CASE: SM-116
DATE: 12/29/03 (REV’D 10/18/05)
GRAMEEN BANK
I strongly believe that we can create a poverty-free world, if we want to.... In that kind of world,
[the] only place you can see poverty is in the museum. When school children will be on a tour of
the poverty museum, they will be horrified to see the misery and indignity of human beings. They
will blame their forefathers for tolerating this inhuman condition to continue in a massive way....
1
—Muhammad Yunus, Managing Director, Grameen Bank
SEPTEMBER 1998
After years of prosperity, monetarily and philosophically, Grameen Bank had become a vast
empire, with a towering headquarters in Dhaka, Bangladesh, built as an outward sign that
poverty alleviation was good business. However, after several unusual events, external observers
claimed that the figurative walls showed signs of weakening: In the midst of construction there
was a natural disaster that caused calamity to many of the bank’s members. While Muhammad
Yunus, the founder and managing director, did not share the fatalistic opinion of those critical of
the bank, he did feel a need to solve the current challenges quickly. Neither he nor the
carpenters, busily finishing the 20 floors of the prominent building, were deterred. The building
represented the future of Grameen Bank and its “family” of corporations. It was part of Yunus’
personal vision of an economically strong and stable Bangladesh. What began with small loans
to the poor of Bangladesh had grown into a company determined to change Bangladesh from the
bottom up.
But over the past year, the situation in Bangladesh had deteriorated. The effects of an unusual
political situation and unprecedented monsoonal flooding had caused a noticeable drop in
borrowers’ repayment rates, and it was as yet unknown if this was a temporary disruption or an
emerging epidemic. External observers began to criticize the bank in the popular press, claiming
that the historically healthy and strong Grameen Bank, the pride of the country and Western
supporters of international development, was showing signs of distress. Yunus had to decide
1
Muhammad Yunus. Excerpted from his acceptance speech for the Help for Self-Help Prize of the Stromme
Foundation, given on September 26, 1997 in Olso, Norway.
David Hanley prepared this case under the supervision of Professor John McMillan as the basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.
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Grameen Bank SM-116
p. 2
how the bank would face the problem of nonpayment and general political and environmental
instability, all under the microscope of international public opinion.
BEGINNINGS
In 1965 Professor Muhammad Yunus came to the United States from East Pakistan—the eastern
portion of a divided Pakistan—to receive a PhD in Economics from Vanderbilt University. His
education, funded by the Fulbright program, gave him insight into the theories of international
development. He studied the currently popular macroeconomic principles of international
development—structural adjustment, currency programs, and supply-side economic growth—
and upon graduation accepted a professorship at Middle Tennessee State University.
Professor Mohammad Yunus had left a country struggling to emerge from the challenges of
British rule and subsequent independence. When the British relinquished control of India in
1947, the country was divided along religious lines in an action known as Partition. The result
was two Islamic homelands known as East and West Pakistan. East and West Pakistan were
separated by all of northern India, a distance of over 1,000 miles and governed from Karachi in
the West. Its policies and politics reflected the Western governance. When the Pakistani
government imposed Urdu, the language of the West, as the official state language, the
intellectuals of East Pakistan wrote in Bengali, in defiance. That form of protest continued until
1971 when Pakistani troops stormed the capital of Dhaka and executed several professors, poets,
artists, and physicians. From those killings rose a revolution and fight for independence, which
came when East Pakistan seceded from Pakistan, renaming itself Bangladesh. All of this Yunus
observed from 10,000 miles away.
A desire to return to his country welled inside of him. “I wanted to return and rebuild,” he noted.
“So I took a position at Chittagong University and began doing what I knew how to do: teach
economics.” Chittagong University was located in a major port city, many hours away from
Bangladesh’s capital city of Dhaka. Its site was selected to move politically active students away
from the capital where they could do less harm. Yunus explained that he began teaching “the
eloquent economic theories” that he had been taught, but found a disconnect between the
theories surrounding poverty and the actual poverty in the neighboring village of Jobra. “I found
it difficult to teach elegant theories of economics in the classroom with the backdrop of a terrible
famine in Bangladesh. Suddenly I felt the emptiness of those theories in the face of crushing
hunger and poverty. I wanted to do something immediate to help people around me.”2
Yunus began sending students to local villages to explore why people were poor. The
conclusion of his study: “‘People are poor because they have no money….’ Not quite as eloquent
as academic theories.” He found that the poor people in Jobra were unable to break through the
cycle of poverty because they were dependent on traders to lend them materials and then buy
back the finished products.
Here is my explanation: Poverty is not created by the poor people. So we
shouldn't give them an accusing look. They are the victims. Poverty has been
2
Yunus, Muhammad. “Halving Poverty by 2015–We Can Actually Make It Happen.” Delivered at the
Commonwealth Institute, London, March 11, 2003.
Grameen Bank SM-116
p. 3
created by the economic and social system that we have designed for the world. It
is the institutions that we have built, and feel so proud of, which created poverty.
It is the concepts we developed to understand the reality around us, made us see
things wrongly. The essence of my argument…is that in order to reduce, and
ultimately eliminate, poverty we must go back to the drawing board.3
One day, while on one of his frequent walks around Jobra, he met Sufia Khatun, a widow with
two daughters. Khatun made baskets by borrowing money to buy materials in the morning,
working the whole day, and selling the finished product at night. Her entire day’s work gave her
5 taka, or $0.02. This troubled Yunus tremendously. He ''couldn't accept why anybody should
make only two cents for such a beautiful skill.''4 He could not understand how someone’s labor
could be so undervalued. Yunus asked her how much money she required to be free of the
moneylenders. Four dollars was the amount. Yunus found 41 other villagers in Jobra and lent
them a total of $27. Khatun’s income immediately jumped from $0.02 per day to $2.00 per day.
Yunus later noted:
I could not think of anything better than offering this $27 from my own pocket to
get the victims out of the clutches of the moneylenders. The excitement that was
created by this action got me further involved in it. The question that arose in my
mind was, if you can make so many people so happy with such a tiny amount of
money, why shouldn't you do more of it?5
Yunus simply told those borrowers to pay him back when they could, and was a little surprised
to find that all of them repaid him in full. So, he began lending more money with the same
result. He petitioned local banks to start making similar loans, an idea they rejected. When he
asked them their reasoning, they replied that the poor are not credit worthy. Yunus replied,
“How can you say that they are not credit worthy. I give them money, and they pay me back.”
Yunus continued this crusade to the highest levels of several banks, but none were willing to
lend to the poor. Finally the local bank allowed Yunus to borrow funds in his own name and
provide loans in Jobra. This program continued to grow successfully, each round with full
repayment. He returned to the banks and reported that the test results were in: the poor really
were credit worthy.
Yunus tried to convince the banks to adopt his methods and begin employing them in providing
loans to the rural poor, but the bankers were skeptical that Yunus’ successes could be repeated in
other communities. So, they laid a challenge at his feet to build what would be called Grameen6
Project in another district of the country. If it succeeded, they would pick up the work and
continue it themselves. “If I fail, of course they don't pick it up and I go back to Chittagong, and
I don't open my mouth on the subject anymore,” Yunus said, further explaining: “The bankers
say, ‘Well you're from Chittagong, you're a teacher there, so you may have a special influence in
the community. So why don't we take you to some other district where you are not known?’ I
3
ibid.
4
Quotations are from interviews of Mohammad Yunus by the author, unless otherwise noted.
5
Yunus, Muhammad, 11 March 2003. op.cit.
6
Grameen is a Bengali word for rural or village.
Grameen Bank SM-116
p. 4
said, ‘okay, I'll take your challenge, so you decide which district I should choose.’” The bankers
debated the possible locations and eventually selected Tangail, a district just north of Dhaka, the
capital city. “They finally ended up selecting Tangail because it's close to them, and it's a small
area, and therefore easy to manage. I didn't mind. I had never been to Tangail, but I went there
for a few years and it worked.”
Yunus began building the Grameen Project in much the same way that he had in Chittagong,
with continued success. Groups were formed, centers established, loans issued and repaid, and
savings collected. As the project was completed, Yunus expected the banks to live up to their
challenge and take over his lending and saving activities. However, as he explained, “Nobody
was interested in taking it up anymore. I kept raising this question, ‘Why don't you do it? Why
don’t you take it up?’” The banks’ new excuses demonstrated their underlying lack of
enthusiasm for the work. One new excuse: “‘Well, you are there behind everybody, and you're
working so hard and your students are working so hard, and bankers just simply won’t work that
hard.’ I said, ‘That is a fine question, but that's not what we talked about.’”
Still not discouraged, Yunus gave the banks an option. He allowed them to pick five different
regions for Grameen Project to develop. It was obvious that Yunus could not be in all five
districts at once, so this ought to reduce their final concern over the viability of the lending
model. He even persuaded the banks to have their own staff manage the lending process so that
the banks could not say that their employees could not successfully accomplish that which
Grameen was successful in doing. As Yunus suspected, the experiment was successful in all five
districts, but the banks were still unmoved in their decision. At that point, Yunus became
discouraged. He thought Grameen Project was lost.
It was in the face of quitting that he resolved to do what he had not originally planned: start his
own bank. In 1982 he came to the Central Bank of Bangladesh with a proposal to establish a
bank that would operate in the rural areas of Bangladesh. While there was some hesitancy, it
was difficult for them to argue that Yunus should not move forward. Grameen Bank was
chartered in 1983 and given the right to distribute loans and collect savings in areas outside of
Dhaka. Throughout the 1980s, Grameen Bank grew at a steady rate, lending to 490,000
Grameen Bank members by 1988. Each of those members had savings, one or more loans, and a
share of Grameen Bank stock. By the end of the 1980s, over 90 percent of the bank’s stock was
owned by its borrowers. (See Exhibits 1-3 for operational and financial growth.)
THE GRAMEEN LENDING MODEL
A Grameen Bank branch was comprised of members, groups, and centers. Five members
comprised a group, and four to eight groups comprised a center (Exhibit 4). All the members of
a center met weekly to repay loans, deposit savings, and propose loans. Centers saved and built
a center house, a simple building that served as their meeting place for center meetings and other
events. At a weekly center meeting, women lined up in their groups of five, with the group with
longest tenure seated in the front. When the center manager (a Grameen Bank employee) arrived
by bicycle, the center members greeted him and gave a salute. The center chief (selected by her
peers) brought the meeting to order by leading the group in exercises and slogans. She reported
that all were present and accounted for. Funds were brought forward to the center manager one
Grameen Bank SM-116
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group at a time, and he recorded each deposit in his ledger. Once funds were collected, new loan
proposals were brought before the center, and any member could support or object to an
individual loan. If the venture seemed a risky investment, the center debated the issue and came
to a decision. Then the center chief gave the loan proposals to the center manager. Later that
day, the loans proposed and accepted at that meeting were disbursed at the branch office.
Grameen Bank borrowers had no collateral. In fact, the opposite was required: a candidate must
have sufficiently few assets to be admitted for membership in the bank. A person who was
interested in joining the bank must first find four other people with whom to form a group. That
group should be comprised of people who knew and lived near each other, were of the same
gender (97 percent of borrowers are women), and were not of the same family. Group members
were collectively responsible for each other’s loans; if one defaulted, the others were required to
repay her portion. The group of five underwent a training program, where they were taught the
rules and regulations of Grameen Bank.
The candidates met several times a week for five to six weeks, learning about loan types,
compulsory and optional savings plans, interest rates, center norms, and Grameen Bank’s social
slogans, called the Sixteen Decisions (Exhibit 5). Bank members were expected to be able to
recite the Sixteen Decisions at any time. Candidates attended center meetings and witnessed the
transactions of their peers, making sure that they were interested in the responsibility and
benefits of bank membership. Illiterate candidates learned to sign their name on their loan
documents. Once the branch manager considered a group prepared to be tested, he called for an
area manager to visit with the group. The area manager asked them various questions about their
training, quizzed them on the interest rate for savings, etc. Once satisfied, he visited each
candidate’s home to verify that her assets were sufficiently few and that husbands would support
their wives in their borrowing and saving efforts.
Successful candidate groups were admitted to the bank and to their center in a ceremony. After
the next center meeting, they came to the branch office to receive their first loan, usually totaling
around $100. Borrowers began loan repayment the following week by paying the first of fifty
even installments of principal plus 10 percent interest.7 Very soon after a loan was repaid, the
borrower proposed a new loan to her group and center at the center meeting. Once approved, a
new loan was disbursed immediately. Loan amounts tended to increase by 10-30 percent each
year. An established borrower could also qualify for a seasonal loan or a home loan.
RAPID GROWTH: 1989-19918
The growth leading up to the late eighties required developing systems for training and
overseeing workers and borrowers. Grameen Bank developed a training center, which included
six months of apprenticeship and classroom training for each employee. By the end of 1987,
7
Grameen Bank charges 20 percent APR for its loans. Since the principle is repaid at a steady rate, the average loan principal is
50 percent of the the loan amount. On a $100 loan, the borrower would pay $10 interest, which is 10 percent of the loan
principal or 20 percent of the average loan principal.
8
At this time, Grameen Bank began supporting, training, and even funding replicators of its lending methodology
throughout the world through Grameen Trust. For more information on Grameen Trust and the international
program, see Exhibit 7.
Grameen Bank SM-116
p. 6
Grameen had 7,500 employees, having added one third of that total during the past year.
Grameen was expanding throughout the country and success continued in all regions.
It was at this time that Yunus began to wonder if Grameen Bank could grow even faster. There
were so many in need throughout the country. There were plenty of able-bodied men and
women waiting to join the work force. The only impediment to a more rapid growth was the
availability of capital. Loan reserve requirements and a limited amount of grants and aid from
international agencies only permitted the organization to grow at its current rate. Yunus knew it
was time to raise some money.
“The initial money came from International Fund for Agricultural Development (IFAD). Then,
once that money was used up, we needed more money to expand. So we asked around to get
more money.” Yunus began to hear interest from agencies including IFAD, the Norwegian
Agency for Development Cooperation (NORAD), Canadian International Development Agency
(CIDA), and others.
The response was positive and we got more money. But now [these agencies]
wanted to have increased power and oversight. Then they started asking
questions—and the kinds of questions they were asking I didn't like.
Who runs it? How (do) you run it? How does it happen? Something silly. They
will never understand what this is. So we can't go on answering these questions.
So I said, “I'm not interested.” So they had to look for other places to put their
money.
The aid agencies quickly learned that there was pressure from their communities to place their
funds with Grameen Bank and that Grameen was likely the most cost-effective way for the
agencies to support development in Bangladesh. NORAD, IFAD, and CIDA all signed on to
provide funds to grow the number of Grameen Bank branches. They were interested in funding
the establishment of a certain number of branches—100-200 branches each. So, Yunus decided
that they should get their wish and Grameen would expand by 500 branches over a period of a
few years.
The aid agencies were shocked at Yunus’ aggressive position. They feared that their funds and
the explosive growth would smother this successful project and in turn cause bankruptcy.
Yunus explained:
Once we did that, then all the [donors] said, “This is too much.” So it became a
controversy. Yet it was too much and also too little. I said, yes, to you it looks like too
much. To us it looks like not enough to reach the large numbers of poor in our country.
So whatever money you want to give to a reasonable grant, give 200 branches, 500
branches, 300 branches—it’s up to you. Our plan stays. They said, “No, you make only
200.” I said, “No, we make 500. You give a 200 grant and I'll look for the rest.”
This debate continued until finally the donors formed a consortium so that all the donor agencies,
together, could oversee efforts and determine if the funds were being used properly and the
Grameen Bank SM-116
p. 7
growth was manageable. When CIDA had to reduce its commitment due to a budget cut, the
other donors filled the void. Funds were given in traunches and Grameen began its explosive
growth shown in Exhibit 1 and Figure 1.
700
700,000
600
600,000
500
500,000
400
400,000
300
300,000
200
200,000
100
100,000
-
1986
1987
1988
Branches
1989
Members
Figure 1. Grameen Bank Growth, 1986-1989. Number of branches is shown on the left axis. Number of
members is shown on the right axis.
One area of concern to both Yunus and the consortium of donors was the ability to make these
new branches financially self-sustainable as quickly as possible. Since Grameen’s systems for
cost saving and oversight were already in place, the most significant metric that needed to be met
was to have each branch at capacity with the number of borrowers that it served. The chart
below demonstrates Grameen Bank’s ability to actually increase the number of members per
branch while at the same time adding hundreds of branches.
1800
1500
1200
900
600
1986 1987
1988 1989
1990
1991
1992
1993
Members per Branch
Figure 2. Growth of bank membership per branch, 1986-1993.
Grameen Bank SM-116
p. 8
Yunus claimed that the growth had little effect on the human resource functions of Grameen
Bank.
Yes, we thought it was easy. At that time we didn't feel threatened or anything.
We just hired people, trained them, and sent them on. Because for us we felt
opening one branch and opening a hundred branches was just about the same
thing. Because I'm not opening a single branch—the staff is doing that. We
trained them. They go there to work. We had our training centers. We had our
established systems. We had computers in our offices. So moving from 100 to
500 is quite a big jump as we had to introduce all these things as quickly as
possible, but the systems were already in place. If you hand them the money, they
will do the job.
To provide better oversight, Grameen was divided into five zones, and each zonal manager was
given complete latitude to oversee the operations of his zone. “So, the zonal office is the one
who looks at the actual operations of the bank. Our job is only to recruit and train center
managers, and send them on; and to make sure that the money is there, properly used and
accounted for.” (See Exhibit 6 for a map of Grameen’s Zones.)
REPAYMENT
Grameen Bank’s historical repayment rate hovered around 97 percent of its loans, a testament to
the strength of its lending model. But recent troubles had caused Grameen’s repayment rate to
dip below this point, and there was some discussion in the popular press that the end of the bank
was quite near.
Some said that successful microcredit was a house of cards, in that repayment often depended on
the fact that borrowers didn’t conceive of nonpayment or often didn’t realize that their group
members would not actually be affected if they defaulted. Yunus knew that while his lending
model of peer support and peer pressure was supposed to keep a defaulter’s fellow group
members from receiving their loans, this was rarely the case. Over time, those members were
simply formed into a new group once it was clear that the defaulter was not coming back. Thus
whole centers and whole branches remained at near-full repayment, but once the virus of
nonpayment crept into a center, the whole branch operation could be in jeopardy.
Reflecting over the past few years, Yunus wondered: What does one do when a disaster hits?
His borrowers lived and worked in a country known mostly for its floods, hurricanes,
tremendous population burden, and political strife. Disaster would strike and families simply
tried to survive. Then the floods receded or the storm damage was removed, but it was then that
the true struggle began: rebuilding. What should Grameen’s response be to its borrowers when a
disaster took place? When all the homes were destroyed and families started again, should bank
operations still continue in the same way? Grameen was a bank, but a bank that lent to the rural
poor—those most directly affected by these disasters. How could Grameen Bank ensure its
borrowers’ welfare without appearing to be a welfare institution?
Grameen Bank SM-116
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POLITICS IN THE EARLY 1990S
Upheaval came in many forms. The beginnings of Grameen’s current challenges with repayment
were political in origin. Two parties dominated politics in Bangladesh: the Bangladesh National
Party (BNP) and the Awami League. Both parties harnessed the nationalist tendencies of a
politically conscious, yet largely illiterate, population, offering promises that, at times, had very
little possibility of implementation. Each party was led by a woman with a strong family tie to a
former leader of the Bangladeshi independence movement and war. The Awami League’s
Sheikh Hasina was the daughter of the leader of the freedom movement and first prime minister
of Bangladesh, Sheikh Mujibar Rahman, known as “Bangabondu,” or friend of Bangladesh. She
and her sister were the sole survivors of an attack on the family home by armed insurgents
during a coup in 1975. The BNP’s Begum Khaleda Zia was the wife of the deceased Ziaur
Rahman, a freedom fighter and former president (1977-1981) who was also martyred. The
relationship of these women to the recent and vibrant history of Bangladesh catalyzed the
nationalist sentiment of the electorate.
The first of three political challenges faced by Grameen Bank actually came from within. Yunus
noted, “The biggest impact came from our own staff, incited by the BNP to form a trade union.”
The two political parties in Bangladesh also ran the labor unions, and in the mid 1990s, they set
their sights on unionizing all bank employees in Bangladesh. The growth of Grameen’s
employment numbers was not lost on those unions and a movement to unionize Grameen Bank
moved forward with some success, resulting in limited work stoppages and slowdowns that upset
the operational efficacy of the bank. Local union and party leaders targeted Grameen, and
destroyed several of the center buildings where borrowers met. Repayment suffered to a degree.
Then a second political challenge arose. What originated as a local issue, concerning a former
borrower dissatisfied with a Grameen savings policy, grew to cause political fervor throughout
the country. Borrowers wanted to withdraw all of their savings, including a “group tax.” The
group tax was a small percentage fee paid on loans that was deposited in a savings account
meant for the group to use as a whole. Sometimes borrowers took small loans from this fund to
be used for weddings, funerals, and medical care. Those loans were always repaid, as enforced
by group members. Group tax monies were intended to stay with the group in perpetuity,
regardless of who comprised that group. Dissatisfaction grew into a hot political debate. Those in
opposition to Grameen Bank encouraged borrowers to leave the bank and stop repayment of
loans.
Everything came to a standstill. The movement from the borrowers on the group
tax issue was localized in certain areas. They just refused to come back. This
was mostly controlled by outsiders—leaders who were vying for power—but it
was quite popular. I would say that multiple leaders were forcing them to do it,
but they were happy to join.
Many borrowers simply refused to return to the centers, and again repayment suffered.
Lastly, the election of 1991 was particularly eventful for Grameen. Elections in Bangladesh
were heated, often violent, and tended to result in the minority party unseating the majority by
Grameen Bank SM-116
p. 10
blaming economic woes and corruption on the current leader. But in the 1991 election, both
major parties sought to bolster their bids for parliament by taking aim at Grameen and the
microcredit movement. The Awami League and the BNP promised that if elected they would
forgive all agriculture loans under $1,000.
Yunus immediately heard the news and was shocked. The realization was certainly not lost on
him that Grameen Bank borrowers were now such a sizeable constituency that they were being
catered to by parties. However, Yunus knew that this promise would mean trouble for Grameen.
How much and to what degree would not be known for days or months, but he was faced with
finding a strategy that could deal with this problem directly.
Several questions needed to be answered. How many had heard (or would subsequently hear)
the announcement? What was the likelihood that the victorious party would follow through with
this promise, and what was the likelihood that the courts would uphold it? The question of
greatest importance seemed to remain, regardless of government action: What will be the
immediate reaction of borrowers to the promise, and what effect will that response have on loan
repayment? Based on a shallow campaign promise, the lending and savings empire that
Grameen had built was in danger of collapse.
“This created some sensation,” Yunus noted. “In some parts of the country, repayment
stopped.” Certain branches were hit hard, and Grameen’s center, branch, and area managers had
to begin a reeducation program to convince their borrowers that 1) the government doesn’t have
the right to forgive these loans, and 2) they are better off if they remain with Grameen Bank and
receive annual loans in perpetuity. Results were mixed. While repayment had recovered
significantly within a few years, there was still an increased percentage of borrowers that were
late in their payments.
THE FLOODS OF ’98
In April of 1998 temperatures in Bangladesh began to climb. As the summer sun grew warmer,
hot winds blew dust and garbage throughout the villages and cities. The winds foreshadowed
what was to come: the monsoon. Initially, the heavy downpours were a welcome relief to
extreme heat. The summer rains were the source of much of the country’s water, and had
traditionally aided the only planting season of the year.9
Annual floods were a way of life in Bangladesh. Due to a very wet history, Bengali people had
learned to adapt to monsoonal flooding with incredible resilience. When the rains continued to
pound the dirt in May of 1998, the national reaction was much as it had ever been; however, the
ensuing months of well-above-average downpour caused some to fear. Even for a land of floods
where people had made a life of adapting and rebuilding, the rain of 1998 was different.
As the monsoon poured into August, it became obvious to Yunus that this was no ordinary year.
The threat to his borrowers and the bank could be severe. Floods could destroy homes, which
served as his borrowers’ “factories” and must be rebuilt before the borrower could continue her
income-generating activities. Floods could cause temporary migration to higher ground, which
9
With new technologies and processes, by the late 1990s, most land was able to support three harvests annually.
Grameen Bank SM-116
p. 11
upset the social community that holds groups and centers together. Floods could foster the
spread of disease, which resulted at worst in loss of life, at best in loss of working capital and
savings as funds were used for medicines and health care. Lastly, floods could lead to destroyed
crops and animal illness and death. With over 60 percent of its loans being used for agriculture,
and all of its borrowers being in rural areas, there was a distinct possibility that many borrowers
would default once floods wreaked their havoc.
The Bengal Basin had known many floods. The flood of 1988 was known as the “worst flood in
forty years.” The following year’s monsoon topped the previous one, resulting in the “worst
flood of the century.” But the floods of 1998 were of a different order. By the time the flooding
and destruction were measured, it became known as the “worst flood in history.” Flooding
lasted three months and caused unprecedented damage, amounting to $2.2 billion, 77 percent of
the national development budget. Waters destroyed nearly one million homes10 and damaged 2.7
million acres of farmland.11 More than 9,500 kilometers of road was damaged, costing more
than $100 million to repair. (See Exhibit 7 for more statistics on reconstruction and aid.)
Yunus requested that his branches report on the status of their members and compile statistics for
the head office. While the qualitative effect on his borrowers would not be known for some
time, the statistics collected from his branches were startling:
1. Out of 2.3 million members of Grameen Bank about 1.2 million were affected by the
floods. Of these about 800,000 were severely affected.
2. A total of 821 Grameen family members had died, including 168 members, 255 members
of their families, and as many as 398 children of their families. Major causes of death
were drowning (252, mostly children), diarrhea (141), snakebite (58) and electrocution
(36).
3. More than 150,000 Grameen Bank members had taken shelter in relief camps set up for
people whose houses were submerged in water.12
DECISIONS
Yunus had to confront the material and emotional losses of his borrowers. He had financial
resources available that could be donated to the relief of his borrowers. The borrowers needed
food and funds to survive, and survive they must. The bank depended on their continued health
for its future livelihood, and it needed repayment. But Yunus was never solely driven by the
numbers: he was also gravely concerned for the lives of the bank members. Yunus felt a
stewardship for the borrowers and wanted to do everything he could to improve their situation.
Although socially motivated, Grameen had a bottom line. This seeming dichotomy of interests
could undermine the long-term growth of Grameen Bank. The conflict of human interest versus
financial survival tested Grameen, its borrowers, and its founder. It was determined that the
bank required capital for the usual post-monsoon seasonal agricultural loans, and its floodeffected borrowers would need fresh business loans once the waters receded.
10
“Catastrophic flood causes overall damage to the economics of ten and one half crore taka.” Janakanta, Oct. 25, 1998.
Translated.
11
“A comparative picture of four recent floods and what should be done in the future.” Ittefaq, Oct 25, 1998. Translated.
12
Grameen Bank. 1998 Annual Report.
Grameen Bank SM-116
p. 12
In the aftermath of the floods we [estimated] that [we needed] $100 million
immediately, not for Grameen's survival… but for assisting in the survival of
Grameen borrowers who [were] badly hit by the flood. For Grameen a natural
disaster is a challenge, and an opportunity to demonstrate how effective
microcredit system is in helping affected people back on their feet.13
Yunus looked at his options for raising funds and was unsure if he could secure the requisite
sum. Competition for international donor funds would be fierce, and Grameen would not likely
be able to get what it needed. Yunus was already pursuing the sale of securitized loans in the
U.S. markets, but costs of currency hedging made this alternative unlikely. Local financial
markets were the only available alternative, but the outcome of such a request could not be
known. Yunus knew he needed to do something to aid his borrowers, but he needed to structure
that aid appropriately so as not to undermine the perception of Grameen Bank as a solid financial
institution. As much as he wanted wash away all of the borrowers troubles, Yunus knew the best
thing for his borrowers was the survival and success of Grameen. He put pen to paper and began
to draft the Grameen Disaster Relief Program.
13
Yunus, Muhammad, Letter to the Editor. Financial Times, Oct 9, 1998.
Grameen Bank SM-116
p. 13
Study Questions
1)
2)
3)
What elements should Muhammad Yunus include in the Grameen Disaster Relief
Program to balance aid with capitalism?
How should Grameen have confronted the political parties’ promise to forgive
agricultural loans?
Grameen’s growth was limited by available loan capital. What sources of capital
were available to Grameen? Estimate the current costs of these sources, including
fees and hedging.
Grameen Bank SM-116
p. 14
Exhibit 1
Grameen Operations 1986-1997
Description
Yearly Loan Disbursed
a) General
b) Housing
Total Disbursement
for the Year
Cumulative Total
Disbursement
Cumulative Amount
Repaid
Balance of Group
Fund Savings
No. of Houses built
Coverage
Members
Groups
Centers
No. of Villages
covered
1997
(Million
US$)
$
370
16
1996
(Million
US$)
$
238
4
1995
(Million
US$)
$
344
18
1994
(Million
US$)
$
352
34
1993
(Million
US$)
$
260
42
1992
(Million
US$)
$
142
15
1991
(Million
US$)
$
86
8
1990
(Million
US$)
$
85
6
1989
(Million
US$)
$
1988
(Million
US$)
60
7
$
44
5
1987
(Million
US$)
$
26
5
1986
(Million
US$)
$
18
0
386
243
362
386
302
157
95
91
67
49
31
18
2224
1838
1596
1234
849
546
389
295
203
136
87
56
$ 1,869
$ 1,527 $ 1,293
91
402,747
81
329,040
75
331,201
$
941
61
295,702
$
619
$
424
$
317
$
234
$
15
$
101
$
66
$
44
41
258,194
24
157,334
16
118,717
13
91,157
10
67,841
6
44,556
4
23,408
3
2,042
2,272,503 2,059,510 2,065,661 2,013,130 1,814,916
465,384
433,791 424,993
412,145
372,298
64,701
62,681
61,156
59,921
57,649
1,424,395
284,889
51,367
1,066,426
213,286
42,751
869,538
173,907
34,206
662,263
132,452
26,976
490,363
98,073
19,663
339,156
67,831
14,390
234,343
46,869
10,279
37,937
36,420
35,533
34,913
33,667
30,619
25,248
19,536
15,073
10,552
7,502
5,170
12,628
12,348
12,420
12,230
11,459
11,772
12,523
13,626
9,737
7,093
4,637
3,515
1,105
1,079
1,055
1,045
1,040
1,015
915
781
641
501
396
295
No. of Area offices
118
115
111
110
110
108
103
90
79
61
47
33
No. of Zonal offices
14
14
12
12
12
12
11
10
9
9
5
5
Employees
No. of Branches
Source: Grameen Bank
Grameen Bank SM-116
p. 15
Exhibit 2
Grameen Bank Balance Sheet 1983-1997
1997
1996
1995
1994
(Million US$) (Million US$) (Million US$) (Million US$)
1993
(Million
US$)
1992
(Million
US$)
1991
(Million
US$)
1990
(Million
US$)
1989
(Million
US$)
1988
(Million
US$)
1987
(Million
US$)
1986
(Million
US$)
1985
(Million
US$)
1984
(Million
US$)
1983
(Million US$)
PROPERTY AND ASSETS
Taka/Dollar
Cash in hand
Balance with other banks
45.45
40.86
40.2
40
39.14
38.15
35.68
32.92
32.14
31.24
30.63
29.89
25.96
24.94
23.8
148,781
9,849
673
2,506
1,487
788
2,790
966
15,405
10,569
8,259
383
45
620
2109
8,112,524
9,404,633
10,672,325
8,221,369
8,685,191
3,977,529
1,880,062
1,825,304
1,528,192
1,106,391
728,304
648,468
737,098
799956
532866
80,046,485
44,579,075
34,108,344
40,659,918
32,737,576
19,974,207 12,780,090
13,328,436 14,570,090
8,416,795
5874098
1113445
276,323,642 223,903,187 115,961,668
71,501,295
64,318,666
49,571,650 35,047,881
21,027,318 11,072,946
9,478,296
7116211
3120689
373,068
193370
58533
Investment-at cost
101,215,898
148,348,392
90,906,953
Loans and advances
276,987,700
268,077,806
278,014,734
16,541,300
16,682,965
14,711,155
Fixed assets-at cost less
accumulated depreciation
Other assets
Total
32,135,266
36,497,499
47,174,526
435,141,469
479,021,144
441,480,366
13,778,854
12,699,480
11,037,106
9,641,762
8,026,878
35,979,674
23,789,816
15,352,730
11,967,765
13,489,592
414,352,530 313,658,236 180,438,165 135,653,592 120,398,982
5,032,710
3,691,023
10,251,187
6,161,817
86,373,351 58,797,771
2,084,104
1,073,030
4,044,947
2,743,999
2,027,688
1117643
165079
41,221,368 30,108,916
21,032,990
15101898
4992721
4201681
CAPITAL AND LIABILITIES
Share Capital:
Authorized
11,001,100
12,236,907
12,437,811
12,500,000
6,387,328
6,553,080
7,006,726
3,037,667
3,111,388
3,201,024
3,264,773
3,345,601
3,852,080
4,009,623
Paid up
5,409,835
5,676,676
5,647,077
5,412,913,
3,832,397
3,917,471
3,205,255
2,187,120
2,239,919
1,822,119
1,374,567
1,186,567
1,155,624
1,009,423
756303
General and other reserves
2,743,297
2,679,781
2,191,184
1,759,053
1,274,156
560,944
210,671
264,277
180,460
118,438
88,149
76,949
77,042
65,410
-128751
-
-
-
-
-
-
-
15,940,170 10,482,682
7,342,545
4,850,819
3,074,915
1,536,996
777713
31,169,703 23,982,775
3587161
Revolving Funds
Deposits and other funds
22,274,654
64,913
86,364,415
77,231,700
72,247,852
62,476,891
35,820,344
27,079,103
127,708,518
127,572,377
118,587,183
103,314,043
80,485,719
57,046,298
38,705,911
28,411,839
248,473,910
320,453,435
211,506,129
205,392,534 139,753,939
49,232,670
52,581,284
57,306,123
28,531,255
22,573,962
17,184,378
7,203,891
5,130,127
5,150,520
435,141,469
479,021,144
441,480,366
Borrowings from banks and
foreign institutions
Other liabilities
Total
Source: Grameen Bank
21,242,287
16,064,173
414,352,530 313,658,236 180,438,165 135,653,592 120,398,982
55,019,015 39,465,046
12,993,787
6,909,486
86,373,351 58,797,771
16,714,070
12,482,050
11,806
11,339
8,019
295
41,221,368 30,108,916
21,032,990
15,101,898
4992721
1,246,404
Grameen Bank SM-116
p. 16
Exhibit 3
Grameen Bank Income Statement, 1997
Income Statement
Interest Income
Loans and advances
Investment
Deposits
Other Income
Less: Interest Expenses
Interest
Deposits
Borrowing
Salaries and other related expenses
Directors' remuneration
Depreciation on fixed assets
Other expenses
Net profit before tax
Provision for taxation
Net income
Appropriations
General Reserve
Employee's Welfare Fund
Central Disaster Fund
Source: Grameen Bank
1997
1,407,028,443
514,788,203
4,778,499
148,706,666
2,075,301,811
502,801,350
372,624,748
931,709,960
39,789
32,073,202
221,730,820
2,060,979,869
14,321,942
5,728,777
8,593,165
6,400,000
1,333,849
859,316
8,593,165
Grameen Bank SM-116
p. 17
Exhibit 4
Hierarchical Structure of Grameen Bank
15
Zones
121
Areas
1,137
Branches
77,712
Centers
486,870
Groups
Source: Grameen Bank
Grameen Bank SM-116
p. 18
Exhibit 5
The 16 decisions of Grameen Bank
.
1. We shall follow and advance the four principles of Grameen Bank—Discipline, Unity,
Courage and Hard work—in all walks of our lives.
2. Prosperity we shall bring to our families.
3. We shall not live in dilapidated houses. We shall repair our houses and work towards
constructing new houses at the earliest.
4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the
surplus.
5. During the plantation seasons, we shall plant as many seedlings as possible.
6. We shall plan to keep our families small. We shall minimize our expenditures. We shall
look after our health.
7. We shall educate our children and ensure that they can earn to pay for their education.
8. We shall always keep our children and the environment clean.
9. We shall build and use pit-latrines.
10. We shall drink water from tubewells. If it is not available, we shall boil water or use
alum.
11. We shall not take any dowry at our sons' weddings, neither shall we give any dowry at
our daughters wedding. We shall keep our centre free from the curse of dowry. We shall
not practice child marriage.
12. We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.
13. We shall collectively undertake bigger investments for higher incomes.
14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help
him or her.
15. If we come to know of any breach of discipline in any centre, we shall all go there and
help restore discipline.
16. We shall take part in all social activities collectively.
Source: “The 16 decisions of Grameen Bank,” http://www.grameen-info.org/bank/the16.html (October 17, 2005).
Grameen Bank SM-116
p. 19
Exhibit 6
Map of Grameen Bank Zones
RANGPUR
BANGLADESH
DNAJPUR
SYLHET
BOGRA
TANGAIL
MYMENSINGH
RAJSHAHI
DHAKA
XGAU
COMILIA
FARIDPUR
NOAKHALI
Chittagong Hills
Tracts
KHULNA
PATUAKHALI
Bay of Bengal
Islands
BAY OF BENGAL
Each zone of the Grameen Bank
Chittagong Hill Tracts, not serviced by Grameen.
Grameen did not service Bay of Bengal Islands in 1998
Source: Grameen Bank
CHITTAGONG
Grameen Bank SM-116
p. 20
Exhibit 7
Grameen Trust International Program
From: Grameen Trust Experience: 1991-2002, H. I. Latifee
In order to meet the challenge of poverty alleviation primarily on the basis of the lessons learned from Grameen
Bank's operation, Grameen Trust (GT) was established in 1989. It is a private, non-profit and non-government
organization. Professor Muhammad Yunus is the founder of Grameen Trust.
VISION AND MISSION
Grameen Trust is committed to the cause of poverty alleviation. It envisages a world free from poverty and hunger,
where poverty will be a phenomenon of the past. GT’s mission is to undertake any programs that will help eradicate
poverty. As a part of its mission, it provides financial and technical support to Grameen replications worldwide. It
also supports poverty focused research and disseminates information on poverty related work.
OBJECTIVES
GT has the following objectives:
1. To support and promote GB-type programs to reduce poverty
2. To provide training and technical assistance to micro-credit organizations.
3. To publish materials on Grameen technology and disseminate information on the Grameen Bank
Replication Program (GBRP).
4. To build an international network of concerned people and institutions working in the field of poverty
alleviation and providing financial services to the poor.
5. To conduct research and support research projects, to undertake and encourage experimentation to find
ways to bring about socio-economic changes in the lives of the poor.
6. To promote and operate health and sanitation services for the benefit of the poor.
7. To organize and operate any project or enterprise that will help increase employment, income and
management skills of the poor.
PROGRAMS
Grameen Bank Replication Program
Grameen Trust completes 12 years of operation as an institution providing financial and technical assistance to
microcredit organizations. Within the period from 1991-2002 it has provided assistance to 112 organizations in 34
countries, including 86 organizations in Asia and Pacific alone. It has directly operated three projects in
Afghanistan, Myanmar and Kosovo under its ‘Build, Operate and Transfer“ (BOT) model.
Grameen Trust (GT) started its Grameen Bank Replication Program (GBRP) in 1991 when the world was only just
beginning to realize the power of microcredit as a tool for poverty alleviation. Given the success of Grameen Bank
in designing a system to provide collateral free credit to the poor and providing them with financial services, many
people and organizations became interested in learning more about the Grameen Bank Approach (GBA) and
applying it in their poverty focused programs. Their interest was genuine. However, they experienced great
difficulty in learning GBA techniques and mobilizing funds for operational and on lending purposes. These were
challenges that faced all microcredit practitioners. Grameen Trust accepted this challenge, and started developing a
support system for potential replicates of GBA in different countries. The Grameen Bank Replication Program
(GBRP) includes the Dialogue Program, training, workshop, monitoring, evaluation, technical and financial
assistance. It also includes advocacy and networking.
Dialogue Program
The Dialogue program is intended for potential Grameen replicators and other microcredit practitioners. It is the first
step in the development of a partnership with GT. It provides immersion into Grameen milieu and assists in the
design of Grameen-type programs. It facilitates a widening of the network of individuals and organizations using
microcredit as an instrument for poverty alleviation. Up to the end of September 2002, GT has organized 47
Dialogue programs and received 879 participants from 98 countries of Asia, Africa, Australia, Pacific Islands,
Europe, North, South and Central Americas.
Grameen Bank SM-116
p. 21
These programs included Dialogue programs specially organized for participants from Commonwealth countries,
from organizations like Results, USA and from North-South Dialogue, Germany. During the Dialogue Program,
participants see Grameen operation on the ground, attend centre meetings, interview borrowers, learn about their
lives and livelihoods and try to understand how collateral free microcredit helps them overcome their poverty. They
also talk to the Grameen staff at different levels (branch, area, zone and head office) to understand the philosophy,
tools and techniques of the Grameen methodology, and to examine whether using these will serve the poor in their
own localities. Dialogue Programs have acted as a catalyst resulting in the replication of GBA worldwide. There are
now more than 600 replication projects in 81 countries, including the ones supported by GT. Support has been given
to those projects that have committed leadership, but little or no access to funds.
Source: Grameen Bank
Grameen Bank SM-116
Exhibit 8
Number of Grameen Trust Replication Projects by Country
Country
Number Country
Number Country Number
Bangladesh
5
Indonesia
1
Pakistan
2
Bolivia
1
Kenya
1
Philippines
13
Central Africa
1
Kyrghyzstan
1
Tanzania
2
Bosnia
1
Lesotho
1
Togo
1
China
6
Mauritania
2
Uganda
2
Egypt
1
Nepal
5
Vietnam
2
India
11
Nigeria
2
Zimbabwe
1
source: “Update on Grameen Trust Partner Organizations: May 1998,” Grameen Dialogue, May, 1998.
p. 22
Grameen Bank SM-116
p. 23
Exhibit 9
Grameen Family of Enterprises
GRAMEEN TRUST
As a result of the success of Grameen Bank in reaching and serving the poor with credit, many
people and organizations began to think in Grameen's way, and wanted to learn more about
Grameen and follow Grameen's principles in their own sphere of work. It is primarily to meet
this demand that the Grameen Trust (GT) came into being in 1989.
GRAMEEN FUND
Grameen Fund was incorporated on January 17, 1994 as a not-for-profit company and started
operations on February 1, 1994. Its emphasis is on providing finance to ventures that are risky,
technology-oriented and otherwise deprived of financing from existing formal lending
institutions.
GRAMEEN COMMUNICATIONS
Grameen Communications, a member of Grameen family of enterprises, is a not-for-profit
Information Technology company. It has been providing complete systems solution through
developing software products and services, internet services, hardware & networking services
and IT education services since its inception in 1997 under the Companies Act, 1994.
GRAMEEN SHAKTI/ENERGY
Grameen Shakti (GS) is a not-for-profit rural power company whose purpose is to supply
renewable energy to unelectrified villages in Bangladesh. GS expects not only to supply
renewable energy services, but also to create employment and income-generation opportunities
in rural Bangladesh.
GRAMEEN SHIKKHA/EDUCATION
Grameen Shikkha is a company in the family of Grameen companies. Established in 1997 its
main objectives are to promote mass education in rural areas, provide financial support in the
form of loans and grants for the purpose of education, use IT for alleviation of illiteracy and
development of education, promote new technologies and innovate ideas and methods for
development of education, etc. Grameen Shikkha has been conducting the Life Oriented
Education Program, Pre-school/Child Development Program, Early Childhood Development
Program and Arsenic Mitigation Program in various districts of Bangladesh.
GRAMEEN TELECOM
Grameen Telecom is a company dedicated to bringing the information revolution to the rural
people of Bangladesh. Grameen Telecom is planning, over the next four years, to provide GSM
900/1100 cellular mobile phone service to 100 million rural inhabitants in 68,000 villages of
Bangladesh by (1) financing 60,000 members of Grameen Bank to provide village pay phone
service and (2) providing direct phones to potential subscribers.
GRAMEEN KNITWEAR LIMITED
Grameen Knitwear Limited: The company is a 100 percent export oriented composite knitwear
factory, located in the Export Processing Zone in Savar in the vicinity of Dhaka, the capital of
Grameen Bank SM-116
p. 24
Bangladesh. It has knitting, dyeing, finishing and garments production facilities. Most of the
machinery and equipment have been sourced from Europe. The factory is capable of producing a
very high quality of different knit fabrics and garments for children, men and women. The
fabrics and garments are fabric and yarn dyed 100 percent cotton, TC, CVC, Polyester with lycra
(attachment) etc., of various counts. The goods are currently exported mostly to Europe. Exports
are made against confirmed irrevocable letters of credit.
GRAMEEN CYBERNET LTD
Grameen Cybernet Ltd. has been Bangladesh's leader in Internet service provision since it
commenced operation in July 1996. Its chief executive has had an extensive career in education
and information technology in the U.S. and is assisted by a team of bright, young executives.
Source: “Grameen Family of Enterprises,” http://www.grameen-info.org/gfamily.html, (October 18, 2005)