Grameen Bank is founded on the principle that get a loans are better than charity to interrupt poverty: they offer people the opportunity to take initiatives in business or agriculture, which provide earnings and enable them to pay off the debt.
The Grameen Bank is founded on the belief that people have endless potential, and unleashing their initiative and creativity which helps them end poverty. Grameen Bank has offered credit to hierarch of people formerly underserved: women , the poor, unemployed and illiterate people . Access to credit is based on reasonable terms , example as the group lending system and weekly-installment payments, with reasonably long terms of personal loans, enable the poor to build on their skills to earn higher income in each cycle of personal loans .
Grameen’s objective has been to promote financial independence among the poor.Muhammad Yunus encourages all borrowers to become savers, so that their capital will be converted into new loans to others. Since 1995, Grameen Bank has funded 90%of its loans with interest income and deposits collected, aligning the interests of its depositor-shareholders and new borrowers . Grameen Bank converts deposits made in villages into loans for the more needy in the villages (Yunus and Jolis 1998).
Grameen Bank targets the poorest of the poor, with a particular emphasis on women . They receive 95% of the Grameen bank’s loans. They had less access to financial alternatives of incomes and ordinary credit lines . Women traditionally were seen to have an inequitable share of power in household decision making. Muhammad Yunus and others have found that lending to women generates good effects, including empowerment of a marginalized segment of society . They share betterment of income with their children , unlike many men. Muhammad Yunus claims that in 2004, women still are difficult to get new loans; they comprise less than 1% of borrowers from commercial banks . The interest rates charged by microfinance institutes including Grameen Bank is high compared to that of traditional banks; Grameen’s interest on its main credit product is about 20%.
Grameen has diversified the types of loans it makes. It supports hand-powered wells and loans to support the enterprises of Grameen members’ immediate relatives. It has found that seasonal agricultural loans and lease-to-own agreements for equipment and livestock help the poor establish better agriculture. The bank has set a new goal: to make each of its branch locations free of poverty, as defined by benchmarks such as access to clean water and latrines having adequate food .
Grameen is best known for its system of solidarity lending.This bank also incorporates a set of values embodied in Bangladesh by the Sixteen Decisions. At every branch of Grameen , the borrowers repeat these decisions and vow to follow all of them. As a result of the Sixteen Decisions, borrowers of Grameen Bank have been encouraged to adopt positive social habits. One such habit includes educating kids by sending them to school. Almost all Grameen borrowers have their school-age children enrolled in regular classes since the Grameen Bank embraced the Sixteen Decisions,. This in turn helps educate and bring about social change in the next generation.
Solidarity lending is a cornerstone of micro loans, and the system is now used in more than 43 countries. Though each borrower must belong to a 5-member group, the group is not required to give any guarantee for a loan to its members. Repayment responsibility rests solely on the individual borrower. The group and the centre oversee that everyone behaves responsibly and none gets into a repayment problem. No formal joint liability exists, it means group members are not obliged to pay on behalf of a defaulting member. But, in practice the group members often contribute the defaulted amount with an intention to collect the money from the defaulted member at a later time. Such behavior is encouraged because Grameen does not extend further credit to a group in which a member defaults.
No legal instrument (no written contract) is made between Grameen Bank and its borrowers; the system works based on trust ( it means unsecured loans ).To supplement the lending, Grameen Bank requires the borrowing members to save very small amounts regularly in a number of funds, designated for emergency, the group, etc. These savings help serve as an insurance against contingencies.
In a country in which few women may take out loans from large commercial banks, Grameen Bank has focused on women borrowers; 97% of its members are women.While a World Bank study has concluded that women’s access to micro loans empowers them through greater access to resources and control over making decision , some another economists argue that the relationship between micro loans and women-empowerment is less straightforward.
In other areas, Grameen Bank has had very high payback rates—over 98%. However, according to the Wall Street Journal, in 2001 20% of the bank’s loans were more than a year overdue. Grameen Bank says that more than half of its borrowers in Bangladesh (close to 50 million) have risen out of acute poverty thanks to their loans, as measured by such standards as all household members eating three meals a day , having all children of school age in school , rainproof house , clean drinking water , a sanitary toilet, and the ability to repay a 300 taka-a-week (around $4) loan
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