Background: Grameen Bank - lending to the poorest of the poor

Oct 13, 2006, 14:39 GMT

Hamburg - The Grameen Bank ('rural bank' in Bengali) was established in Bangladesh in 1976 with the aim of lending money to the poorest of the poor.

The loans - also called microcredits - are provided without the borrowers needing to put up collateral, and go mainly to women. Founder Mohammad Yunus' agoal was to fight poverty, especially among the rural population.

Before his idea, it was particularly women who had no access to capital - bank loans only were provided to people who already had some money.

In a typical case, a group of five women link up to obtain a loan from the Grameen Bank and they make a 'moral' commitment to back each other up. One of them receives the money and might buy a loom or a sewing machine and makes herself independent. From her profits she repays the loan plus interest, whereby a rate of 20 per cent is applied to loans which generate profits.

If somebody wishes to finance a house, the rate applied is 8 per cent, while student loans carry a 5 per cent interest rate. Particularly hard-hit groups such as beggars may receive interest- free loans.

But as a general rule, the interest payments due may not surpass the size of the loan itself, independent of the maturity period.

Currently more than 2,220 branches belong to the Dhaka-based Grameen Bank network, serving some 6.6 million customers - 97 per cent of whom are women living in over 71,000 villages.

The company employs some 18,000 people and so far the bank has provided credits of over 5.7 billion dollars.

The idea has proven to be an enormous success. Because women have proven themselves to be reliable business partners, they make up the vast share of the customers and likewise of the shareholders. Grameen operates profitably and achieves a surplus since around 99 per cent of the loans are repaid.

In 1983 the institute was formally transformed into a bank. In the meantime Grameen has developed into a group of companies with more than 24 organizations.

Among these are Grameen Enterprise which produces materials for exports, Grameen Energy which is bringing solar power to villages and Grameen Telecom which is establishing the mobile phone as the telephone of the poor in Bangladesh.