Grameen Bank and Microcredit
It is often contended that the monetary sector in low-income nations has failed to serve the impoverished. Considering the formal sector, financial institutions as well as banks generally necessitate significant collateral, have bureaucratic and lengthy application process and have a preference for high loan and high-income clients. For the informal sector, usurers often charge extremely high-interest rates, often permit sexist or racist attitudes to direct their lending decisions and tend to undervalue collateral (Kuhinur & Rokonuzzaman, 2010). Accordingly, the failure of ...view middle of the document...
However, the Grameen Bank and similar microcredit lenders are not charities, but businesses that provide a much-needed service to a market of the economy underserved by traditional banks. In this respect, this current paper based on the Grameen Banks fiscal success as a testament to the feasibility of the micro credit model.
Advent and History of Microcredit
Muhammad Yunus, a Bangladeshi social entrepreneur, and economist was born on June 28, 1940 in a village known as Bathua located in Hathazari, Chittagong. He was the third born of fourteen children, and his father was a prosperous goldsmith who held higher education in high esteem. However, it is said that Yunus' greatest influence was Sufia, his mother who always assisted the poor who asked them for help. As a result, this inspired Yunus to commit himself to poverty eradication. Professor Yunus attained his Bachelor's degree as well as his Masters degree at the University of Dhaka. In 1971, he achieved his Ph.D. in Economics at the Vanderbilt University USA.
In 1974, while on a field trip with his students to a poor village, they had the opportune to interview a woman who made bamboo stools. From this encounter, they learned that the woman had to borrow about 15p to purchase raw bamboo for every stool made. However, she was usually with just a penny as her profit margin after repaying the local traders. Determined to devise a viable solution, Dr. Yunus started visiting more local villages. It is during these visits that he came across 42 women in Jorba who also made bamboo stools. And since they were tied into a series of debt with middlemen who obliged them in agreements to sell the stools at lower price points barely higher than the cost of raw materials (Grameen Bank, 2015).
The professor would later find in shock that the group of 47 women borrowing needs amounted to only US $27. He lent them the money from his pocket without collateral and zeros interest thereby enabling the women to sell their bamboo stools at reasonable prices and also break out of the series of debt. Against the advice of the government and banks, the professor continued to give out micro-loans. Subsequently, in 1983, from this concept, the Grameen Bank project was born founded on the premise of solidarity and trust. It presently has 2,564 branches in Bangladesh with 19,800 staff who serve over 8.29 million borrowers in 81,367 villages. 97% of the borrowers are women and more than 97% of the loans are repaid, a recovery rate greater than any other banking system (Grameen Bank, 2015).
Each year, millions of people all over the globe change out of poverty in several ways by either adopting new farming technologies, finding new jobs or investing in new trade opportunities for example. Erstwhile, enormous numbers of individuals fall back into impoverished states as a result of financial setbacks, health issues and other societal shocks. Compounding this conditions is the verity that a majority of people living...