Concept of Grameen Bank Model

The concept of Grameen Bank has its roots in Grameen Bank of Bangladesh which was developed by the Nobel Laureate Prof. Muhammad Yunus. By establishing Grameen Bank in 1983, Muhammad Yunus sought to realise his vision of self-support for the very poorest people using loans on easy terms. The bank has since been a source of inspiration for similar microcredit institutions in over one hundred countries.

Banks in the traditional system have been reluctant to lend money to anyone unable to give some form or other of security. Grameen Bank, on the other hand, works on the assumption that even the poorest of the poor can manage their own financial affairs and development given suitable conditions. The instrument is microcredit: small long-term loans on easy terms.

The Grameen Bank’s revolutionary model has become known as “solidarity group lending.” Yunus pioneered this innovative concept. The Grameen Bank model is known globally as the “grassroots” of microfinance models. Many of the various models used throughout the world are extensions of the Grameen Bank model. What these other banks have done is take the basic principles that have made Grameen Bank a success and adjust them to fit the needs of their clients.

The most common tools of the Grameen Bank model are micro-credit, micro-savings, and micro-insurance. The Task Force constituted by NABARD in 1998 to arrive at a conceptual policy framework encompassing issues in policy, regulation, financing, and capacity building, for sustainable growth of Micro Finance in the country, has suggested a working definition of microfinance as “provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards”.

The Grameen Bank Model focuses on providing financial services to poor people; hence, standardization and discipline are important. The model suggests weekly meetings for frequent client interaction to reduce credit risk. The meeting is conducted by the bank (Microfinance Institution). The meetings are conducted for carrying out financial transactions only. The meetings are conducted systematically in a short time and other social issues are not discussed. Flat interest is charged again for making the system standardized. In a flat rate system, the installment size of repayment remains small for all weeks and hence is convenient and easier to explain. Also, it is easy to break the loan installment into the principal and interest component.

Summary:

The Grameen model is a particular form of joint liability Group (JLG) but in India, there are other forms of Joint liability Groups as well. JLG serves as an important tool for augmenting the flow of credit to landless farmers cultivating land as tenant farmers, oral lessees, sharecroppers and small/marginal farmers, and other individuals for taking up the farm, rural women folks’ off-farm and non-farm activities. The concept of the model is the groups serve as an outstanding method of ‘guaranteeing’ a loan when no collateral is available. Because a group’s credit is ‘frozen’ until all members are current, groups pressure their members to repay loans on time.

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