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Revolutionary new bank

Exact opposite of a traditional bank

Dr Yunus discovered a niche in the market for the establishment of an instituition to provide financial assistance to the poorest of the poor. Even though he had no training in managing a bank, especially one for impoverished people, Dr Yunus decided to look at the way other financial institutions operated and learn from their mistakes. From his research and experience he developed the principles of the Grameen Bank, literally meaning "Of the village Bank" in Bengali ('gram' means village, and 'grameen' means 'of the village'). It was to be a bank like no other in the world. It would do the exact opposite of what a traditional bank would do. Unlike traditional banks, who sought to target the rich Grameen Bank would target the poor. Their objective was to help poor people escape from poverty by providing loans on terms suitable to them and by teaching them a few sound financial principles so they could help themselves. Majority of the borrowers in traditional bank were male. Grameen Bank would lend to women. Traditionally borrowers came to the bank to lend money. Grameen Bank would go to the borrowers.

Repayment collected initially by a local pan stall owner

In 1976 the village of Jobra and other villages near the University of Chittagong became the first areas eligible for service from Grameen Bank. Dr. Yunus thought that bearing large debts would discourage poor borrowers, so he made them start repaying immediately. He wanted to move away from the preference for large periodic lump sum repayments, a common feature of traditional commercial banking, and establish an entirely different repayment structure. He chose the daily repayment programme in the hope of overcoming the psychological barrier of parting with large amounts of money. Loans were made individually, lasted one year and borrowers had to pay back a tiny amount each day.

Initially for Jobra, a popular pan (spiced nuts wrapped in betel leaf) seller who was located at a central point in the village was chosen as the repayment point for borrowers. However, there were some issues with borrowers claiming to pay the pan seller and he was not recording it. But he denied such claims. Dr Yunus abandoned the daily repayment system and moved to a weekly one since this was more practical for borrowers whose business did not yield daily income. Since then, weekly repayments have become the norm for Grameen borrowers.

Repayment mechanism of Grameen Bank:

  • Loans last one year
  • Installments are paid weekly
  • Repayment starts one week after the loan
  • Interest rate is 20%
  • Repayment amounts to 2% of the loan amount per week for 50 weeks
  • Interest payments amount to 2 taka per week for every 1,000 taka of the loan amount

Group repayment

Dr Yunus discovered that it was no longer workable to rely on just one shopkeeper to collect payment. Everyone was required to come to meetings but ill discipline and lack of continuity became a growing problem. Dr Yunus concluded that repayment was likelier if the borrowers formed groups. If one borrower defaulted, the group's members couldn't get loans. Thus in 1977 he moved from an individual- to group-based lending strategy and borrowers were grouped according to the purposes for which they took out their loans. Consequently, there were "cow groups", "rickshaw groups", "puffed rice groups", etc. However, these 'activity groups' became difficult to manage as some had drastically more members than others. In addition, there would be conflict of interest within the group itself. For example, rickshaw owners competed fiercely on the streets, and this often spilled into the meetings. As such, Dr Yunus decided to limit the groups to between 5-10 members since that'd be more manageable and the poor would participate in a more meaningful way and the money would be handled with integrity.

Prof. Yunus also required borrowers to accumulate savings, which could then be lent to other members of the borrowing group. A group tax of 5% of the loan amount was charged But this would be deposited in the group fund, and individual could take it out as loan, provided that everyone agreed.

Grameen remains grounded firmly in a local context and requires that each group of applicants comes from similar social and economic backgrounds. Instead of managing the borrowers, Grameen encourages them to help and support one another. Instead of relying solely on the bank to approve and recover the loans, Prof. Yunus believes in an intergroup adn intragroup initiative. The intergroup motivation develops the self-reliance of the individual borrowers within the group since the group approves the loan request of each member. As a result, the group has assumed moral responsibility for such a loan. Therefore, if any of the members has problem in repaying the loan, the group will extend help collectively.


Incredibly high repayment rate

Grameen Bank conducted all transactions in the open, so everyone could see how the system worked. There were no secrets. Today, observers are surprised to find that Grameen has incredibly high repayment rate even though they lend it to very poor people in disaster-prone areas. Some attribute this faithful repayment to be part of Bangladeshi "culture". However, as Dr Yunus points out, this is not the case. In fact, in Bangladesh, the wealthiest borrowers make it a habit not to pay back their loans. Dr Yunus believes their high repayment rate is down to the utmost trust they have on their clients. There is "no room for policing in our system" and courts or anyone outside are never used to settle repayments.

There are no legal instruments between the lenders and the borrowers. We were convinced that the bank should be built on human trust, not on meaningless paper contracts. Grameen would succeed or fail depending on the strength of our personal relationships. We may be accused of being naive, but our experience with bad debt is less than 1%. And even when borrowers do default on a loan, we do not assume that they are malevolent. Instead, we assume that personal circumstances have prevented them from repaying the money. Bad loans present a constant reminder of the need to do more to help our clients succeed.


Bank exclusively for women

In another departure from the norm, Dr. Yunus loaned money almost exclusively to women because he found that extending credit to them created more change, more quickly, than lending money to men.

Traditional banks cater for men

It took Grameen Bank more than 6 years to reach their goal of having half of their borrowers be women. This was large part to the gender-bias of Bangladesh's financial instituitions. Even though many of them had branches specifically for women, female borrowers were constantly asked if they had discussed this "with your husband", whether he was supportive of the idea, and if yes, if they could bring him along to discuss the loan with him. Ultimately, it was the male who would make the decision if a female wanted to borrow money. Therefore, it was no surprise that female borrowers constituted less than 1% of all the borrowers in Bangladesh prior to Grameen.

The banking system was created for men.

Dr Yunus on the gender bias of Bangladeshi banks prior to Grameen

Nobel Peace Prize awarded to Professor Yunus and Grameen demonstrates the recognition of an alternative financial model despite the financial industry being largely dominated by the harsh and masculine-yang force of pragmatism, materialism and profit-maximisation.


Faster rate of change when credit given to woman rather than man

By lending to women, Dr Yunus observed a phenomenon: credit given to a woman brings about change faster than when given to a man.

In Bangladesh women had more insecure social standing than men. A husband could throw his wife out and divorce her easily. If this happens she is seen as a burden, even disgrace, to her parents. Women were also better at adapting quickly to self-help process than men. Even when they're illiterate, they would work harder to lift themselves and their families out of poverty. They paid more attention, prepared their children to live better lives, and were more consistent in their performance than men.

Dr Yunus concluded that if the goals of economic development included improving the general standard of living, reducing poverty, creating dignified employment opportunities, and reducing inequality, then it is natural to work through women. Not only do women constitute the majority of the poor, the underemployed, and the economically and socially disadvantaged, but they more readily and successfully improve the welfare of both children and men.

In Bangladesh, hunger and poverty are more women's issues than men's. Women experience hunger and poverty more intensely than men. If one of the family members has to starve, it is an unwritten law that it will be the mother.

...When a destitute mother starts earning an income, her dreams of success invariably center around her children. A woman's second priority is the household. She wants to buy utensils, build a stronger roof, or find a bed for herself and her family. A man has an entirely different set of priorities. When a destitute father earns extra income, he focuses more attention on himself. Thus money entering a household through a woman brings more benefits to the family as a whole.


Early challenges of targeting destitute village women

Grameen was grounded in the culture of reaching out to their current and prospective borrowers. Instead of requiring clients to knock on their doors to gain credit or services as the conventional commercial banks do, Grameen adopts the culture of going to the villages and visiting their borrowers regularly. This approach was particularly important in changing the lives of oppressed women villagers. But first they had to overcome rules of purdah (refers to a range of practices that uphold Qur'anic injunction to guard woman's modesty and purity).

In its most conservative interpretation, purdah forbids women to leave their homes or be seen by any men except their closest male relatives. This not helped by many illiterate villagers having religious authorities with low degree of Islamic education and do not always base their teachings on the Qur'an.

To overcome this barrier, Dr Yunus would try to make their meetings as comfortable as possible. He would never ask for a chair or any of the bowing which would usually accompany a figure of authority. Instead he would try to chat as informally as possible. He would say funny things to break the ice or compliment a mother on her children. He also warned his students and co-workers against wearing expensive dress or fancy saris.

Within the conservative culture of Bangladesh, relationships between male and female strangers are very formal. Therefore a man has to be very tactful when communicating with woman. Prof. Yunus would always have a female student introduce him to the villagers. He would also stand in a position where everyone can see him so they were not doubtful of the purity of his intention. In Bangladesh, like many developing nations, poor village women are told throughout their entire lives that they are no good and a liability to their families. As a result, many ladies live their life as simpleton whose life is controlled by others, including her father and husband. She has no identity since she has been nothing to her family other than an additional mouth to feed. Thus Grameen's personal touch was a much welcome and refreshing approach, albeit a little overpowering.

Lending to poor and destitute women villagers was a very difficult task. It was strongly opposed by their husbands who wanted to keep the loans for themselves. Besides, the male religious leaders were also suspicious of what Grameen was doing and the moneylenders, who had been oppressing the village women for years, felt threatened by Prof. Yunus's actions. It was not just the moneylenders who objected. Civil servants and bank professionals viewed that it made no sense to extend loans to women when so many men were jobless and penniless.

...In general, women are treated as dependents of men. Since feminine behaviour is always thought to be weak and passive, women must, therefore, be protected and supported by men in order to survive.


Men were not allowed to talk to women as a result of the Muslim tradition. Prof. Yunus found that he could only communicate with them by standing in the middle of a group of huts and shouting out. He attempted to navigate around this problem during his pilot project by hiring female bank workers to help.


Dr Yunus had to battle long and hard to convince the female villagers to take money. But the ladies thought of all sorts of reasons to reject the loans offered to them. Their usual throwback would be that money was something their husband would handle, they never touched it nor wanted to, they wouldn't know what to do with it, they had no use for money, they had enough trouble with dowry payments and didn't want to go through that hell again, they mother had taught them not to borrow money, etc.

Having heard the women's arguments over and over again, Dr Yunus too had his answers rehearsed. They could use their money to feed their children, send them to school, their mother was right about not borrowing from loan sharks but Grameen was different, etc.

But to no avail.

Though helping the oppressed women to overcome their fear became the greatest challenge for Muhammad Yunus, he was totally convinced that unless the women were financially independent, they would continue in their dehumanized way of life.


Difficulty in hiring and retaining female co-workers

Very soon Dr Yunus realised that having female bank workers made it easier to convince the women villagers. Their "careful work and gentle voices" help to break down the fear. As a result Dr Yunus hired three young women to work in the pilot project: Nurjahan Begum and Jannat Quanine, two recent graduates of the university, and Priti Rani Barua, who lived in the Buddhist section of Jobra and had only a 9th grade education.

The female found it easier to establish a rapport with women than their male counterparts. But these female workers too suffered in the process.

The nature of the job meant they had to walk alone in rural areas, sometimes for distances as long as 5 miles in each direction. Many prospective female bank workers found this demeaning - even scandalous. Male workers could ride bicycles but it is often considered improper for women to do so. Female workers were trained to ride motorbikes but in some places they were attacked or ridiculed for riding them.

Even today, 25 years later, when 94% of our borrowers are women, our female employees still face hostility and discrimination on a regular basis in the villages where they work. When a female bank worker visits a village for the first time, it is not uncommon for crowds to gather and observe her. She often faces criticism from the villagers who were not used to seeing women anywhere but in the home.


Grameen usually tries to recruit female graduates and those who were either waiting to be married or married with an unemployed husband. They found that women who were still single, having a job immediately removed some family pressure to get married. Also, being employed increased her marriage prospects dramatically. She is no longer seen as a burden.

But Grameen Bank finds it hard to retain its female workers. Typically, once they are married, her in-laws exert pressure to quit her job as they don't want a "decent" young woman to walk alone around villages. There's also the fear of being able to protect herself from unwanted trouble. After having a child, many female workers want to spend more time at home with their family and the miles of walking she did as a youngster is no longer as easy as before.

When we announced our pension program in 1994, which included an early retirement option, we were saddened though not too surprised that many of our female employees opted to leave Grameen. Often we are criticised in international conferences for not employing enough women. I belived that most of those who attack us do not understand the social reality of Bangladesh, but I admit that their criticisms have encouraged us to redouble our efforts and devise new ways to retain female employees. In fact, in 1997 we celebrated the promotion of one woman to the position of zonal manager, the most senior field-based position in Grameen. But the loss of many rank-and-file female employees through retirement since 1994 has been disheartening.


Tehbhaga Khamar earns Yunus Rashtrapati Puroshkar (President's Award) and adopted as nationwide program by Government

In 1977, while Dr. Yunus was out of the country, a senior civil servant asked Dipal to draft a nomination that he would submit so that Dr. Yunus could receive the Rashtrapati Puroshkar (President's Award) for his involvement with Tehbhaga. The following year Dr Yunus was awarded the prestigious award. Not only that, but a nationwide government initiative called the Package Inputs Program (PIP), designed on the Tehbhaga experience, began to be planned. But sadly it was imposed from above, without the active involvement of the farmers it was supposed to benefit, and as a result, it failed.

By the late 1970s Dr. Yunus shifted his attention to another demonstration project. But he still kept on track of the developments of Tehbhaga and PIP.

Dr Yunus divorces Russian-American wife

While he was finally charging forward with his dream of a powerful rural Bangladesh, Dr Yunus's personal life was in disarray. After five years of living in Bangladesh, his Russian-American wife Vera decided it was not the right place to raise their recently born daughter Monica. Dr Yunus on the other hand could not abandon his country. In summer of 1977 Vera flew back to America with young Monica who was only four months old. Sadly, the couple divorced few months later in December 1977, bringing to an end their seven year relationship.