Turning The Tables On Banking
issue 183 - May 1988
Turning the tables on banking
Banks and the poor just don't mix. Most tellers won't even cash
your cheque if you look down and out. But in Bangladesh there is a
bank which is actually dedicated to lending money to
the poor, with some impressive results.
In a shaded bamboo grove in Beltoil village, Bangladesh, a group of women gather. At first glance the grove might seem a refuge from the blistering midday heat. But a closer look reveals this is no casual gathering. It is the meeting of the future shareholders of a village bank discussing their plans for a loan program.
The Grameen Bank has brought the group together with its program of low-interest loans for the landless. According to the Bank's founder, Muhammad Yunus, even the poorest cigarette roller or street vendor has skills and energy which are just as valuable collateral as a savings account or a fancy house. The Grameen Bank has proven that the poor are indeed a smart investment.
Jorimon is one of the many women gathered to learn about the bank. Like the majority of women in Bangladesh, she lives on the brink of starvation. Jorimon's husband, a day laborer, is often without work, so she must husk rice in the houses of rich neighbouring farms for four dollars a day. In addition to her job and household work, Joriman also gathers and sells wood. Despite all her work, she still goes several days each week with no food at all.
Jorimon's story is common among Bangladesh's 50 million landless peasants. Although their country is rich in natural resources, 83 per cent of the population live below the poverty level and over half are landless. Like Jorimon and her husband, the poor survive on temporary wage labor and petty trade.
The Grameen Bank has offered some hope to women like Jorimon. The Bank works throughout the country's rural areas so make small loans available to those who are ignored by the conventional banking system. Loans average about $60 each and allow the poorest to start small businesses like rice-processing, wood-cutting or goat-raising.
Jorimon received her first loan to purchase a paddy husker, a simple device used to remove the rough shell from rice. She had previously worked for a trader who paid her pennies a day. Her loan allowed her to buy paddy in bulk, husk it at home, and sell it directly at the market. Her profits increased ten-fold. With her newfound earnings she could replace her threadbare sari and buy additional unhusked rice to increase her earnings.
The Grameen Bank takes a 'solidarity group' approach to lending. Borrowers must form small groups of five to receive credit. Individuals repay their own loans, but the entire group of five is responsible for seeing that each loan gets repaid. Groups are organized in clusters, with five borrowing groups making up a village centre group; regional bank offices coordinate the operations of centres. The structure creates a bank system which truly works from the bottom up.
By 1986, the Bank had set up 400 regional branches in 6,000 villages. Through thousands of borrowing groups, the Grameen Bank had extended $30 million so the rural poor with an outstanding repayment rate of nearly 99 per cent. Backing from the International Fund for Agricultural Development (IFAD), allowed the Grameen Bank to get off the ground. But weekly contributions by its members have built a solid reserve which will eventually make the bank fully self-sufficient.
The Grameen Bank has had a significant impact on the lives of its members. A recent study revealed that in two years the real income of Grameen's borrowers had increased by 53 per cent. Women felt the greatest improvements. Loans enabled them to fix roofs, buy new clothing and improve their water storage systems. And when women benefit, so do their families. Children of bank borrowers were more likely to attend school, receive health care and eat regular meals.
Many of the changes brought on by the Bank cannot be measured. As one woman who traded bangles and ribbons explained, 'I do a very good business. I feel wonderful because now I am treated with respect. When I used to go around and beg at people's doors, they would shoo me away but now they extend a stool for me to sit, and children come around and try to find out what I am selling.
But for all its success, the Grameen Bank is not about to make a dent in Bangladesh's widespread poverty. The bank reaches about three per cent of the country's people. There are millions more who will never see the benefits of the bank's program. Even those who have received loans still live in dilapidated shacks, with no electricity or water.
In the face of poverty on this scale, the Grameen Bank's program seems more like a drop in the bucket. Founder Muhammad Yunus agrees. Although the Grameen Bank is expanding, it is still a small effort in eliminating poverty and unemployment. But its record clearly indicates that it may contain the seeds of great hope.'
This hope has permeated the development establishment. Not only does the Grameen Bank offer a welcome success story in the midst of widespread poverty, it provides a palatable approach to development. Credit for small business is seen as value-free, providing for basic needs without disturbing the existing balance of ownership and power. Two of the world's largest development funders, Great Britain and the United States, are fond of credit programs as a welcome companion to their push for private-sector development in the Third World.
For Doug Hellinger of the Washington-based research group, Development GAP, there are more fundamental obstacles to long-term development than a lack of credit. 'If these groups were really interested in helping the rural poor, they would spend their energy guaranteeing every rural family a minimum of two hectares of land. The problems of the poor in the barrios and rural villages are too profound to be adequately addressed by the creation of a few new, unstable and often exploitative jobs.'
Yunus agrees that issues like land reform are crucial to the poor and admits the Grameen Bank is not designed so deal wish problems of this scope. 'We are not saying that credit is the only solution,' he explains. 'It is a small part of a much larger process. We have picked credit because it is an immediate need and a primary need.'