Credit Delivery System
Grameen Bank Credit Delivary means taking credit to the very poor in their villages by means of the essential elements of the Grameen credit delivery system.
|1||There is an exclusive focus on the poorest of the poor.|
|Exclusivity is ensured by:|
|i)||establishing clearly the eligibility criteria for selection of targeted clientele and adopting practical measures to screen out those who do not meet them|
|ii)||in delivering credit, priority has been increasingly assigned to women|
|iii)||the delivery system is geared to meet the diverse socio-economic development needs of the poor|
|2||Borrowers are organized into small homogeneous groups.|
|Such characteristics facilitate group solidarity as well as participatory interaction. Organizing the primary groups of five members and federating them into centres has been the foundation of Grameen Bank’s system. The emphasis from the very outset is to organisationally strengthen the Grameen clientele, so that they can acquire the capacity for planning and implementing micro level development decisions. The Centres are functionally linked to the Grameen Bank, whose field workers have to attend Centre meetings every week.|
|3||Special loan conditionalities which are particularly suitable for the poor.|
|i)||very small loans given without any collateral|
|ii)||loans repayable in weekly instalments spread over a year|
|iii)||eligibility for a subsequent loan depends upon repayment of first loan|
|iv)||individual, self chosen, quick income generating activities which employ the skills that borrowers already posses|
|v)||close supervision of credit by the group as well as the bank staff|
|vi)||stress on credit discipline and collective borrower responsibility or peer pressure|
|vii)||special safegaurds through compulsory and voluntary savings to minimise the risks that the poor confront|
|viii)||transparency in all bank transactions most of which take place at centre meetings.|
|4||Simultaneous undertaking of a social development agenda addressing basic needs of the clientele.|
|This is reflected in the “sixteen decisions” adopted by Grameen borrowers. This helps to:|
|i)||raise the social and political consciousness of the newly organized groups|
|ii)||focus increasingly on women from the poorest households, whose urge for survival has a far greater bearing on the development of the family|
|iii)||encourage their monitoring of social and physical infrastructure projects – housing, sanitation, drinking water, education, family planning, etc.|
|5||Design and development of organization and management systems capable of delivering programme resources to targeted clientele.
|The system has evolved gradually through a structured learning process, that involves trials, errors and continuous adjustments. A major requirement to operationalize the system is the special training needed for development of a highly motivated staff, so that the decision making and operational authority is gradually decentralized and administrative functions are delegated at the zonal levels downwards.|
|6||Expansion of loan portfolio to meet diverse development needs of the poor.
|As the general credit programme gathers momentum and the borrowers become familiar with credit discipline, other loan programmes are introduced to meet growing social and economic development needs of the clientele. Besides housing, such programmes include:|
|i)||credit for building sanitary laterines|
|ii)||credit for installation of tubewells that supply drinking water and irrigation for kitchen gardens|
|iii)||credit for seasonal cultivation to buy agricultural inputs|
|iv)||loan for leasing equipment / machinery, ie., cell phones purchased by Grameen Bank members|
|v)||finance projects undertaken by the entire family of a seasoned borrower.|
The underlying premise of Grameen is that, in order to emerge from poverty and remove themselves from the clutches of usurers and middlemen, landless peasants need access to credit, without which they cannot be expected to launch their own enterprises, however small these may be. In defiance of the traditional rural banking postulate whereby “no collateral (in this case, land) means no credit”, the Grameen Bank experiment set out to prove – successfully – that lending to the poor is not an impossible proposition; on the contrary, it gives landless peasants the opportunity to purchase their own tools, equipment, or other necessary means of production and embark on income-generating ventures which will allow them escape from the vicious cycle of “low income, low savings, low investment, low income”. In other words, the banker’s confidence rests upon the will and capacity of the borrowers to succeed in their undertakings.
The mode of operation of Grameen Bank is as follows. A bank branch is set up with a branch manager and a number of center managers and covers an area of about 15 to 22 villages. The manager and the workers start by visiting villages to familiarise themeselves with the local milieu in which they will be operating and identify the prospective clientele, as well as explain the purpose, the functions, and the mode of operation of the bank to the local population. Groups of five prospective borrowers are formed; in the first stage, only two of them are eligible for, and receive, a loan. The group is observed for a month to see if the members are conforming to the rules of the bank. Only if the first two borrowers begin to repay the principal plus interest over a period of six weeks, do the other members of the group become eligible themselves for a loan. Because of these restrictions, there is substantial group pressure to keep individual records clear. In this sense, the collective responsibility of the group serves as the collateral on the loan.
Loans are small, but sufficient to finance the micro-enterprises undertaken by borrowers: rice-husking, machine repairing, purchase of rickshaws, buying of milk cows, goats, cloth, pottery etc. The interest rate on all loans is 16 percent. The repayment rate on loans is currently – 95 per cent – due to group pressure and self-interest, as well as the motivation of borrowers.
Although mobilization of savings is also being pursued alongside the lending activities of the Grameen Bank, most of the latter’s loanable funds are increasingly obtained on commercial terms from the central bank, other financial institutions, the money market, and from bilateral and multilateral aid organizations.