History

Ideas relating to microcredit can be found at various times in modern history.

Jonathan Swift inspired the Irish Loan Funds of the 18th and 19th centuries.[2] In the mid-
1800s, Individualist anarchist Lysander Spooner wrote about the benefits of numerous
small loans for entrepreneurial activities to the poor as a way to alleviate poverty.[3] Ideas
relating to microcredit were mentioned in portions of the Marshall Plan at the end of
World War II.[citation needed]

The origins of microcredit in its current practical incarnation, with attention paid by
economists and politicians worldwide, can be linked to several organizations founded in
Bangladesh, especially the Grameen Bank in the 1970s and onward, for which its founder
Muhammad Yunus was awarded the Nobel Peace Prize in 2006.[4]

Grameen Bank

Grameen Bank Head Office at Mirpur-2, Dhaka

Main article: Grameen Bank

In 1976, during visits to the poorest households in the village of Jobra near Chittagong
University, Yunus discovered that very small loans could make a disproportionate
difference to a poor person. Jobra women who made bamboo furniture had to take out
usurious loans for buying bamboo, to pay their profits to the moneylenders. His first loan,
consisting of USD 27.00 from his own pocket, was made to 42 women in the village,
who made a net profit of BDT 0.50 (USD 0.02) each on the loan, thus vastly improving
Bangladesh's ability to export and import as it did in the past, resulting in a greater form
of globalization and economic status.[4]

Dr. Akhtar Hameed Khan, founder of the Pakistan Academy for Rural Development
(now Bangladesh Academy for Rural Development), is credited alongside Yunus for
pioneering the idea.[11] From his experience at Jobra, Yunus, an admirer of Dr. Hameed,
[11]
realized that the creation of an institution was needed to lend to those who had
nothing.[12] While traditional banks were not interested in making tiny loans at reasonable
interest rates to the poor due to high repayment risks,[13] Yunus believed that given the
chance the poor will repay the borrowed money and hence microcredit could be a viable
business model.

Yunus finally succeeded in securing a loan from the government Janata Bank to lend it to
the poor in Jobra in December 1976. The institution continued to operate by securing
loans from other banks for its projects. By 1982, the bank had 28,000 members. On 1
October 1983 the pilot project began operations as a full-fledged bank and was renamed
the Grameen Bank (Village Bank) to make loans to poor Bangladeshis. Yunus and his
colleagues encountered everything from violent radical leftists to the conservative clergy
who told women that they would be denied a Muslim burial if they borrowed money
from the Grameen Bank.[6] As of July 2007, Grameen Bank has issued US$ 6.38 billion
to 7.4 million borrowers.[14] To ensure repayment, the bank uses a system of "solidarity
groups". These small informal groups apply together for loans and its members act as co-
guarantors of repayment and support one another's efforts at economic self-advancement.
[9]

The Grameen Bank started to diversify in the late 1980s when it started attending to
unutilized or underutilized fishing ponds, as well as irrigation pumps like deep tubewells.
[15]
In 1989, these diversified interests started growing into separate organizations, as the
fisheries project became Grameen Motsho (Grameen Fisheries Foundation) and the
irrigation project became Grameen Krishi (Grameen Agriculture Foundation).[15] Over
time, the Grameen initiative has grown into a multi-faceted group of profitable and non-
profit ventures, including major projects like Grameen Trust and Grameen Fund, which
runs equity projects like Grameen Software Limited, Grameen CyberNet Limited, and
Grameen Knitwear Limited,[16] as well as Grameen Telecom, which has a stake in
Grameenphone (GP), biggest private sector phone company in Bangladesh.[17] The
Village Phone (Polli Phone) project of GP has brought cell-phone ownership to 260,000
rural poor in over 50,000 villages since the beginning of the project in March 1997.[18]

The success of the Grameen model of microfinancing has inspired similar efforts in a
hundred countries throughout the developing world and even in industrialized nations,
including the United States.[19] Many, but not all, microcredit projects also retain its
emphasis on lending specifically to women. More than 94% of Grameen loans have gone
to women, who suffer disproportionately from poverty and who are more likely than men
to devote their earnings to their families.[20] For his work with the Grameen Bank, Yunus
was named an Ashoka: Innovators for the Public Global Academy Member in 2001.[21]

"Yunus and Grameen have taken a first step, which has inspired others to take a
look at [microfinance] as a business," says John Tucker, deputy director of the
microfinance unit at the U.N. Capital Development Fund.

"If banks made large loans, he made small loans. If banks required paperwork,
his loans were for the illiterate. Whatever banks did, he did the opposite,"
marvels Sam Daley-Harris, director of the Microcredit Summit Campaign. "He's a
genius."

Grameen Bank At A Glance

April, 2010
 1.0 Nobel Peace Prize, 2006
October 13, 2006 was the happiest day for Bangladesh. It was a great moment for the
whole nation. Announcement came on that day that Grameen Bank and I received the
Nobel Peace Prize, 2006. It was a sudden explosion of pride and joy for every
Bangladeshi. All Bangladeshi's felt as if each of them received the Nobel Peace Prize. We
were happy that the world has given recognition through this prize, that poverty is a
threat to peace. Grameen Bank, and the concept and methodology of micro-credit that it
has elaborated through its 30 years of work, have contributed to enhancing the chances of
peace by reducing poverty. Bangladesh is happy that it could contribute to the world a
concept and an institution which can help bring peace to the world.

Following is a brief introduction to Grameen Bank.

2.0 Owned by the Poor Grameen Bank Project was born in the village of Jobra,
Bangladesh, in 1976. In 1983 it was transformed into a formal bank under a special law
passed for its creation. It is owned by the poor borrowers of the bank who are mostly
women. It works exclusively for them. Borrowers of Grameen Bank at present own 95
percent of the total equity of the bank. Remaining 5 per cent is owned by the government.
3.0 No Collateral, No Legal Instrument,No Group-Guarantee or Joint Liability
Grameen Bank does not require any collateral against its micro-loans. Since the bank
does not wish to take any borrower to the court of law in case of non-repayment, it does
not require the borrowers to sign any legal instrument. Although each borrower must
belong to a five-member group, the group is not required to give any guarantee for a loan
to its member. Repayment responsibility solely rests on the individual borrower, while
the group and the centre oversee that everyone behaves in a responsible way and none
gets into repayment problem. There is no form of joint liability, i.e. group members are
not responsible to pay on behalf of a defaulting member. 4.0 97 per cent Women

Total number of borrowers is 8.10 million, 97 per cent of them are women.

5.0 Branches Grameen Bank has 2,564 branches. It works in 81,355 villages. Total
staff is 23,037 6.0 Over Tk 529 billion Disbursed
Total amount of loan disbursed by Grameen Bank, since inception, is Tk 529.60 billion
(US $ 9.19 billion). Out of this, Tk 469.75 billion (US $ 8.14 billion) has been repaid.
Current amount of outstanding loans stands at TK 59.85 billion ( US $ 864.30 million).
During the past 12 months ( from May’09 to April '10 ) Grameen Bank disbursed Tk.
84.49 billion (US $ 1222.39 million). Monthly average loan disbursement over the past
12 month was Tk 7.04 billion (US $ 101.87 million).

Projected disbursement for year 2010 is Tk 97.00 billion (US $1403 million), i.e.
monthly disbursement of Tk 8.08 billion (US $ 116.92 million). End of the year
outstanding loan is projected to be at Tk. 70.00 billion (US $ 1013 million).
7.0 Recovery Rate 97 per cent Loan recovery rate is 96.83 per cent. 8.0 100 per
cent Loans Financed From Bank’s Deposits Grameen Bank finances 100 per cent of
its outstanding loan from its deposits. Over 54 per cent of its deposits come from bank’s
own borrowers. Deposits amount to 146 per cent of the outstanding loans. If we combine
both deposits and own resources it becomes 156 per cent of loans outstanding. 9.0 No
Donor Money, No Loans In 1995, GB decided not to receive any more donor funds.
Since then, it has not requested any fresh funds from donors. Last installment of donor
fund, which was in the pipeline, was received in 1998. GB does not see any need to take
any donor money or even take loans from local or external sources in future. GB's
growing amount of deposits will be more than enough to run and expand its credit
programme and repay its existing loans. 10.0 Earns Profit Ever since Grameen Bank
came into being, it has made profit every year except in 1983, 1991, and 1992. It has
published its audited balance-sheet every year, audited by two internationally reputed
audit firms of the country. All these reports are available on CD, and some on our web-
site : www.grameen.com. 11.0 Revenue and Expenditure Total revenue generated
by Grameen Bank in 2009 was Tk 14.50 billion (US $ 209.80 million). Total expenditure
was Tk 14.13 billion (US $ 204.42 million). Interest payment on deposits of Tk 7.07
billion (US $ 102.29 million) was the largest component of expenditure (50 per cent).
Expenditure on salary, allowances, pension benefits amounted to Tk 3.82 billion (US $
55.33 million), which was the second largest component of the total expenditure (27 per
cent). Grameen Bank made a profit of Tk 371.57 million (US $ 5.38 million) in 2009.
12.0 30% Dividend for 2009
Grameen bank has declared 30% cash dividend for the year 2009. This is the highest cash
dividend declared by any bank in Bangladesh in 2009.Highest record of dividend
declared by Grameen Bank was in 2006.It was 100%.The bank has also created a
Dividend Equalization Fund to ensure distribution of dividends without much fluctuation
in successive years .Receiving of dividends each year greatly inspires our shareholders,
97% of whom are our borrowers.
13.0 Low Interest Rates
Government of Bangladesh has fixed interest rate for government-run microcredit
programmes at 11 per cent at flat rate. It amounts to about 22 per cent at declining basis.
Grameen Bank's interest rate is lower than government rate.

There are four interest rates for loans from Grameen Bank : 20% for income generating
loans, 8% for housing loans, 5% for student loans, and 0% (interest-free) loans for
Struggling Members (beggars). All interests are simple interest, calculated on declining
balance method. This means, if a borrower takes an income-generating loan of say, Tk
1,000, and pays back the entire amount within a year in weekly instalments, she'll pay a
total amount of Tk 1,100, i.e. Tk 1,000 as principal, plus Tk 100 as interest for the year,
equivalent to 10% flat rate.
14.0 Deposit Rates Grameen Bank offers very attractive rates for deposits. Minimum
interest offered is 8.5 per cent. Maximum rate is 12 per cent. 15.0 Beggars As
Members
Begging is the last resort for survival for a poor person, unless he/she turns into crime or
other forms of illegal activities. Among the beggars there are disabled, blind, and retarded
people, as well as old people with ill health. Grameen Bank has taken up a special
programme in 2002, called Struggling Members Programme exclusively for the beggars.
Over 112,118 beggars have joined the programme. Total amount disbursed stands today
at Tk. 147.55 million. Of this amount of Tk. 113.59 million (77% of the amount
disbursed) has already been paid off.
19,301 beggars have left begging and are making a living as door-to-door sales persons.
Among them 9,458 beggars have joined Grameen Bank groups as main-stream
borrowers.

Beggers members have voluntarily opened their personal savings accounts. Cumulative
dposit in these savings accounts amounts to BDT 19.14 million; present balance stands at
BDT 7.77 million.

Basic features of the programme are :

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regular Grameen Bank members. We wish to make sure that no one in the Grameen Bank
villages has to beg for survival.
The New York Times
Sunday, February 16, 1997 Anyone who scoffs at the value of 62 cents should talk to
Muhammad Yunus. In 1976, the Bangladeshi economics professor tried an experiment.
From his pocket, he lent the equivalent of $26 to a group of 42 workers. With that 62
cents per person, they bought the materials for a dayís work weaving chairs or making
pots. At the end of their first day as independent business owners, they sold their work
and soon paid back loan.

Thus began the microcredit movement, which has become the worldís hot idea for
reducing poverty. This month, microcreditís backers met in Washington to began to
broaden the programís reach and raise money from developed nations and institutions
such as the World Bank. Eight million people are now getting microcredit, half of them
in Bangladesh. Microcredit proponents want to expand that to 100 million people by
2005.It is a worthy goal that the united states should supports.

As days went by, the situation of Bangladesh did not improve. It started flagging very
fast, and we ended up with a famine at the end of 1974. I was teaching economics at that
time, at the university, and I felt terrible. Here I was, teaching the elegant theories of
economics in the classroom with all the enthusiasm of a brand new Ph.D. from the United
States. You feel as if you know everything. You have the solutions. But you walk out of
the classroom and you see skeletons all around you, people waiting to die.

There are many, many ways a person can die, but there is no more cruel death than dying
of hunger. The death comes inching towards you, and you see it. You are helpless
because you can't find one handfu to put inside your mouth. And the world moves on as
if nothing has changed. I couldn't cope with that situation. I felt that whatever I had
learned, whatever I was teaching was all make-believe stories, with no meaning for
people's lives. So I sor of abandoned my academic life, in a way, and I started trying to
find out how people lived in the village next door to the university campus, how they
inch toward the death that is coming their way.

reverse the age-old vicious circle of "low income, low saving & low investment", into
virtuous circle of "low income, injection of credit, investment, more income, more
savings, more investment, more income".

When Yunus was asked why he received the Nobel Prize for Peace he responded that
microcredit eradicates poverty and this provides real peace. Sverre Lodgaard, Director of
the Norwegian Institute of International Affairs and first deputy member of the
Norwegian Nobel Committee, told the BBC that the Nobel's choice for the Peace Prize
was right on. He explained, "More people die each year from poverty than from war, so a
fight against the violence which is perpetrated through the extreme division in our world's
resources is very welcome."

http://www.google.com/search?
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"If we are looking for one single action which will enable the poor to overcome their
poverty, I would focus on credit"
- Grameen Bank's founder, Dr. Muhammad Yunus

Micro Loans for the Very Poor