Grameen Bank Credit Delivery System
5. Grameen Bank Credit Delivery System
Grameen Bank has two types of loan disbursement system as
1. Grameen Classical System (GCS) (Grameen I)
2. Grameen Generalized System (GSS) (Grameen II)
5.1. Grameen Classical System (GCS)
This system is now inactive. There were few problems in this system. Members of the group could not be increased if needed. It was active in Grameen Bank loan system till 2000. More customer friendly generalized system superseded this system in 2000.
5.2. The Grameen Generalized System (GSS)
This system introduced in 2000 after long deliberations have stood the test of time and assists the borrowers to overcome their financial constraints arising from reversal of personal fortunes or due to natural calamities like flood, tsunami and draught. The system is simple and customer friendly that provides opportunity to a member to remain in the Bank?s mainstream rather than opting out of Bank
5.2.1. Special Characteristics of the Grameen Generalized System:
Grameen Generalized system has some special characteristics which was absent in Grameen Classical System. These are borrower friendly and more flexible for both lender and borrower. These are
- Custom-made Credit Service
- Pension Fund: Leading to Financial Self-Reliance
- Loan Loss Provisioning and Write-off Policy
- Loan Insurance
- Loan Ceiling Grows with the Borrower
- Gold Member!
- Needy Members
- Building Capacity to Stay Out of Poverty
- Computerization of Grameen Accounting and Monitoring System
5.3. Credit Delivery System in Grameen Generalized System (GSS)
Grameen Bank Credit Delivery means taking credit to the very poor in their villages by means of the essential elements of the Grameen credit delivery system. Grameen Bank credit delivery system has the following features:
5.3.1. There is an Exclusive Focus on the Poorest of the Poor.
Exclusivity is ensured by:
- Establishing clearly the eligibility criteria for selection of targeted clients and adopting practical measures to screen out those who do not meet them
- in delivering credit, priority has been increasingly assigned to women
- the delivery system is geared to meet the diverse socio-economic development needs of the poor
5.3.2. Borrowers are organized into small homogeneous groups.
Such characteristics facilitate group solidarity as well as participatory interaction. Organizing the primary groups of five members and federating them into centers has been the foundation of Grameen Bank's system. The emphasis from the very outset is to organizationally strengthen the Grameen clientele, so that they can acquire the capacity for planning and implementing micro level development decisions. The Centers are functionally linked to the Grameen Bank, whose field workers have to attend Centre meetings every week.
5.3.3. Special loan conditionality which are particularly suitable for the poor.
- Very small loans given without any collateral
- Loans repayable in weekly installments spread over a year
- Eligibility for a subsequent loan depends upon repayment of first loan
- Individual, self chosen, quick income generating activities which employ the skills that borrowers already posses
- Close supervision of credit by the group as well as the bank staff
- Stress on credit discipline and collective borrower responsibility or peer pressure
- Special safeguards through compulsory and voluntary savings to minimize the risks that the poor confront
- Transparency in all bank transactions most of which take place at centre meetings.
5.3.4. Simultaneous undertaking of a social development agenda addressing basic needs of the clientele.
This is reflected in the "sixteen decisions" adopted by Grameen borrowers. This helps to:
- Raise the social and political consciousness of the newly organized groups
- Focus increasingly on women from the poorest households, whose urge for survival has a far greater bearing on the development of the family
- Encourage their monitoring of social and physical infrastructure projects - housing, sanitation, drinking water, education, family planning, etc.
5.3.5. Design and development of organization and management systems capable of delivering programme resources to targeted clientele.
The system has evolved gradually through a structured learning process that involves trials, errors and continuous adjustments. A major requirement to operationalize the system is the special training needed for development of a highly motivated staff, so that the decision making and operational authority is gradually decentralized and administrative functions are delegated at the zonal levels downwards.
5.3.6. Expansion of loan portfolio to meet diverse development needs of the poor.
As the general credit programme gathers momentum and the borrowers become familiar with credit discipline, other loan programmes are introduced to meet growing social and economic development needs of the clientele. Besides housing, such programs include:
- credit for building sanitary latrines
- credit for installation of tube-wells that supply drinking water and irrigation for kitchen gardens
- credit for seasonal cultivation to buy agricultural inputs
- loan for leasing equipment / machinery, i.e., cell phones purchased by Grameen Bank members
- Finance projects undertaken by the entire family of a seasoned borrower.
The underlying premise of Grameen is that, in order to emerge from poverty and remove themselves from the clutches of usurers and middlemen, landless peasants need access to credit, without which they cannot be expected to launch their own enterprises, however small these may be. In defiance of the traditional rural banking postulate whereby "no collateral (in this case, land) means no credit", the Grameen Bank experiment set out to prove - successfully - that lending to the poor is not an impossible proposition; on the contrary, it gives landless peasants the opportunity to purchase their own tools, equipment, or other necessary means of production and embark on income-generating ventures which will allow them escape from the vicious cycle of "low income, low savings, low investment, low income". In other words, the banker's confidence rests upon the will and capacity of the borrowers to succeed in their undertakings.