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What we can learn from the Grameen Bank

Bangladesh is often hailed as the ‘Mecca of Microfinance’ across the world. The concept of micro-credit and the credit worthiness of the poor was first discussed by Prof. Muhummad Yunus in the year 1975. Witnessing the fact that ‘the poor can save’ and are honest and loyal, the Nobel Peace Prize winning Grameen Bank was soon established. In its nearly four decades of existence, the Grameen Bank has grown and expanded its services to beyond just micro-credit. Over years of experimentation and ‘learning by doing’, Grameen today stands as a learning ground for socially conscious microfinance practitioners around the world.

Despite the glorious past of microfinance in Nepal, where socially committed individuals had undertaken the drive to help uplift the socio-economic conditions of the poor, today, almost three decades down the line, the microfinance sector in Nepal is riddled with problems and challenges as a result of deviations from the true essence and fundamentals of microfinance.

In this context, the Centre for Self-help Development (CSD) in joint collaboration with the Grameen Trust (GT), Bangladesh organized a two day ‘International Program on Grameen Financial System’ from June 8 – 9, 2018 in Dhulikhel, Kavre. The program was attended by 46 CEOs and deputy CEOs of 37 MFIs from across the country.

Established in the year 1989, the Grameen Trust is a non-profit and non-government institution set-up by the Nobel Laureate, Prof. Yunus, to support, promote and implement poverty focused microfinance, social business and other programs around the world.

The program was inaugurated by the Chairman of CSD, Mr. Shankar Man Shrestha who reiterated the cause of microfinance and the need for practitioners to step-up to the true call of serving the poor households. Highlighting the current scenario, Mr. Shrestha said, “If the foundation of the institution is sound, it will be able to withstand unforeseen shocks. With the unhealthy rise in the number of MFIs entering the sector, only those who abide by the fundamentals of microfinance will be able to achieve long-term sustainability. Commercially motivated and profit oriented MFIs will tarnish the image of the sector.”

He further questioned, “What is your role in establishing a healthy microfinance sector? Are we willing to improve? There is scope for improvement, only if we have the right motive. A lot can be learnt from the Grameen experience. I hope that you will utilize these two days in finding solutions to your problems.”

The Grameen Bank has been able to survive 40 years of existence as not only do they value the basic fundamentals of microfinance, adaptations and innovations have been made time and again, keeping at heart the well-being of the microfinance members. Nowhere in the world, other than Grameen Bank, does 70% of the ownership lie in the hands of the very microfinance members. Additionally, nine microfinance women members represent these members as Board Directors.

Two distinguished microfinance veterans from Bangladesh, Mr. Ratan Kumar Nag, former Managing Director of Grameen Bank and Mr. Mir Hossain Chowdhury, Deputy General Manager of Grameen Trust facilitated interactive sessions on topics related to Grameen Financial System. Grameen Generalized System, credit management and client discipline, loan and life insurance system, delinquency and default management, client performance evaluation and graduation process, Nobin program, staff incentives and the Grameen star system were discussed at length.

As shared by Mr. Mir Hossain, Prof. Yunus is often quoted saying that if a problem arises in the repayment, then there’s a problem with the designers and not the client. In Grameen Bank, the loan repayment schedule is fixed after consulting the borrowers. It is Prof. Yunus’s belief that any increment in interest rate should be only that of the interest on savings. As it is believed that recurring changes in interest rates on loans will create a sense of uncertainty among the clients.

Mr. Hossain shared a few keys to success, the foremost being discipline, which should be maintained at all levels – from top to bottom and maintenance of a corruption-free environment through transparency in the operating system. Efforts should be made to raise human quality through honesty, credibility, sincerity and hard work. In the end he suggested that microfinance should be a tailor made program, fitted to the needs of the target group.

“Microfinance was introduced to reverse the age old vicious cycle of poverty. One of the Sustainable Development Goals is to achieve zero poverty by the year 2030. This is also Prof. Yunus’s goal, as elaborated in his book - A world of three zeros”, shared Mr. Ratan Nag.

Addressing the growing tendency of microfinance practitioners to undertake quarterly instalments, Mr. Nag said, “If you go from weekly to monthly to quarterly repayments, then the relationship between MFI and member will become more and more distant. Microfinance builds on trust and relationship. If you deviate from the basics of microfinance, then the essence of microfinance is lost.” He added, “Member retention is very important to avoid over lapping.”

The closing session was graced by the Deputy Governor of Nepal Rastra Bank Mr. Chinta Mani Siwakoti as Chief Guest who thanked the resource persons for their valuable time and commitment in eradicating poverty. Mr. Siwakoti said, “We need to find ways to tackle and minimize the duplication of loans and clients and to manage over-indebtedness of loans. With the increase in interest rate charged by wholesale lenders and a spread rate of 7%, we may revise the interest rate cap of 18% for the MFIs. I am glad to note the resolve of the participants through the commitment shown towards the nine-point declaration passed by the forum. I hope you will fully utilize the knowledge gained from the program.”

Mr. Siwakoti also launched the Program Proceedings Report of the recently concluded Symposium of Board Officials – Building Pathways to Strengthen the MF Sector. The two day Symposium held from February 22- 23, 2018 was organized by CSD in an effort to sensitize the Board Officials on the microfinance sector.

Sharing his experience of the two-day program, Mr. Roop Bdr. Khadka of Rural Microfinance Development Centre Ltd., said, “The Grameen Bank became a Nobel Peace Prize winner because it was able to internalize its experience and learn from it. They have well trained and dedicated staff who enter as a trainee and are trained for one whole year before making them a permanent staff. The loans to savings ratio which stands at 100:135 is a great achievement for any institution. Nepal can also learn from Grameen’s Nobin Program and work towards developing 10 entrepreneurs per MFI. I am thankful to CSD for taking the initiative to organize such a refresher course for us microfinance practitioners in Nepal.”

The participants were acquainted with the best practices of the Grameen Financial System, learnt from the vast experience of the resource persons and were inspired to make amends in the deficiencies witnessed in their respective MFIs.

Encouraged by the experience of the Grameen Bank’s Financial System, the participants came up with a declaration for overcoming the current problems faced by the MFIs in Nepal. They vowed to follow the fundamentals of microfinance and take microfinance services to the doorsteps of the left out population and disburse appropriate loans as per the need of the clients. They also addressed the problem of staff poaching and steps to promote youth self-employment.

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