Breaks Many Rules : Bangladesh: A Bank Just for the Poor

Tota Bibi stood triumphantly in the doorway of her new home.

Like most village houses in Bangladesh, it had a mud floor. But its walls were much more substantial--planks of wood instead of woven reeds, reinforced concrete pillars instead of bamboo poles.

And the crowning glory, the joy of Tota Bibi and the pride of this tiny village in one of the poorest countries in the world, was the roof--corrugated metal that the rains could never penetrate and the winds could never move.

Symbol of Rich

In Bangladesh, such a roof has always been the symbol of the rich families, the money lenders and the zamindar-- landlords. Now it belonged to an almost giddy Tota Bibi, a 50-year-old widow from the poorest, landless class of Bangladesh society.

“My father, my grandfather, all of my forefathers, no one ever lived under an iron roof,” she said. Tota Bibi, whose name in the Bengali language means “parrot,” paid for the new home herself with a loan from the local branch of a bank that may be part of the most successful development project in the Third World.

The Grameen (meaning “rural” or “countryside”) Bank breaks many rules of banking and international development. Yet it has one of the lowest loan default rates in the world and already has imitators in more than a dozen countries, including the United States, where Grameen-inspired programs are being tested in Arkansas, the south side of Chicago and among the Cherokee Indians of Oklahoma.

Roles Challenged

In Bangladesh, the Grameen also challenges the traditional role of women in an Islamic society and the vestiges of the feudal landowning system.

Its customers--more than 310,000 Bangladesh families already, with an additional 8,000 families joining each month--are all from the poorest economic stratum: landless rural peasants. Nearly 80% are women. Most are illiterate. City dwellers and families with substantial property are not accepted as bank member-customers.

The bank does not donate money to the poor families. It lends them money and charges interest at commercial rates. The average loan is the equivalent of about $60, the smallest about $1.

The bank’s only lending rule (except for housing loans) is that the borrowers use the money to generate income. So far, these loans have financed such diverse occupations as making Popsicle sticks from bamboo strips, manufacturing musical instruments from conch shells, processing animal entrails and brewing perfume.

More typical loans are for dairy cows, honey bees, chickens, barber shop equipment and rickshaws.

Ali Azam, 30, has been a member of the Grameen Bank for two years in the Dhakuli area 37 miles northwest of Dhaka, the capital. Azam is a bicycle rickshaw driver. His first loan was for 3,000 takas ($90) to buy his own rickshaw.

Previously, he had leased one of the three-wheeled vehicles from a fleet owner for about 14 takas (42 cents) a day, about half of his expected daily earnings. But now he has used his earnings to pay off the loan in a matter of months.

His second loan was for $120 to buy a milk cow. The cow gave nearly nine pounds of milk a day, and he sold the milk to pay off the loan.

Selling for Sacrifice

The cow has calved twice. He plans to sell the bull calves for sacrifice during the annual kurbani religious festival in July when they will bring the best price.

Meanwhile, he took a third loan from the Grameen Bank to buy a small parcel of land on which he plans to build a house with a corrugated iron roof like Tota Bibi’s in nearby Jagir Megh Shimul. He has already used some of his savings in the bank to buy wood for the house. For the concrete pillars and roof he will borrow 7,000 takas ($212).

Two years ago, Azam and his wife and their two children lived with her parents. Now he has his own land. In two years, he has gone from a man with no property to one who owns a rickshaw, a cow, two calves, four chickens and three goats.

Doing a little rough calculation at the side of the road on a recent afternoon, with two passengers patiently waiting in the rickshaw, Azam figured his estate is now worth about 17,000 takas, about $520.

The annual per capita income in Bangladesh is only $140.

“Before the bank, I could not save anything,” Azam said. “Whatever I earned I spent almost all on food and daily needs.”

The Reality of Poverty

Mohammed Kalam Azad, 28, manages the Dhakuli branch of the Grameen Bank where Azam got his loans. “Before I started working at the bank,” he said, “I did not realize poverty in all its dimensions. These are good people, hard-working people who could not transform their lives because they did not have resources. If they have resources, these people can change their lives in the shortest amount of time.”

Perhaps the most remarkable aspect of the Grameen banking operation--which has grown in just five years to more than 360 branches serving 6,000 villages--is that for all its loans to some of the poorest people on earth, the bank has a default rate of less than 2%.

In other words, 98% of the loans are repaid in full and on time. Such a low default rate is unheard of in banking. Chase Manhattan and Bank of America would love to have similar rates.

4,000 on Payroll

The bank, incorporated in 1982, now lends $2 million a month to its customers, meets a payroll of 4,000 employees paid at standard civil service rates and makes a profit.

The Grameen Bank provides a stunning contrast to the experiences of the large international banks that have done business in Bangladesh. Two of these institutions, the World Bank and the Asian Development Bank, have lent more than $500 million to businesses through government banks.

Only about 10% has been paid back, and consultants and middlemen have become rich through corruption in government that some assert is unrivaled except for Africa.

The Grameen Bank has received $37 million in loans from the International Fund for Agricultural Development, a U.N. agency based in Rome, and from Norwegian and Swedish aide agencies. The Ford Foundation has made a small grant to help computerize its central records.

Large Loan Repaid

The bank has repaid the $37-million loan and has been approved for another $125 million from the International Fund for Agricultural Development.

“We borrow the money at 2% and loan it out at 16%,” said Grameen Bank managing director and founder Mohammed Yunus.

The bank has generally been critical of big aid projects and foreign consultants. The Grameen Bank remains one of the few development projects in the Third World that has never had foreign consultants.

“Consultants are the creation of aid bureaucracy,” Yunus wrote in an article for the Washington Quarterly. “The assumption behind consultants is that the recipient countries need to be guided in every step.”

New Plans for Aid

Yunus and other Grameen officials contend that aid programs to poor countries such as Bangladesh should be redirected, away from the big-ticket projects like dams and industrial development to programs for the bottom half of society.

The old system of aid, argued Yunus, who has a Ph.D in economics from Vanderbilt University in Nashville, Tenn., “was designed years ago when it was believed that a magic quantum of investment would generate enough economic activities to eliminate hunger and poverty.”

Similarly, several huge foreign aid schemes--fertilizer plants, fisheries developments and rural development projects--have faltered or failed with enormous waste.

‘International Basket Case’

Bangladesh--100 million people crammed into a country the size of Wisconsin--has received billions of dollars in foreign aid since winning independence from Pakistan in 1971. Its future once looked so bleak that former Secretary of State Henry A. Kissinger termed it “an international basket case” that would forever be dependent on foreign help.

Indeed, Bangladesh this year will receive $2 billion in foreign assistance, mainly from Japan, West Germany, Canada, the United States and the Scandinavian countries. The aid accounts for 40% of the government’s income and 80% of its development budget.

Yet like some giant black hole of poverty, the country has absorbed the aid with very little improvement in the lives of most of its citizens.

In recent years, Bangladesh has had an annual growth rate of about 4%, improving the lives of residents of the capital and winning praise from some international organizations such as the World Bank.

Little Trickles Down

But little of the gains appear to have trickled down to the poor. In fact, there is evidence that the standard of living for the lower half of the population may actually be falling. The three main measures of poverty--infant mortality, literacy and caloric intake--have all shown negative trends. A recent Canadian report said infant mortality had increased from 101 deaths per 1,000 births in 1980 to more than 121 in 1985.

The Grameen Bank is a bright spot in this otherwise gloomy picture, and it may bring about a change in poverty assistance elsewhere.

Similar programs are being developed in Malaysia, Indonesia, Rwanda, Kenya, Sri Lanka, Pakistan, Egypt and, perhaps most surprisingly, the United States. The two most advanced U.S. projects are the neighborhood South Shore Bank in Chicago and the new “good faith fund” in rural Arkansas. Other Grameen-style programs have been introduced in Minnesota and among the Cherokee Indians of Talequah, Okla.

“The Grameen Bank is a case of reverse technology transfer,” said Tom Kissinger, an official with the Ford Foundation in New Delhi. Bangladesh, he said, is teaching the developed world how to combat poverty using Western-style economic incentives.

Peer Pressure Cited

The Grameen Bank model works with peer pressure and support. Borrowers must first assemble 50 people from different families to form a “center” in their town or village. (In Bangladesh, the centers are divided by gender into “landless male” and “landless female” categories).

The centers are divided into 10 groups of five borrowers each. The groups first discuss loans and ideas for making money. Then the two poorest borrowers are given the first loans. Only when those loans are repaid do the second set of two borrowers get loans. When those loans are repaid the fifth member of the group gets his or her loan.

The system fosters remarkable solidarity and a sense of community. The weekly meetings are part banking and part rally. Members greet each other on the roads of Bangladesh with crisp military-style salutes instead of the obsequious bows--the salaams-- that were the traditional greetings here.

Salutes, Not Bows

“The salute was started by one of our bank managers who decided people had been salaaming too long in Bangladesh,” said Mozammel Haq, a University of Michigan graduate who is national director of training for Grameen Bank. “He told the people not to bow but to look him straight in the eye and salute. At the same time it is a way for the people to make fun of the military by showing anyone can salute.”

Rahela Begum is the center chief for the village of Jagir Megh Shimul. Since her center began two years ago, there has not been one default or late payment on a loan.

She said that during that time six families had troubles when, for example, the cow they had purchased stopped giving milk or someone in the family fell ill or their property was damaged in a flood. But the Grameen Bank centers have emergency funds for such crises and in each case other members were able to chip in until the members with problems got back on their feet.

This self-sufficiency has begun to make radical social changes in the areas where the Grameen Bank operates. (It has been given permission by the government to operate in five of the country’s 20 districts.) Compared to a national growth rate of 4%, the collective incomes of Grameen Bank members have increased by more than 30%, according to Yunus.

No Longer Serfs

Significantly, Grameen Bank members are no longer tied like serfs to village landlords and money lenders. Traditionally, the wealthier members of a community could expect to hire landless peasants to do their household chores for a bowl of rice.

Now, said Mozammel Haq, they are having difficulty finding domestic servants and have begun to complain that field workers’ wages have increased as a result of the bank. In addition, the well-to-do have lost the role of benefactor in times of need that earned them respect in the community.

“Before the bank,” said Rahela Begum, “I had to go to the rich people for help. I borrowed money from the asgar (money lender) when the children were sick. Now I don’t have to go to these people, and that is the main difference.”

New Roles for Women

Left unsaid by the tiny, tough, smiling woman (who drew the edge of her sari across her face when she laughed) was that the bank has elevated women like her to prominence in the community. Because she is center chief in the village, she enjoys status at least equal to that of a male elder.

She smiled at the memory of how she told the elders of her plans to form a female bank center in the community. At first they objected, saying that borrowing and handling money was not something for a woman in an Islamic country.

“Then I said OK--you lend us money at 16% interest,” she recalled. The elders decided the female bank center was a good idea after all.

From the beginning, the bank has concentrated on women as borrowers, arguing that their interest in family stability is greater than that of males.

Psychology of Money

“A man gets money,” said Mozammel Haq, “and he tends to show off. A woman contributes to the security of the family.”

The first recipient of a loan from what eventually became Grameen Bank was a woman.

In 1976, Mohammed Yunus was a professor at Chittagong University in southeast Bangladesh. A woman named Sophia Khatoon came to him for help in getting a small bank loan.

The woman made small stools from bamboo, and was dependent on dealers for the bamboo. This meant that she was forced to sell to the dealer for almost any price he set. She wanted to buy her own bamboo and sell her stools to the person who would pay the most. For this she needed 50 thakas, about $2.

Yunus and a student went to her small village, and made a list of 42 village women who were self-employed in some craft and needed a small amount of money to supply themselves.

The total amount needed was only $28, but when Yunus want to the bank, “they laughed at me,” he said. So he paid the money himself and vowed to create a permanent source of money for poor people such as Sophia Khatoon.

‘I Got Fed Up’

“I was trying to find out why people could not change their lives,” Yunus said. “I got fed up. I decided people should found their own economies.”

Although he faced opposition and even ridicule from bankers and government development workers, Yunus pushed his program, first as the “Grameen Bank project” and, finally, in 1983, as an independent bank.

Since then, the bank has branched out into some larger efforts such as community, cooperative rice mills. In one case, it took over a Dutch-funded fisheries project that had been a dismal failure and turned it around.

The goal, said Mozammel Haq, is to reach a point where the bank is adding 30,000 new members a month by 1992.

Broad Changes in Country

It is not difficult to see that such growth, coupled with the community development, could easily lead to broader political changes in Bangladesh.

“(It is) one of the most significant development initiatives for social justice taking place in the world today,” two Norwegian researchers said of the bank.

Indeed, a visit to a Grameen Bank district reveals much more than banking. The small offices are jammed with polyvinyl chloride pipes for clean water projects, vegetable seed packets for kitchen garden and nutrition projects, iron rods for reinforced concrete pillars used in new homes.

Every meeting of Grameen Bank members includes the reading of “the 16 decisions.” All members are encouraged to memorize the 16 decisions like passages from the Koran. Recitation contests are held.

Sensitive Topics Covered

The decisions apply to all members and cover sensitive topics such as birth control--”We shall plan to keep our families small”--and marriage--”We shall not take dowry for our sons’ weddings. We shall keep the center free from the curse of dowry. We shall not practice child marriage.”

They also deal with more mundane subjects such as sanitation--”We shall build and use pit latrines”--and nutrition--”We shall grow vegetables all year round. We shall eat plenty and sell the surplus.”

But the bottom line of the 16 decisions and the Grameen Bank is pride. At its heart, the Grameen plan is to restore pride to some of the poorest people on Earth. “Discipline, unity, courage and hard work. We shall follow and advance in all walks of our lives,” are the four “principles” of the Grameen Bank outlined in the first of the 16 decisions.

Renewed Pride in Villages

The renewed pride of the Bangladesh poor is palpable in Grameen villages. It was reflected in Tota Bibi when she showed off her new home here with the corrugated iron roof.

Her old hut, she said, “was not worth 10 takas.” When her new home was finished, she dismantled the bamboo-and-reed structure and broke it into small pieces.

“We shall not live in dilapidated houses,” says No. 3 of the 16 decisions.

Then, Tota Bibi said, with the obvious satisfaction of someone discarding the remnants of an unhappy life, “I took the pieces, set them on fire and used them to cook my rice.”