Grameen Bank -- Annual report 2006

A basic principle of Grameen Bank is that the bank goes to the poor people, since it is difficult for the poor people to come to the bank. All banking transactions are done in the centre meetings at the village level, attended by borrowers and the centre manager who is a bank staff. New branches are required to fund themselves entirely with the deposits they mobilize.No fund from head office or any other office is lent to them. A new branch is expected to break-even within the first year of its operation.

There are four interest rates for loans from Grameen Bank : 20% (declining basis) 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.

Grameen Bank offers very attractive interest rates for deposits. Minimum interest offered is 8.5 per cent. Maximum rate is 12 per cent.

At the end of December 2006, the bank, through its 2,319 branches located in 475 upazilas or subdistricts and all the 64 districts of Bangladesh, was serving 6.9 million members. It had disbursed, by the end of December, 2006, Tk. 306,368.63 million (US$ 5,954.02 million) as loans. Grameen Bank members also deposit in various savings accounts and the balance of their savings stood at about Tk. 27,298.19 million. The bank’s services reached 74,462 villages, out of a total of about 84,000 villages in the country.

The Grameen Generalised System

There was a long period of preparation by the bank staff and management to develop a new flexible loan system that was introduced at the end of 2000. The new system is a more simplified, more customer friendly system that can work equally well both in normal and disaster situations. The Grameen Generalised System offers four types of loan products : 1) the basic loan, 2) the housing loan, 3) the higher education loan, which runs parallel to the basic loan, and 4) the struggling members (beggars) loan programme.

Basic Loan usually has near hundred per cent repayment. A basic loan is converted into a flexible loan or reschedule loan, if the borrower finds it difficult to pay the weekly amount she had promised. Flexible loan allows to reduce her installment size. At the end of 2006, nearly five per cent of the borrowers were on flexible loans. Flexible loan is not an independent loan. It is only a temporary detour from the basic loan. A borrower will always make efforts to go back to the basic loan. If a borrower fails to repay the basic loan and is unwilling to go into flexible loan, she becomes a willing defaulter. 100 per cent provision is made against her outstanding loans. Flexible loan not paid back in two years becomes overdue; 100 per cent provision is made in such a case and after three years, it is written off.

Housing for the poor

Grameen Bank introduced housing loan in 1984. It became a very attractive programme for the poor borrowers. The ownership of a house infuses people with a sense of confidence, security and self-respect, to begin dreaming for a better life for herself and her family. A member can borrow up to Tk. 15,000 for constructing a simple tin-roof house at an interest rate of 8 percent to be paid back over a period of five years. Over 641,000 houses have been constructed with the housing loans averaging Tk. 13,216 (US$ 189). During 2006, 14,038 houses have been built with housing loans amounting to Tk. 138.19 million (US$ 2.01 million).

Higher Education Loans

In 1997, Grameen Bank introduced the Higher Education Loan programme, in an effort to provide new opportunities for talented children of its borrowers to receive higher education. Children of borrowers who enroll in medical schools, engineering, honors and masters degree programmes, agricultural colleges, textile engineering and other higher education programmes, are eligible to receive financing from this loan window. The loans are intended to cover all expenses incurred by students from the beginning of their respective courses until completion, including admission fees, course fees, required stationery, food and accommodation and other related necessary expenses. Until the end of the year 2006, 14,507 students from various disciplines have so far received loans under this programme.

Micro-enterprise Loans

Many borrowers are moving ahead in business faster than others for many favourable reasons, such as, proximity to the market, presence of experienced male member in the family, etc. Grameen Bank provides larger loans, called micro-enterprise loans, for these fast moving members. There is no restriction on the loan size. So far 1,016,495 members took micro-enterprise loans. A total of Tk. 21.94 billion (US$ 343.59 million) has been disbursed under this category of loans. Average loan size is Tk. 21,585 (US$ 309), maximum loan size taken so far is Tk. 1.2 million (US$ 17,165) for truck purchase. The other major items are grocery shop, medicine shop, dairy farm, baby-taxi for transportation and stone business for construction.

Scholarships

Scholarship are given to the children of Grameen members, with priority on girl children, every year, to encourage them to get better grades in schools. Over 10,000 children, at various levels of school education, receive these scholarships every year. So far 34,693 children got scholarship up to December, 2006.

Loan Insurance

Under this programme, in case of death of a borrower, all outstanding loans are paid off from the insurance fund. Insurance fund is created by the interest generated through a savings account created by an annual deposit of the borrowers. Borrowers are required to put amount equal to 3.0 per cent of the loan amount each time. in a designated savings account. If her/his loan amount does not exceed the amount in the previous year, she does not have to add any more money into this account. If it exceeds, then she pays 3.0 per cent of the incremental loan amount. Balance of deposits under loan insurance programme stood at Tk. 3,817.94 million (US$ 54.61 million) as on December 31, 2006. Up to that date 54,426 borrowers died and a total outstanding loans and interest of Tk. 377.07 million (US$ 6.03 million) left behind was paid off by the bank under this programme.

Life Insurance

Each year families of deceased borrowers of Grameen Bank receive a total of Tk. 8 to 10 million (US$ 0.14 to 0.17 million) in life insurance benefits. Each family receives Tk. 1,500 which the deceased was a Grameen Bank borrower. A total of 89,483 borrowers died so far in Grameen Bank. Their families collectively received a total amount Tk 169.95 million (US$ 3.71 million).

Borrowers are not required to pay any premium for this life insurance. Borrowers come under this insurance coverage by being a shareholder of the bank.

Village Phones

To-date Grameen Bank provides loans to 278,570 borrowers to buy mobile phones and offer telecommunication services in

nearly half of the villages of Bangladesh where this service never existed before. It is also generating revenue for Grameen Phone, the largest telephone company in the country. Village phones use 17.03 per cent of the air time of the company, while their number is only 3 per cent of the total of telephone subscribers of the company.

Getting Elected in Local Bodies

Grameen system makes the borrowers familiar with election process. They routinely go through electing group chairman, secretaries, centre-chiefs and deputy centrechiefs every year. They elect board members for running Grameen Bank every three years. This experience has prepared them to run for public offices. They are contesting and getting elected in the local governments. In 2003 local government (Union Porishad) election 7,442 Grameen members contested for the reserve seats for women, 3,059 members got elected.

Policy for Opening New Branches

New branches are required to fund themselves entirely with the deposits they moblise. No fund from head office or any other office is lent to them. A new branch is expected to break-even within the first year of its operation.

Crossing the Poverty-Line

According to an internal survey, 64 per cent of Grameen borrowers' families of Grameen borrowers have crossed the poverty line. The remaining families are moving towards the poverty line.

Computerized MIS and Accounting System

Accounting and information management of nearly all the branches (2,052, out of 2,319) has been computerized. This has freed the branch staff to devote more time to the borrowers rather than spend it on paper-work. Branch staffs are provided with pre-printed repayment figures for each weekly meeting. If every borrower pays according to the repayment schedule, the staff has nothing to write on the document except for putting the signature. Only the deviations are recorded. Paper work is done only at village level to enter figures in the borrowers' passbooks.

'Stars' for Achievements

Grameen Bank provides colour-coded stars to branches and staffs for 100 per cent achievement of a specific task starting form 2001. A branch or a staff having five-stars indicates the highest level of performance. At the end of 2006, 1,553 branches got green stars for maintaining 100 per cent repayment record, 1,627 received blue star for earning profit, 1,375 branches earned violet stars by meeting all their financing out of their earned income and deposits, 337 branches have applied for brown stars for ensuring education for 100% children of Grameen families and 54 branches applied for red stars indicating branches those have succeeded in taking all its borrowers families over the poverty line. The stars are confirmed only after the verification procedure is completed.