One of the most successful development organizations in the world is the Grameen Bank of Bangladesh. Started by professor Muhammad Yunus, the Grameen Bank is noteworthy for the stark contrast between its operating principles and those of the big, international lending institutions, such as the World Bank and the IMF. The Grameen Bank's success in empowering the poor has made it a model that is being emulated around the world.
History and Purpose
Muhammad Yunus is an academic turned banker in Bangladesh who has turned the most sacred rules of the profession up-side down and made himself a frequently mentioned Nobel Prize candidate in the process. He didn't plan it that way
Twenty years ago, Yunus was simply moved to try to help the abject poor who lived near the university where he taught economics. He approached local banks, convinced that what these people most needed was simply a tiny amount of money, as little as one dollar per person. The reception was not warm. Where was the collateral? the bankers asked. These people can't even read.
Finally, Yunus took out the loans himself, despite repeated warnings that the recipients were so poor and the amounts so small that "they'll just eat it up."
Nevertheless, the scheme worked. The tiny loans were repaid. Soon, Yunus expanded to several villages, then to the whole district and finally, to five districts. The bankers still could not be convinced that Yunus' vision was sound and would not lend to his borrowers directly.
Nothing, he finally concluded, would ever convince them. He would have to set up his own bank. The action research demonstrated its strength in Jobra (a village adjacent to Chittagong University) and some of the neighboring villages during 1976-1979. With the sponsorship of the central bank of the country and support of the nationalized commercial banks in Bangladesh in 1979 and with the success in Tangail, the project was extended to several other districts in the country. It took another three years to secure government support.
The Grameen ("rural" in Bengal) Bank was formally created in 1983 and was transformed into an independent bank by government legislation, and the rest, as they say, is history. It came into operation with the following objectives:
1) Extend banking facilities to poor men and women;
2) eliminate the exploitation of the poor by money lenders;
3) Create opportunities for self-employment for the vast multitude of unemployed people in rural Bangladesh;
4) Bring the disadvantaged, mostly the women from the poorest households, within the fold of an organizational format which they can understand and manage by themselves; and
5) Reverse the age-old vicious circle of "low income, low saving & low investment", into virtuous circle of "low income, injection of credit, investment, more income, more savings, more investment, more income".
Grameen’s Organizational System
The main factor behind the Grameen Bank’s success has been the way it is organized and managed. Grameen’s organizational system and associated practices have evolved over the years in response to the specific developmental needs of the target group (Shams 1992).
There are fundamentally two aspects of the organizational intervention of the Grameen Bank—the delivery system and the receiving system. At the receiving end, there are groups and centers, and the Grameen Bank’s own delivery system comprises branch offices, area offices, zonal offices and the head office.
Relations between the group and centre remain the most important institutional device for organizing the operating units to carry out designated activities. Organizing the groups and federating them into centers are considered the building blocks of the Grameen receiving system. Interested persons, poor people with no assets or assets not exceeding the value of half an acre of cultivable land (per family), are asked to form groups of five like-minded people of similar economic standing who enjoy mutual trust and confidence.
A group can have only one person from any particular household and relatives must not be in the same group. Groups have either male or female members, not both. The group members select a chairperson and a secretary, and these positions rotate among members on a yearly basis so that all members have the learning experience that accompanies the responsibility of these positions. The chairperson is responsible for discipline in the group and for supervision of loan utilization by the members. Members conduct business with a bank worker, through the chairperson, at weekly meetings that all members are obliged to attend. A centre is a federation of a number of groups. Weekly meetings are held at the centre level. The group chairpersons elect the chief and the deputy chief of the centre for a one-year term. This person is required to ensure attendance at the general meetings, payment of installments, and overall discipline of the centre members. Bank workers attend the centre meetings, and all bank business is conducted openly in front of the members (Hossain 1993:13).
While the organization of the poor is mainly at the village level, the formal apparatus of the Grameen Bank operates at different levels right from the village to the capital. Unlike government organizations, however, it basically has a decentralized structure, which has been developed over the years through trial and error in response to the needs of the clientele. At the bottom of the Grameen hierarchy is the branch office, which is considered the main operational organ of the bank. It is basically a profit-responsibility unit. It serves a cluster of 120–150 centers. It is staffed by a manager, six or seven workers, two to three trainee workers and an accountant.
The green banking in India
Green Banking also known as the ethical banking is an effort by the financial institutions in making the industry to grow green and in the process restores the natural environment. In connection to the international concern about the climatic change and the need of taking care of the environment and being socially responsible through involvement of poverty eradication programs,, many of the commercial financial institutions have taken it as a responsibility of introducing a radical change to their tradition mode of operation. They have adopted various measures including introduction of high-tech machines in their operation to reduce much of the paper work and to serve their clients well
Green Banking concept is a mutual benefit among the key players in the economy. The bank benefits from the advantages of the diversification that consequently increases its customer base, asset base asset and service quality. It also improves its image in the market and gaining the trust of the society. Through social responsibility the society considers the institution as part of it which consequently increases its customer base and loyalty. (Broto R.B. 2013)
. The government of India in realizing how important factors of production are in achieving the above, goal liaised with the financial institutions in providing funds of purchasing better production input. For a while the initiative was working only for the government to realize that it had marginalized the poor of the country who were not able to access the above fund. In connection to this the government of India initiated a Small and Marginal Farmers Program specially to provide credit and other inputs to the smaller and marginalized farmers.
The banks too have realized a new way of making profit through venturing in these areas. Green banking has the potential of revitalizing the tradition banking concepts and has the capacity of helping in diversification of activities which in turn increases the returns of the financial institutions.
The benefits derived by poor through green banking initiative
In their operations banks are considered to be environmentally friendly institutions since their internal and external activities do not impact negatively on the environment. However a number of its important clients like manufacturing industries that relies on bank for financial assistance, have a lot of activities that negatively impact on environment. Their activities results in production of pollutants like carbon gas, chemical waste that is channeled into the water bodies and also noise pollution. The society benefits where the financial institutions act as an intermediary in educating their clients about various ways of reducing harm on the environment. Since most of the manufacturing industry depends on these financial institutions in financing their day to day operation, the banks controls their level of pollution through putting various measure and guidelines that an industry have to conform with before getting a loan. In this way most of industries that were channeling their waste in water bodies would seek other ways of disposing their waste. The health problem that was associated with the water pollution by these industries would be reduced. The green house gas emission would be reduced by these industries in order to be within the standard of securing a loan from these financial institutions and at the end the day the society stands to benefit from the reduced cost of health.
Banks through various initiatives has supplemented the government in reduction of poverty among the citizens of the country by being socially responsible. These financial institutions have created programs of supporting the poor in the society through scholarships, offer of job opportunities and availing of affordable loans to the society. Traditionally the banks were lending loans to the members of the society with an asset to act as a security of the loan. Today there is a gradual change of course of action by mainstream banking as most of them are drifting from the tradition so that they can cover the under covered market of poor people who had the ability of doing business but lacked capital.
Through the government support, and initiative most of the poor people have been able to access financial assistance in starting their business. The financial institutions- in their bid of diversification and social responsibility have resulted in using the group methodology and micro finance so that they can have a wider outreach than normal commercial banking loan products. Traditionally, lending the loans to people without collateral was and still is one of the riskiest ways of doing business as the probability of defaulting from paying are very high. However since financial institutions have an urge of diversifying and reaching to the poor, group methodology becomes one of the chief ways of reaching to the people.There are a number of factors that has led to adoption of group lending criteria. This is because in the event of loan default other members of the group are called upon to service the loan. Since elders and village leaders are actively involved in these group’s activities, they are regularly used in recovery of the loan. Other reason could be the reduced transaction cost involved in group lending.
The financial institution have liaised with the government of India in availing various government based programs to the grassroots through their well established branches like the pension schemes and the national family benefit scheme.
The financial institutions have greatly supplemented the government in poverty eradication and have tried very much in their activities of ethical banking. Apart from the financial assistance the banks have availed to thousands of people in India through the adoption of green banking or ethical banking culture, these institutions have also given valuable financial information to their members and logistics In order for them to carry on with their business successfully. The banks, through their branch managers and workers have intensified control over the various groups in order to ensure that the fund provided have indeed been used for the purpose it was intended. This measure of intensive scrutiny and monitoring has reduced the probability of business failure. This has benefited the poor as it has assured them steady returns from their investment. The poor people have also been taught of various methods of production that are environmental friendly. Farmers have been helped on how to increase their output through locally available means that have no negative impact on environment.
Organizational structure of the green banking
It should be understood that the green banking is not an institution but it is an emerging culture-a trend in the practice of banking and financial institutions that is aimed on mutual benefit of both the society and the institution. This culture has been adopted by various financial institutions that have the urge of changing the economic status of the society and at the same time being conscious of the impacts of various economic units n the environment while increasing their profit and wealth maximization. This change of culture has been a wakeup call to many due to the adverse changes of the environment which if not reversed would have a greater implication on the survival of the society as a whole and the institution in particular. This culture had been supported by the State bank of India and the government as a measure of giving back to the society and alleviating the vicious cycle of low income, low saving, low investment and poverty.
Banks and other financial institutions have realized that poverty eradication through socially responsible activities is part of the long term survival mechanism of which lack of it would jeopardize the institution’s future survival. Incorporating environmental and social criteria into business decision making can reduce the adverse impacts of operating activities. These Financial institutions have realized the need of assisting in the efforts of ensuring corporate social responsibility and achieving sustainability.
Challenges faced by banks and government in poverty eradication
There have been a number of challenges that have been faced by the government and other stakeholders in their joint war against poverty. The inadequacy of sound macroeconomic policies to get hold of inflation has resulted in the erosion of the people’s effort through high inflation. This has continued to increase the percentage of people living in poverty. The inability of the national economy to optimize benefits within the global system has also contributed in diluting the efforts made in poverty eradication. A number of poor people have low capacities due to the lack of education and vocational skills. The entrepreneurial skills are unavailable to many of them- a thing that contributes to the failure of business subsequently eroding the effort made in ending poverty.. The poor health due to lack of good diet makes the people to be less productive-a thing that hampers the efforts made in poverty eradication.Sometime the economy is exposed to shocks and depressions due to the poor drought management.
However in connection with the above challenges government has stepped up various initiatives including drought management programs to reduce the biting pangs of the drought and to cushion the poor children and women from the negative impacts brought about by drought. The government has opened the new market opportunities for the Indian produced goods to ensure that there is ready market. The government has adopted sustainable macroeconomic policies through availing funds in the economy to revitalize the consumption and to create demands of produced goods. In doing this the government has partnered with financial institutions in coming implementing a successful macroeconomic policy and availing the necessary capital to the active units of production.
It is therefore a priority of every government, institution and international bodies to come together to avert poverty and help the poor as by so doing the economy of each state would benefit and grow due to increased production and increased consumption. This is the only way that the future survival of the society is guaranteed as there will be also a reduced rate of social evils associated with the poverty.
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