By Maree Nutt
Since 1976 a radical bank in Bangladesh has transformed the lives of several million of its poorest people. A local group called RESULTS is now lobbying the Australian government to have it support a scheme to have the bank replicate its successful model in other developing countries.
The Grameen ("village") Bank was established by Doctor Muhammed Yunus (an economics PhD) out of frustration that his own textbook economics did not hold the answers for solving the massive problem of poverty in his native Bangladesh. What the poor wanted, he found, was the ability to borrow money at affordable rates.
Conventional banks had excluded the poor from borrowing because they had no collateral to offer, the small loans required brought no significant profits to the bank due to the administrative costs, and finally they were often illiterate and so could not fill out the forms! The only alternative credit was often through moneylenders with exorbitant rates (10-20% per month or even 10% per day).
Doctor Yunus provided the money for the first few loans from his own pocket. He then established the first "branch" in the Tangail region which was plagued by terrorist activity. He thought that if he could succeed there, he could argue that his idea could work anywhere in Bangladesh.
From these humble beginnings 17 years ago, the Grameen Bank has grown to have 1.4 million borrowers, extending nearly $20 million in loans every month. The average loan is equivalent to A$105, and the repayment rate is an impressive 97%.
The Grameen Bank and other similar grassroots credit schemes are based on self-help groups. Potential borrowers form a group of five, with loans then being granted in sequence. The second member's loan is not approved until the first member begins the required small weekly repayments, and so on until all loans are granted. Default by one member jeopardises the loans of all other group members. Such a system of mutual support ensures the success of each loan.
Loans are made for such things as the purchase of a cow or chickens (to then sell the milk or eggs produced). Loans might be used to purchase raw materials to weave cloth, or make baskets and jewellery to sell at nearby markets.
What makes the Grameen Bank unique is that it focuses its lending on the very poorest, even by Bangladesh standards. The bank also lends almost exclusively to women. The rationale for this is that women are more serious than men about breaking the cycle of work, hunger and work.
The role of the bank does not stop at money lending. It integrates the general welfare of the borrowers into the scheme by insisting on compliance with what Grameen Bank refers to as the "Sixteen Decisions". These include promotion of good nutrition, hygiene, education and family planning and discouraging of the dowry system.
Grameen Bank's impact on its borrowers has been documented in independent research, which shows significant increases in their real incomes, food intake and spending on clothing, health and education. Also, the bank's borrowers have adopted family planning at twice the national rate.
Fuelled by its success, the Grameen Bank has, since 1987, seeded similar schemes in other countries including the Philippines, Sri Lanka, Burkina Faso, Malawi, Nigeria, India and Vietnam. The first of these schemes, in Malaysia, now has 18,000 borrowers. It is currently adding 1000 new borrowers every month and has a repayment rate of 99%.
In 1989, Muhammed Yunus established the Grameen Trust as a private, non-profit, non-government organisation. Its purpose is to seed and support new and successful pilot schemes through training, research and development, monitoring and evaluation.
The trust is currently seeking US$100 million for a five-year project (1994-1998) to enable the delivery of credit to 2 million families by 1998 and a further 5 million by 2003. These 7 million families represent about 35 million people.
RESULTS (Responsibility for Ending Starvation Using Lobbying Trimtabbing and Support), an international letter-writing group working to create political change to end hunger and poverty in the world, has had a long association with the Grameen Bank. In 1987 Australian RESULTS members successfully lobbied the federal government to reverse a decision to cut funding for the bank during its earlier days.
Though the bank itself is now self funding, RESULTS is calling for government support for the Grameen Trust. Currently Australia's overseas aid program devotes very little funding to micro-credit self-help schemes. However, the government recently indicated its intention to expand support for such projects.
Kylie Langdon, national manager of RESULTS Australia, suggests an allocation of $15 million to the trust over the next five years, beginning with $2 million in the next budget. She says, "Grameen has shown us that the poor need only one chance to break out of the cycle of poverty. Let's have our aid dollar give them that chance, and the poor will do the rest."
For further information contact RESULTS Australia on (06) 239 7030.