Public Comment

Commentary: Grameen Bank: Micro-Credit for Marginalized Families

By Krishna P. Bhattacharjee
Friday December 22, 2006

This year’s Nobel Peace prize has been awarded to Dr. Mohammad Yunus (economist, Ph.D from an American university) and to Grameen Bank, an institution he founded. His concept of micro-credit has received international recognition after 30 years of dedicated service. It is a story of giving shape to a dream. 

The concept of providing micro-credit to marginalized families, who are considered not bankable (the common conception is that poor families do not repay their loan), has been firmly established by the success of Grameen Bank project. 

The idea of providing micro-credit to the villagers in Bangladesh grew out of an action research project started in Bangladesh by Dr.Yunus with the following objectives: 

a) to extend banking facilities to the marginalized families; 

b) to eliminate money lenders; 

c) to create opportunities for self employment among marginalized families. 

The action research project to extend micro-credit, particularly to women in a village called Jobra (adjacent to Chittagong University), demonstrated its success during 1976-79. The program was extended to many villages during the following years and found to function satisfactorily. 

Dr. Yunus’s concept of extending micro-credit to marginalized families was totally different from that of the conventional banks, housing loan associations and other financial institutions. While people went to these financial institutions and banks to obtain credit and loans, Dr Yunus’s Grameen Bank went to the people to extend credit/ loan to them. This was perhaps the most fundamental change in the process of extending loans to the people that has been initiated by Grameen Bank 

The other fundamental change that Dr. Yunus has been able to execute is that Grameen Bank does not demand collateral security from the persons taking loans. Collateral security is one of the basic requirements a person has to comply with when taking loans (in Bangladesh, India and Pakistan). Grameen Bank has introduced the concept of security for loan repayment by a group of five persons who form the group; each person is known to the other. Each member of the group is responsible to ensure that the members of the group repay the loan and the interest on time. By this process, a social pressure is exerted on members of the group to repay the loan, and this has worked very well and repayment of loans is in the range of 70 to 80 percent; and this is very high in this part of the Asia, where the repayment of loans may be in the range of 50 to 60 percent. However it must be mentioned that forming groups of five (women) to be eligible for loans has been a difficult task for the Grameen Bank employee at the initial stage; it has taken months of discussions and persuasion at the local community level to make the women understand their responsibility and the benefits that they would gain from such a commitment to form the group.  

During his action study, Dr.Yunus realized that it is the women who are most vulnerable among the marginalized group and a neglected lot. Moreover women in Bangladesh have no right to property and once they are divorced (which is quite easy in that country) they are thrown out on the street to fend for themselves. Since, such a situation does not exist in the United States, it may be difficult to comprehend the enormous difficulty the marginalized women face. 

In view of these conditions, Dr. Yunus decided that women would be given the preference in applying for loan. Following this policy and after 30 years, it is stated that there are 6.5 million borrowers and out of this about 90 percent are women; this process has empowered the marginalized women of Bangladesh who now have economic freedom to achieve their goals. 

Moreover, Grameen Bank did not stop at providing economic freedom; it has gone a step further and provides loans for construction of houses, and the loan is provided to the women head of the house, so that in case of divorce or separation, women are able to retain the house and not be thrown out and be homeless. This has been a great achievement for the marginalized women of Bangladesh and it has given them security and respect. In Bangladesh individual plots are owned by men, and to make husbands agree to transfer land to their wives has ushered in a major social change. 

Jhanara Begum and her family are one of the beneficiaries of housing loans from Grameen Bank. Earlier to 1999, Jhanara, her husband and children lived in a mud hut covered with thatch, which got washed away every year during annual cyclones and torrential rains. In 1998 she received a loan from the Grameen Bank and built her house with a roof of corrugated iron sheets supported on concrete posts and beams supplied by the agencies of Grameen Bank. Such a house protects her family from annual torrential rain and cyclone. What is perhaps most important in this project is that Grameen authorities not only provided a loan for the house but also the technical know-how and materials for constructing safe houses. 

Now, each year thousands of U.S. families are made homeless and uprooted from their homes by hurricanes and tornados. During last two years Hurricane Katrina and others caused havoc within the Southern states of the USA, particularly in New Orleans, Miami and the area around Gulf of Mexico. As reported in the media, the homeless people had difficult time reaching the community shelters in schools as the water remained high all around for days. Rehabilitation has been slow and there have been many adverse comments on the same. Even while the new houses were being built, not much attention has been paid to providing technical inputs to make the houses safe from hurricanes and tornados. Perhaps example of Grameen Bank housing would illustrate where and how the state and federal governments of the United States can intervene to improve upon their assistance (technical and managerial) to the marginalized families. 

In the United States, the new Senate with Democrats in majority- who support the “have-nots” will woo the poor and would introduce new schemes to improve the economic conditions of the marginalized families, may look at the ideas and concepts of Grameen Bank’s micro-credit and housing loan schemes. 

M.I.T. political science Ph.D candidate Adam Ziegfield’, in his article “A Historic Victory?” (Nov. 16, the Statesman, Calcutta), predicts that in view of recent political change with the Democrats controlling the House of Representatives and Senate “the party will hinge on its ability to recapture its position as the party of the ‘have-nots’ while at the same time reaching out to the one third Americans, who do not identify closely with the major party.”  

It is predictable that in days to come more attention will be paid to improve economic and social conditions of one third of American who still do not have access to easy finance and housing loan and basic amenities of life. Micro-credit may be one of the instruments that the democrats will try to introduce in the months to come in view of its success story and also considering the fact that former President Bill Clinton’s support for the micro credit system of Grameen Bank and he has already advocated micro-credit to many countries around the world. Today, micro-credit is being implemented in more than 50 countries of the world. 


Krishna Bhattacharjee is a freelance writer and author and an alumnus of UC Berkeley.