Before I talk more about the trip, I should describe in a little more detail the workings of the Grameen Bank. I think this is a pretty good start, but I will likely add to this later and make it a separate page on the blog, instead of just a post.
The current model of the bank is actually called Grameen II or the Grameen Generalised System. The bank switched to this new system from Grameen I – the Grameen Classic System between 2000 and 2002.
The switch to the new system was to create a better way to deal with the occurrence of natural disasters and other events which interrupted the borrowers’ repayment schedule. This change was prompted by the 1998 flood which was one of the worst, if not the worst to strike the country. Half the country was under water for ten weeks.
In response to the flood the bank gave out a fresh round of loans to help people restart income generating activities. However the burden of the loan repayment instalments was too much and cause many women to avoid coming to centre meetings.
The bank realised that increasing people’s instalments by giving them more loans was not the best approach. They also knew that these poor people will repay, even if it takes longer than initially expected. So in response they introduced the flexible loan option when borrowers come in to trouble.
Morning: The Centre Leader depositing her groups instalments
If a borrower cannot follow the repayment schedule then she can move to the flexible loan with a new and easier repayment schedule – smaller instalment over a longer period of time. She will gradually work back up to the basic loan. Another option is to repay according to income. So during times of the year where her income is higher she pays bigger loans, and smaller loans at other times.
Another big change is the removal of the group savings account, there are also no group loans. Now every borrower has their own savings account and own loan. They still have the groups though, and each group elects a group leader, collects the instalments from each of the borrowers in her group. This still provides the same group setting and support system, but allows each borrower to progress and increase their loan ceiling.
A borrower withdrawing from her GPS savings account (See below)
The village still is motivated to ensure that all its borrowers repay their loans, because before a loan is approved it must be within the individual borrowers’ ceiling but also the groups’ and whole villages’ ceiling. However by having individual account, it is easier for people to withdraw money to their own reasons like sending a child to school or to do work on their house.
I got to play branch manager and hand over the money!
Below is a brief description of the different products that the bank offers, we have not had the savings and insurance products talk yet, so I may come back and add to this / correct things:
Loan Products:
- All Loans, except for struggling member and flexible loans
- 20% interest, on a declining basis, which is equivalent to a 10% effective interest
- When looking at interest rates for loans in Bangladesh, keep in mind that the inflation is around 5%, which means that the interest rates must also be that much higher
- Basic Loan
- Starts off with around a 2-10,000 Taka loan,
- Can progress up to 50-100,000 taka.
- This is the most common loan by far for most borrowers.
- Flexible lengths 4,6,12,24 months.
- Flexible Loan
- If a borrowers is having trouble meeting their weekly instalments due to illness, a death, natural disaster or some other event, then they can renegotiate their loan so that they are paying smaller instalments over a longer period of time.
- Education Loan – Loans for the children of borrowers to get an honour university level education from a public university
- Housing Loan – Loan for building a new house, or repairing an old one.
- Micro Entreprise Loan – A continuation of the basic loan but bigger, generally 100-300,000 taka
- Struggling Member (Beggar) Loan – It is for people who are begging and have absolutely nothing, there is no interest, and no required instalments – meaning they pay it back when they can, the incentive is to pay it back so that they can get a bigger loan after
Savings Products:
- Personal Savings Account – mandatory for all, weekly deposits based on the size of your loan, the bank gives
- Grameen Pension Savings Account (GPS) – They make monthly instalments, and it 10 years they get back more than double the sum of their instalments. Compulsory for borrowers with greater than a 8,000 taka loan.
- Double in 7 Years – They deposit a lump sum, and in 7 year they get back double
- Loan Insurnace Savings Fund – borrower deposits a small % of loan and in case of death of the borrower or her husband, the loan is forgiven
- Cow insurance – Has not been fully explained to me, but I think it is in case of accidental death
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