof
- Family members drink pure water
- All children in the family over 6 years go to school
- Minimum weekly loan installment in Tk 200 or more
- Family uses sanitary latrine
- Family members have adequate clothing for everyday use
- The borrower maintains an average balance of 5000 Tk
- Family can take care of health
- Family has no difficulty having 3 square meals a day
- Family has sources of additional income
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