Examining Micro Credit And The Grameen Bank Economics Essay

Grameen Bank ( GB ) is called the bank of hapless people in Bangladesh. It has been established for the public assistance of the hapless small town people of Bangladesh, which becomes a function theoretical account of the universe of micro recognition banking system. At the beginnings of Microcredit, Dr. Muhammed Yunus who is an economic expert educated in the United States of America, although originally from Bangladesh, introduced the universe to the impression of micro-credit in the 1970 ‘s.

Counts ( 1996 ) said that Muhammed Yunus talked with the hapless small town people and discover that general local bank ne’er shows involvement to supply loan to hapless people and does non impart them and they had to borrow money from exorbitant usurers with high involvement rates. As a consequence, they ended up more-or-less for good in debt and any money they made went to pay the involvement on these high-interest loans. Yunus became witting at that minute that the hapless jobs were in some ways no different from anyone else: low involvement recognition was a necessity of life.

Definition of Micro Credit Auwal ( 1996 ) :

An highly little loan given to impoverished people to assist them go self employed. Besides known as “ micro loaning. ” This little loans extension ( microloans ) to those in poorness designed to spur entrepreneurship. These loans particularly given to a hapless individual to enable him or herself to go self employed. Financial services loaned a little sums of money normally around $ 50- $ 150 to hapless people as a capital of a little concern to get down or widen it. The Grameen Bank in Bangladesh has become a theoretical account of successful micro loan supplier.

Principles of Microcredit:

General funding or recognition.

It emphasizes constructing capacity of a micro-entrepreneur.

Employment coevals.

Trust edifice.

Socioeconomic development.

Help the micro enterpriser on during hard.

Advantage of Microcredit Soeama ( 2004 ) :

Beginning and cost of support: “

In order for the Microfinance establishments to loan they need funding excessively and a stable microfinance establishment might hold a competitory advantage of low cost of financess which enables it to supply finance at low cost.

Infrastructure set up:

Microfinance companies must hold a needed web and substructure to present these services. The Grameen Bank of Bangladesh creates and implements this construction in rural small town country.


MFI ‘s are many times criticized as money squashing machines which charge really high cost. Which is non needfully true sing their cost of financess and hazards furthermore they have to be sustainable. So here I think holding a good name, image and Top direction squad helps a batch. ”

Disadvantages of Micro Credit:

Although microcredits are the anchor in footings of development in hapless states, it can besides hold its hard. Indeed, the disadvantages of microcredits are:

Some microcredit establishments are frequently unpredictable.

Refunding jobs.

Budget depends on subsidises from the authorities or NGOs.

Fig 1: Current Microcredit Network of Grameen Bank

History of Grameen Bank:

“ The laminitis of Grameen Bank Muhammad Yunus open up the thought of ‘micro-credit ‘ — minuscular loans to the really hapless. The bank presently lends more than $ 500 million a twelvemonth with a refund rate of better than 97 per centum. Its Group Savings Fundss have assets of $ 186 million. Grameen Bank operates 1,100 subdivisions in half of Bangladesh ‘s about 80,000 small towns. The plan has been successfully replicated in tonss of states, including the Philippines, Malaysia, Vietnam, South Africa, and Bolivia. It has besides been applied to inner metropolis and rural poorness in rich states in North America and Europe.

The beginning of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus, Head of the Rural Economics Program at the University of Chittagong, launched an action research undertaking to analyze the possibility of planing a recognition bringing system to supply banking services targeted at the rural hapless. The Grameen Bank Project ( Grameen means “ rural ” or “ small town ” in Bangla linguistic communication ) came into operation with the following aims:

Extend banking installations to hapless work forces and adult females.

Extinguish the development of the hapless by money loaners.

Create chances for self-employment for the huge battalion of unemployed people in rural Bangladesh.

Bringing the disadvantaged, largely the adult females from the poorest families, within the crease of an organisational format which they can understand and pull off by themselves.

Change by reversal the antique barbarous circle of “ low income, low salvaging & As ; low investing ” , into virtuous circle of “ low income, injection of recognition, investing, more income, more nest eggs, more investing, more income ” .

The action research demonstrated its strength in Jobra ( a small town next to Chittagong University ) and some of the adjacent small towns during 1976-1979. With the sponsorship of the cardinal bank of the state and support of the nationalized commercial Bankss, the undertaking was extended to Tangail territory ( a territory North of Dhaka, the capital metropolis of Bangladesh ) in 1979. With the success in Tangail, the undertaking was extended to several other territories inA the state. In October 1983, the Grameen Bank Project was transformed into an independent bank by authorities statute law. Today Grameen Bank is owned by the rural hapless whom it serves. Borrowers of the Bank ain 90 % of its portions, while the staying 10 % is owned by the authorities. ”

Current construction of Grameen Bank:

Grameen Bank allowed to run subdivisions in urban countries. Earlier they could open subdivisions merely in the rural countries.

Government interest cut down from 25 % to 15 % . Note that when the Bank started, Government had a interest of 60 % .

Number of Government nominated managers brought down to 2 from 3.

Chairman of the bank will be appointed by the board alternatively of Government nomination which existed until now.

Fig 2: Current construction of Grameen Bank.

Purposes and Aims of Grameen bank:

The Grameen Bank believes that the best manner for participants to larn about how the bank plants, is through first manus exposure and observations at the field degree. Through these experiences, participants are encouraged to pull their ain decisions about the effectivity of Grameen Bank ‘s work and the impact it has on the poorest of the hapless. The aims of GB ‘s preparation plans are to:

Arouse wonder.

Stimulate involvement on the topic of Micro funding.

Encourage duty of self-motivated acquisition.

Learn and portion with others.

Discover single function in the organisation and the planetary community.

Methods of Growth:

The Grameen Bank ‘s Method of action can be illustrated by the undermentioned rules:

Start with the job instead than the solution.

Adopt a progressive attitude.

Make sure that the recognition system serves the hapless, and non vice-versa.

Establish precedences for action counterpart to the the mark population.

Thin on solidarity groups.

Establish precedences for action counterpart to the mark population.

Associate nest eggs with recognition without it being needfully a requirement.

Make everything possible to guarantee the system ‘s fiscal balance.

Invest in human resources.

There are 16 determinations and 10 indexs in Grameen Bank policy to turn it up. These are:

Decisions: “

Follow the four rules of Grameen Bank- Discipline, Unity, Courage and Hard work.

Bring prosperity to the households.

Work towards to build new houses.

Grow vegetables all the twelvemonth unit of ammunition.

During the plantation seasons works as many seedlings as possible.

Plan to maintain households little which will assist to minimise outgos easy to look after every organic structure ‘s wellness.

Supply instruction to the kids and guarantee that they can gain to pay for their instruction.

Keep the environment clean.

Build and utilize pit-latrines.

Arrange safe imbibing H2O from tubewells and furuncle H2O or usage alum when needed.A

Make non take any dowery at our boies ‘ nuptialss, neither shall give any dowery at any 1s girls marrying.

No organic structure inflict any unfairness on anyone.

Will make more jointly undertake bigger investings for higher incomes.

Always be ready to assist each other. If anyone is in trouble, all help him or her.

Come to cognize of any breach of subject in any Centre, travel at that place and assist restore subject.

Take portion in all societal activities jointly. ”


Grameen Bank does staff rating of their work every twelvemonth and look into whether the socio-economic state of affairs of GB members is bettering. GB evaluates poverty degree of the borrowers utilizing 10 indexs.

A member is considered to hold moved out of poorness if her household fulfils the undermentioned standards:

The household lives in a house worth at least Tk. 25,000 ( twenty five 1000 ) or a house with a Sn roof, and each member of the household is able to kip on bed alternatively of on the floor.

Family members drink pure H2O of tube-wells, poached H2O or H2O purified by utilizing alum, arsenic-free, sublimating tablets or hurler filters.

All kids in the household over six old ages of age are all traveling to school or finished primary school.

Minimal hebdomadal loan episode of the borrower is Tk. 200 or more.

Family uses healthful latrine.

Family members have equal vesture for every twenty-four hours usage, warm vesture for winter, such as shawls, jumpers, covers, etc, and mosquito-nets to protect themselves from mosquitoes.

Family has beginnings of extra income, such as vegetable garden, fruit-bearing trees, etc, so that they are able to fall back on these beginnings of income when they need extra money.

The borrower maintains an mean one-year balance of Tk. 5,000 in her nest eggs histories.

Family experiences no trouble in holding three square repasts a twenty-four hours throughout the twelvemonth, i.e. no member of the household goes hungry any clip of the twelvemonth.

Family can take attention of the wellness. If any member of the household falls badly, household can afford to take all necessary stairss to seek equal health care.

PESTEL Analysis:

There Wahid ( 1999 ) are many factors which are impacting the work procedure and determination devising of GB. Tax alterations, new Torahs, trade barriers, demographic alteration and authorities policy alterations are all illustrations. To analyze these factors we can categorize them by utilizing the PESTEL analysis. This categorization distinguishes between:


The political status of Bangladesh is non stable. The opposite portion of authorities ne’er helps their authorities decently to the public assistance of the state. As a consequence work work stoppage is go oning, which affect the working advancement of GB.


Bangladesh is a underdeveloped state. Most of the villagers are sing as hapless. Alone involvement rate, revenue enhancement, unemployment, rising prices has consequence to any concern. Basically unemployment and low national income are the chief job, that why GB seeking to actuate people to go self employed. Though Bangladesh is a hapless economic state grameen bank faced this crisis to travel frontward their journey.


In Bangladesh people ‘s mean age is 60 old ages. A big figure of populations of the state are aged and have no activity in the economic system. Grameen Bank besides working with the working attitude to alter it that people can happen involvement in different occupation activities.


‘Grameen Phone ‘ is another sister administration of Grameen bank in Bangladesh. Muhammed Yunus conveying the engineering to the hapless small town people and give them an chance of phone concern by making inexpensive rate mobile phone call all over the universe.


Different environmental issues like planetary worming have concern in Bangladesh. Grameen bank motivate people to concern about it and besides the human wellness by supplying the easy manner to do healthful latrines, pure imbibing H2O which is arsenic free.


In their different development plan Grameen Bank Teach people about their legal rights and jurisprudence, that people can acquire more cognition about their and others rights.

SWOT Analysis of Grameen Bank:


Village people are the chief resource.

Trust between bank and client.

Loan with low involvement for hapless people.

Modern engineering.


Loan return is hard sometime.

Ca n’t give large sum of loan to the hapless people.

Sometime face the staff sadness.


Grameen bank a function theoretical account for the universe. So this bank could spread out all over the universe.

More occupation field can be created inside and outside of the state.


Political instability.

Economic rising prices.

Environmental menaces. e.g. cyclone.


Grameen Bank is non merely for Bangladesh but besides a function theoretical account for other administrations all over the universe. The small town hapless life manner already has been changed by the different activities of this bank. In Bangladesh it has been success in finance and human wellness sectors. Australia, USA and some African state are seeking to follow the Grameen bank.