I'm no economist, but this was pretty neat!
Grameen Bank is a Bangladeshi claim to fame (at least in the world of development-minded people). We had a chance to visit Jobra, where the bank was started by Muhummad Yunus in 1976. The bank pioneered microfinance-- giving the rural poor access to small loans. Small amounts of credit give people the chance to lift themselves out of poverty. Maybe by starting a small business with the purchase of their own weaving loom, for example. Before Grameen, people often borrowed from money lenders charging exorbitant interest rates. If you want to weave cloth, for example, first you need yarn and a loom. Perhaps the money lender gives you money for these raw materials, but on the condition that you to sell your finished product back to him at his price-- inevitably less than the market rate. Your profit is minimal-- so minimal that you don't have enough to buy the raw materials for the next batch of cloth. Back you go to the money lender, and the cycle continues. Microfinance is a way to break this pattern.
In Jobra, we got to attend one of the weekly meetings of borrowers. Most of the borrowers (97%) are women. This is intentional. Women, surprisingly, hold the reins when it comes to advancing change. According to Banker to the Poor (Dr. Yunus's book about the bank): "If one of the family members has to starve, it is an unwritten law that it will be the mother." Women, reliant on their husband's income, are also in danger of being divorced at any time. When the going gets rough financially, all the husband has to do is say "I divorce thee" three times. Suddenly he has one less mouth to feed, and a woman is left to fend for herself. Finally, a woman's life revolves around her children, making her more likely to spend money to keep food on the table and improve the household. Men, on the other hand, prove more likely to keep the money and spend it on themselves.
Loans last one year. Repayment starts one week after the loan is given, and installments are made weekly (see picture below). The interest rate is 20%. This seems high-- one of the harshest criticisms of Grameen is this high interest rate. However, it is still better than the "everything %" interest rate of a moneylender. The loan repayment rate is high too, around 98%. Upon paying back a loan, it is possible to take out a new one of a greater amount.
Here's what we saw: borrowers all gather in a little hut each week to make their loan payment. Each row of benches represents one "peer group" of five women. Each group acts as social support for its members, making sure everyone is using their loan responsibly and following their repayment plan. It's not a financial support group, though. If one person defaults on the loan, the other four don't have to make up the difference.
Weekly meeting of borrowers
From its origins in Jobra, Grameen has spread throughout Bangladesh, South Asia, and the world. It was awesome to see where it all began!
Building of the weekly meeting we visited, in Jobra
Grameen monitors the economic progress of its borrowers, and evaluates each family based on a very particular list of criteria. Drawing the line between "poverty" and "out of poverty" isn't easy, and I think Grameen's criteria are notable for their specificity. So far, 65% of Grameen borrowers have crossed the line.
[Taken from the Grameen website]
A member is considered to have moved out of poverty if her family fulfills the following criteria:
| 1. |
| The family lives in a house worth at least Tk. 25,000 [about $370] or a house with a tin roof, and each member of the family is able to sleep on a bed instead of on the floor. |
| 2. |
| Family members drink pure water of tube-wells, boiled water or water purified by using alum, arsenic-free purifying tablets or pitcher filters. |
| 3. |
| All children in the family over six years of age are all going to school or finished primary school. |
| 4. |
| Minimum weekly loan installment of the borrower is Tk. 200 or more. |
| 5. |
| Family uses sanitary latrine. |
| 6. |
| Family members have adequate clothing for every day use, warm clothing for winter, such as shawls, sweaters, blankets, etc, and mosquito-nets to protect themselves from mosquitoes. |
| 7. |
| Family has sources of additional income, such as vegetable garden, fruit-bearing trees, etc, so that they are able to fall back on these sources of income when they need additional money. |
| 8. |
| The borrower maintains an average annual balance of Tk. 5,000 [$74] in her savings accounts. |
| 9. |
| Family experiences no difficulty in having three square meals a day throughout the year, i.e. no member of the family goes hungry any time of the year. |
| 10. |
| Family can take care of their health. If any member of the family falls ill, family can afford to take all necessary steps to seek adequate healthcare. |
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