Taking Out a Loan to Give Back a Future

In these topsy-turvy economic times, there's great hope in the fact that one of the world's most famous banks is one that caters to the poorest of individuals and that its founder makes regular appearances in the financial news media. The Grameen Bank in Dhaka, Bangladesh, started by Nobel Peace Prize winner Muhammad Yunus, is a bank of the future.

Yunus’ Grameen Bank is world-renowned for popularizing micro-credit—the lending of small amounts of money to poor people so they can invest in business—and their dreams—and rise above the poverty line. Born out of a research project conducted during Yunus’ work at the University of Chittagong in Bangladesh, the Grameen Bank became an independent banking system in 1983 under exclusive government legislation. Since its inception in 1976, it has provided micro-loans worth more than $7 billion to nearly eight million of the poorest rural village residents in Bangladesh.

Grameen's borrowers, 97 percent of whom are women and mostly illiterate, have helped make the bank profitable by maintaining an incredible 98 percent loan repayment rate—a feat most traditional mega banks would envy. The Grameen Bank has become a totally self-financing operation that stopped accepting donor contributions over a decade ago.

The bank’s system does not require any collateral or legal agreements to participate in the micro-loan program, and gives 95 percent of bank ownership to its borrowers, with the remaining 5 percent held by the government. The bank currently boasts 2,541 branches in 83,744 Bangladeshi villages, with a total staff of 24,141 people.

Grameen is known throughout the world for micro-credit, but receives less recognition for its quiet efforts over the years to build a stable of freestanding for-profit businesses—some of which are already highly profitable.

With its remarkable success, Grameen has expanded its reach tremendously, branching into 25 businesses, ranging from cell phone service (see “GrameenPhone: A Success Story” under Stories) to business and IT solutions that are each configured to alleviate poverty. In addition, over $1 million in scholarships have been donated to seventy thousand of Grameen borrowers’ children, with special attention paid to the advancement of young girls. Additional loans for higher education are also provided to cover students’ tuition and various expenses.

Grameen's rejection of charity or patronage for the poor is a key factor. The bank prefers to engage the poor in the mainstream economy by requiring them to pay fees for all its services, and then repay their loans on schedule before they can do further business with the bank.

 The bank is now encouraging social entrepreneurs of all disciplines to take their projects to the next level. Grameen has over 30 micro-credit enterprises invested in making solar energy, clean water, and health care, among other advances, a reality where they are not currently.

In a global climate that’s marked by credit freezes and stagnation, Grameen’s example is a rare bright spot. “While the financial world collapses all around us, our schemes are thriving,” Yunus recently, remarked, “so who is really credit worthy?”