Grameen Bank and Micro-credit
7. Grameen Bank and Micro-credit
Grameen Bank is pioneering organization of micro-credit in Bangladesh as well as in the world. This concept of micro-credit has been well praised by the world. What is micro-credit? How it is different from general credit. Grameen Bank has interpretation about micro-credit.
7.1. What is Microcredit?
The word "microcredit" did not exist before the seventies. Now it has become a buzz-word among the development practitioners. In the process, the word has been imputed to mean everything to everybody. No one now gets shocked if somebody uses the term "microcredit" to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from the savings and loan associations, or from credit unions, or from money lenders. When someone claims microcredit has a thousand year history, or a hundred year history, nobody finds it as an exciting piece of historical information.
This is creating a lot of misunderstanding and confusion in the discussion about microcredit. This is very important for arriving at clear conclusions, formulating right policies, designing appropriate institutions and methodologies. Instead of just saying "microcredit" we should specify which category of microcredit.
7.2. A Broad Classification of Micro-credit:
- Traditional informal microcredit (such as, moneylender's credit, pawn shops, loans from friends and relatives, consumer credit in informal market, etc.)
- Microcredit based on traditional informal groups (such as, tontin, su su, ROSCA, etc.)
- Activity-based microcredit through conventional or specialized banks (such as, agricultural credit, livestock credit, fisheries credit, handloom credit, etc.)
- Rural credit through specialized banks.
- Cooperative microcredit (cooperative credit, credit union, savings and loan associations, savings banks, etc.)
- Consumer microcredit.
- Bank-NGO partnership based microcredit.
- Grameen type microcredit or Grameen credit.
- Other types of NGO microcredit.
- Other types of non-NGO non-collateralized microcredit.
This is a very quick attempt at classification of microcredit just to make a point. The point is every time we use the word "microcredit" we should make it clear which type of microcredit we are talking about. Otherwise we'll continue to create endless confusion.
7.3. Grameen credit
Whenever we talk about micro-credit" we actually think in mind Grameen type microcredit or Grameen-credit. Grameen credit has some special features. But if any one tries to make understand other person about micro-credit, as some other category of microcredit arguments will not make any sense to him. The list below provides the distinguishing features of Grameen-credit. This is an exhaustive list of such features. Not every Grameen type programme has all these features present in the programme. Some programmes are strong in some of the features, while others are strong in some other features. But on the whole they display a general convergence to some basic features on the basis of which they introduce themselves as Grameen replication programmes or Grameen type programmes:
7.4. General features of Grameen-credit are:
- It promotes credit as a human right.
- Its mission is to help the poor families to help themselves to overcome poverty. It is targeted to the poor, particularly poor women.
- Most distinctive feature of Grameen-credit is that it is not based on any collateral or legally enforceable contracts. It is based on "trust", not on legal procedures and system.
- It is offered for creating self-employment for income-generating activities and housing for the poor, as opposed to consumption.
- It was initiated as a challenge to the conventional banking which rejected the poor by classifying them to be "not creditworthy". As a result it rejected the basic methodology of the conventional banking and created its own methodology.
- It provides service at the door-step of the poor based on the principle that the people should not go to the bank, bank should go to the people.
- In order to obtain loans a borrower must join a group of borrowers.
- Loans can be received in a continuous sequence. New loan becomes available to a borrower if her previous loan is repaid.
- All loans are to be paid back in installments (weekly, or bi-weekly).
- Simultaneously more than one loan can be received by a borrower.
- It comes with both obligatory and voluntary savings programmes for the borrowers