INTRODUCTION:

Grameen Bank, started by social entrepreneur Dr. Muhammad Yunus in Bangladesh, is

strategically designed to combat poverty in one of the poorest countries on earth. It
revolutionized the way rural credit market has been seen traditionally. It showed that rural poor
are as bankable as anyone. Grameen put forth a model which was economically sustainable. The
model not only catered to economical but social needs of the society as well. It is the typical
example of a grass root organisation which adhered to its principles and overcame all the hurdles
to be what it is today. For this extraordinary work and contribution in 2006, Yunus and the bank
were jointly awarded the Nobel Peace Prize, "for their efforts to create economic and social
development from below."

In implementing its plan, Grameen has given out over $4 billion to the “poorest of the
poor,” empowered over 3 million women, and helped lift millions more out of poverty.

GRAMEEN BANK:

High population and less land area of the country mean that more than 50% of people are
landless. Over 80% of the Bangladeshi population lived below poverty line. 1970s has
particularly been trying times for Bangladesh, rife with war, floods and famine. It was in this
decade that Dr. Mohammed Yunus, Ph d in Economics from Vanderbilt University Nashville,
TN returned to Bangladesh in 1972. Upon his arrival Dr. Yunus tried working in government but
left the job within two months and took up teaching job in University of Chittagong where he
headed its economics department. It was near this university where Dr. Yunus saw poverty very
closely. He was greatly moved by the fact that a group of 42 skilled men who needed only USD
26 as working capital were not able to avail it from formal sources. In Dr. Yunus’s own words “I
felt extremely ashamed of myself being part of a society which could not provide $26 to forty-
two able, skilled human beings who were trying to make a living.” Seeing this Dr. Yunus set
about trying to establish a link between the bank and the poor. At each place he got the same
reply – without collateral, without guarantee, the banks would not make loans. This prompted
him to convince the banks to give loans to the poor on his personal guarantee. Dr. Yunus
convinced the Bangladesh Central Bank to help him set up a special branch that catered the poor
of Jobra, Jobra being a village nearby university where this particular case was spotted. This
ultimately resulted in Jobra Rural Bank Project. It was here in this project that Dr. Yunus
developed some of the first procedures to ensure that people pay back. To bank’s surprise the
project was successful and each person repaid on time, no defaults. Another trial in Tangail
(North Central Bangladesh) assured success was not region-specific. This trial bolstered Dr,
Yunus’s belief that poor are indeed bankable.

Dr. Yunus ran after the banks to get the needs of the poor fulfilled until one day he
thought of opening a bank himself. In 1983, after a lot of running around, he received permission
from the government to set up a bank, this even involved a policy change at national level. Thus,
the Grameen Bank was born as independent financial institution.

Grameen lends to the poorest of poor but more importantly not with pity or charity. The
rates are higher than regular financial institution. Even so the bank has extremely high rate of
repayment (over 98%). Behind such high repayment lies a number of innovative procedures and
products crafted especially and suitably for poor’s diverse needs. Grameen bank initially
expanded with the help of donor agencies and government support such as IFAD, Ford
Foundation, and the governments of Bangladesh, Norway, and the Netherlands. However, the
bank has been financially self sustained since 1995 depending on no grants whatsoever. The
bank offers variety of interest rates such as 20% declining basis (income generating loans), 8%
for housing loans, 5% for student loans, 0% loans for struggling members (beggars). Grameen
bank even maintains pension funds for its patrons as well as offers life insurance at the same
time.

A whole new organisation structure was evolved to facilitate the lending. Also the
lending has specifically been targeted at ladies. The lending is done in a very structured manner
where a group of 5 is formed (self selection) at the village level. 6 to 8 such groups form a
Center which elects a chief and a deputy for administrative operations. These 50 to 60 centers
form a branch. These branches combine and form area offices. The area offices report to one
zonal office which finally reports to a head office. Key to the rapid growth of Grameen bank has
been this group lending methodology only. The loans are made to the individual participants
within the group. This small group has a joint responsibility that is if a member defaults all
members have to pay for her or else the entire group excluded from future loans. Group lending
under joint responsibility gives costumers incentives to select responsible partners, to (peer)
monitor and repay.

The advantages of adopting such a methodology were immense. Some of them have been
listed below:

• Economies of scale

• “Agency Costs” were reduced as the bank delegated screening, monitoring, and loan
enforcement onto the borrowers via “social sanctions”

• Efficiency gains: borrowers faced lower agency costs

• Promotion of mutual assistance and solidarity (insurance)

The Foods in the 1990s prompted Grameen to lend extensively for rehabilitation. The
amounts lent exceeded capacity to repay and too strict rules of repayment. Default by a single
member triggered the whole group resulting in a mass default, this turned out to be pretty bad
and mass scale default was seen. This prompted Grammen to rethink its strategy and evolve in to
more flexible and newer avatar which we now call as Grameen II. It involved major overhaul in
existing processes and procedures such as relaxation of fixed-size weekly installments, not
repaying in full did not equal “default” anymore, sharp reduction in number of financial products
(family loans, seasonal loans…), two-speed system: high and low, custom-made credit services
etc.

INNOVATION AND INVENTION:

The credit needs of rural poor have been fulfilled by traditional moneylenders or local
traders. No institutional approach to credit on such large scale for poorest of the poor was ever
attempted. This becomes even more important for the country/place of implementation which in
this case is Bangladesh. It is the implementation of the approach which makes Grameen a
highlight. Instead of being a science driven novelty, it comes out as application of knowledge in
local context. Grameen as evident from the case did not only bring economic change in the lives
of the people. The mode of lending was new to the people and suitable as per their needs locally.
Besides it also has significant social importance as it resulted in massive mobilization of people
across the country. It also adopted a whole new organizational structure and approach to tackle
and meet the demands of the poor in better ways. Looking at these facts it would be pretty
relevant for us to view the case through innovation frameworks and see if it has any virtue. We
now more closely examine the two dominant views in innovation namely the linear and systems
view.

INNOVATION VIEWS: LINEAR AND SYSTEMS

LINEAR VIEW:

SYSTEMS VIEW:
 The linear view is more of ‘toss it over the wall’ ideology. It is heavily driven by basic
sciences and adopts a selling approach. Linear view fits more with invention framework.
Whereas the systems view takes a more holistic approach. This view highlights the constant
interaction between demand, business, educational institution, infrastructure and some
intermediary. It would be very hard to find a more suitable example for systems view than
Grameen. There had always been a steady and huge demand for credit in rural areas especially
among poorest of poor. Dr. Yunus was a part of the educational system and infrastructure where
he identified this demand and subsequently launched a pilot study in the Jobra village to prove
the credit worthiness of poor. This study was at first launched with the financial assistance from
the banks. With the passage of time the role of the banks was minimized and the intermediary
grew stronger ultimately resulting in Grameen bank. In this whole process of evolution of
Grameen we can easily see that all the stakeholders stated in systems view continually interacted
with each other. We now go beyond the graphical explanation and look at innovation system key
criterion and fit of Grameen with these parameters.

• Focus: The focus from the start was not on research, science or technology but on the
application of knowledge. The knowledge that mutual trust, accountability and social capital
can be pretty strong motivator and non physical collateral.

• Interaction and learning: This model grew from within. This specifically means that the
products were designed and developed as per demands and needs of poor. The level of
interaction is evident in its board where all the directors are elected from among borrowers.

• Linkages: Grameen did not work as an independent unit or without collaboration. Typical to
an innovation it built linkages and developed relations with various in the same field which
in turn helped it in expanding in its early years.

• Role of policies: The success of the model brought about several policy changes and
government support. The prevalent policies and bank polices were proving to be a hindrance
for the poor (collateral, individual lending). Grameen changed the whole rule of the game
and proved that poor are indeed bankable. In the process Dr. Yunus brought about a national
level policy change as well which helped in establishment of Grameen.

• Inclusion of stakeholders and the demand side: As already discussed demand always
played a major role in functioning and course direction of Grameen. Also the innovation like
Grameen II shows the highly adaptable and acute sense of Grameen to judge the changing
needs of the stakeholders and respond accordingly.

• Learning and Capacity Building: Grameen since its inception concentrated on building
new competencies by diversifying into new businesses or through new products. Striving for
 the sustainability Grameen has been self sustainable since 1995. The current structure of
Grameen has been result of years of learning and refinement.

CHARACTERISTICS:

Grameen has been one of the most successful interventions of all time. Not only it helped
the rural poor to help themselves with credit needs but it also helped in mobilizing poor, increase
social capital, restore self respect of the poor and inspiring confidence. Grameen also exhibits
certain characteristics as radical process approach (group lending approach, financial
intermediary, weekly repayment scheme, innovative organizational structure etc.), context
specific application of micro finance as it had already been tried in countries such as Columbia,
Brazil etc. nonetheless Grameen proved to be a pioneer in making the model a viable and
profitable option. The trigger for this model were not one but many. Be it personal belief and
experience of Dr. Yunus, heavy demand supply gap for credit in rural areas or the potential of
this model for social upliftment all this combined to provide a huge impetus and sustained
growth to the model resulting in its immense success.

DIAGNOSIS FRAMEWORK:

Till now we have extensively discussed Grameen as an innovation system. Here at the
last leg of our discussion we would diagnose the case with the help of certain framework which
would help us in better understanding of Grameen in a phase wise manner.

The innovation system approach can be diagnosed in two ways. One approach is
Orchestrated system while the other is Opportunity driven system. In this particular case we
would use opportunity driven system as Grameen came in to existence only because of heavy
demand for credit in rural areas. The model grew from scratch and was built over a period of
time. The model drew support from various agencies national and international both but at no
point in time was totally driven by them; instead it promoted and proved its own ideology.
Grameen has truly been a bottom up organisation which was shaped by the needs of poor and
subsequent opportunities arising because of it.

The opportunity system view typically has four phases namely nascent, emergence,
stagnation and innovation. Here I would like to discuss two things first the stagnation and the
meaning of innovation at this point. Instead of stagnation phase I would be more inclined to take
expansion phase because in my opinion Grameen never really stagnated and more so in the time
frame we are looking at it (1972 -1995). In fact after 1985 Grameen membership and branches
grew exponentially. Also putting innovation categorically at last does not mean that the model
can be termed as an innovation per se but it actually means a continuously evolving sub sector
delivering economic growth in socially equitable and environmentally sustainable ways. Whole
of Grameen model can be put in to a matrix type framework as below:
Analytical Nascent (76) Emergence(83) Expansion(95) Innovation
Element

Actors Individual Champion, Individual Poorest Extensive branch

Local Banks Champion, sections(88% networks, Grameen
government share), Grameen Foundation,
support(60% Bank Donor Diversification
share), Consortium, Govt.
international banks, NGOs,
patronage
Central Bank,

Attitude and Demand side Emergence of Extensive lending, Partnering and

Practices mechanism Grameen bank for full grown collaboration.
poor (formal organisation, (Telenor, Intel)
(localized) presence) pension schemes

PART 1:

The four phases have been split as per timeline indicated alongside. We look at different
characteristics one at a time.

• Actors: In first two phases Dr. Yunus played a major role and government and
institutional support has been dominant. However, with expansion the government stake
was substantially removed and ownership almost transferred to the poor themselves. The
actors at this stage were mainly poor themselves and partnering financial institution.
After this Grameen went in to phase of rapid expansion and diversification to attend the
needs more widely and holistically.

• Attitude and Practices: The practice in the initial stages before Grameen was more of
financial intermediary acting based on local demand. At second stage Grameen bank was
evolved and a more formalized practice for rural credit was put in place. After its
formation Grameen bank grew extensively. It did not limit only to credit supply but it
realized the important other additional services such as pension and insurance. This
resulted in diversification in variety of activities.

PART 2:
Analytical Element Nascent (76) Emergence(83) Expansion(90) Innovation

Patterns of Limited Formal body Outside ambit of Many NGOs

interaction networking ( to (Grameen bank) government and funding
surrounding for interaction hence ineligible agencies,
villages of with other for subsidies Technical
Chittagong), agencies (1991 policy collaborations.
small voluntary change), Public-
team private shift

Enabling Individual Own bank, Self sustaining Huge untapped

bodies/environment effort, local government and model (except market,
banks international for natural Multiple studies
support calamity 1991 and reports on
cyclone, 1998 the MF sector
flooding),
Media attention,
social benefits

• Pattern of interaction: As explained in the table in nascent phase only a small team of
volunteers worked in local villages with limited geographical spread or other institutional
linkages. With formation and expansion of Grameen bank the networking with
international donor agencies were strengthened. It also resulted in subsequent removal of
government involvement in the bank. The loan waiver given by Bangladesh government
in 1991 did not include Grameen bank beneficiary, this marked a remarkable shift in
Grameen bank policy, shifting it from public to private mode. Grameen then expanded its
interaction to NGOs, technical firms and other MFIs.

• Enabling bodies/environment: Dr. Yunus played a pivotal role in the initial

establishment and survival of Grameen bank. Help received from international donor
agencies as well as local government made the environment more sustainable for
Grameen. After about 1990, Grameen became financially self sustained and received an
active support from media as well as social institutions. Even after such huge lending and
emergence of other micro credit institution the demand remains very high leaving enough
room for everyone. Also the diversification of Grameen has opened much more fields to
work in to.

SOME OBSERVATION:
 Grameen has been a model development initiative. Almost everything Grameen did
worked out great except for some hiccups. For strengthening the organisation it becomes
important that we critically look at some of the failures and ways overcome them.

For the most part of its initial years and even now to some extent Grameen relied on
charisma, extraordinary vision and brilliance of Dr. Yunus. He almost single handedly changed
the whole environment, policy and credit terms to bring about this revolution in rural credit
environment. Grameen still depends heavily on him and his aura is as big as the Grameen if not
bigger. Grameen needs to devise a way so that a new breed of charismatic or equally competent
leaders can fill in the gap. This can partially be achieved by identifying the talents among the
members and honing the same.

Grameen is very innovative in its structuring but a closer look shows that it still remains to be
pyramidal in nature despite being a cooperative, thus a shift towards federated or some other
suitable structure might be looked in to rather the proper organizational structure needs to be
understood and implemented by the employees.

Also its gross failure to tackle the 1991 shocks raises many questions pointing out the lacuna
in planning and policy. The capability needs to be built to tackle such aggregate shocks. This is
very easier said than done as Grameen even now works on a no frill basis and development of
any such capability would require heavy investments.