Grameen Bank
Based on Wikipedia: Grameen Bank
Twenty-Seven Dollars
In 1974, Bangladesh was starving. A catastrophic famine swept through the country, killing somewhere between 26,000 and a million people depending on who was counting. Muhammad Yunus, an economics professor at the University of Chittagong, walked through the villages near his campus and saw something that haunted him: people dying not from lack of food, but from lack of opportunity.
He found forty-two families trapped in a cycle he came to understand intimately. They made bamboo stools for a living. Each morning, they borrowed money from a moneylender to buy raw bamboo. Each evening, they sold the finished stools back to that same moneylender at a price he dictated. After repaying the day's loan plus interest, they kept about two cents in profit. Two cents. For a full day of skilled labor.
Yunus did the math. The total amount these forty-two families needed to break free from the moneylender's grip—to buy their own bamboo outright and sell to whomever they chose—was twenty-seven dollars.
He lent it to them from his own pocket.
The Experiment
That small act of frustration became the seed of something much larger. Yunus didn't set out to reinvent banking. He set out to prove a point: that poor people were creditworthy, that the banking system's refusal to serve them was a failure of imagination, not a sound business judgment.
In 1976, he launched a research project in the village of Jobra, partnering with a national bank and his university. The concept was simple but radical: lend small amounts of money to poor people without requiring collateral—that is, without demanding they put up property or assets as security for the loan. Traditional banks insisted on collateral because it gave them something to seize if borrowers defaulted. But the poorest people, by definition, had nothing to seize.
Yunus believed this was backwards thinking. "Unlike the rich," he would later argue to Bangladesh's central bank governor, "the poor cannot risk not repaying. This is the only chance they have."
The experiment spread. Jobra became multiple villages. Multiple villages became the Tangail District north of Dhaka. By 1983, the Bangladesh government passed an ordinance converting Yunus's project into an actual bank. They called it Grameen Bank—grameen being Bengali for "rural" or "village."
How It Actually Works
The mechanics of Grameen lending look nothing like what happens at a conventional bank. There are no marble floors, no teller windows, no stacks of paperwork requiring signatures and legal witnesses.
Instead, borrowers form groups. Typically five people who know and trust each other. The group meets weekly with a bank officer, usually in someone's home or a community space. Each member makes a small payment toward their loan. But here's the crucial twist: no formal joint liability exists. If one member defaults, the others aren't legally required to cover the debt.
So why would anyone pay?
Social pressure. If one member stops paying, Grameen won't extend new credit to anyone in that group. The incentive structure is elegant: the group polices itself because everyone's future access to loans depends on everyone's behavior. In practice, group members often cover for a struggling neighbor, then collect the money later when circumstances improve.
There's no written contract. No legal instrument at all. The entire system operates on trust.
This sounds impossibly naive to anyone familiar with modern finance, where every transaction generates reams of documentation and legal protections. Yet Grameen's repayment rates have consistently exceeded 95 percent—far better than many conventional banks achieve with all their contracts and collateral.
The Women Question
Ninety-seven percent of Grameen's borrowers are women.
This wasn't accidental. In Bangladesh, as in many developing countries, women faced near-total exclusion from formal financial services. They couldn't open bank accounts without male permission. They couldn't secure business loans. The formal economy treated them as invisible.
Yunus discovered something else: women borrowed more responsibly and used the money more effectively for family welfare. A loan to a woman was more likely to go toward children's nutrition, education, and household improvements. A loan to a man was more likely to disappear into personal consumption or status purchases.
Some economists question whether microcredit truly "empowers" women in any deeper sense. Does access to a small loan change the fundamental power dynamics in a household or community? The research is mixed. But what's undeniable is that millions of women who had zero participation in the formal economy now have bank accounts, business income, and financial identities.
The Eighteen Decisions
Grameen does something peculiar that most banks would find absurd. At every branch, borrowers recite a list of commitments—originally sixteen, now eighteen as of 2023. They vow to follow these decisions as a condition of membership.
The decisions cover everything from practical finance to social reform: keep your family small, educate your children, build sanitary latrines, drink clean water, grow vegetables year-round, reject dowry. One decision commits borrowers to helping each other in times of difficulty. Another forbids child marriage.
This is not a bank. This is a social movement that happens to lend money.
The results are measurable. Before Grameen embraced the Sixteen Decisions, school enrollment among borrowers' children was patchy. Afterward, nearly all school-age children of Grameen borrowers attended regular classes. The bank had stumbled onto something powerful: credit access, combined with community accountability and explicit social norms, could shift behavior across an entire population.
The Housing Battle
In 1984, Grameen applied to Bangladesh's central bank for permission to offer housing loans. The proposed loan amount: 125 dollars. The central bank rejected it. Impossible, they said. You cannot build a suitable living structure for 125 dollars.
Grameen reframed the request: not housing loans, but "shelter loans." Rejected again. The poor couldn't afford non-income-generating debt, the central bank explained.
Third attempt: "factory loans." The logic was creative—borrowers worked from home, so the home was also a factory, an income-generating asset. Rejected a third time.
Yunus went personally to the central bank governor. When asked if borrowers would repay, he gave the answer that captures the entire Grameen philosophy: "Yes, they will. They do. Unlike the rich, the poor cannot risk not repaying."
The central bank relented.
By 1999, Grameen had disbursed 190 million dollars in housing loans, financing over 560,000 homes with near-perfect repayment rates. The housing program won the Aga Khan International Award for Architecture. The average loan had grown to 300 dollars—still impossibly small by Western standards, but enough to build a rainproof structure with a sanitary toilet and clean drinking water.
The Contradiction
Critics have always circled Grameen, looking for the catch. For years, the main objection was that microcredit couldn't possibly be sustainable—it must depend on charitable donations or government subsidies.
This was true in the early years. Donor agencies provided most of Grameen's capital at concessionary rates. But by the mid-1990s, the bank had shifted to funding from Bangladesh's central bank. Later still, Grameen began issuing bonds—bonds implicitly backed by the government, which made them attractive to investors despite paying above-market rates.
Since 1995, over 90 percent of Grameen's loans have been funded by interest income and customer deposits. The borrowers became savers. The savers became funders of new loans. The system achieved a kind of self-sustaining equilibrium that seemed almost too good to be true.
Some argued it was too good to be true. In 2001, the Wall Street Journal reported that a fifth of the bank's loans were more than a year overdue—a troubling contradiction to Grameen's official 98 percent repayment claims. David Roodman, a development economist, has critiqued the accounting practices Grameen used to calculate its recovery rates. The 1998 floods in Bangladesh clearly disrupted repayment, though the bank says it recovered in subsequent years.
The deeper question is whether microcredit actually lifts people out of poverty or merely provides a slightly less terrible alternative to moneylenders. Grameen claims that half of its borrowers—close to 50 million people—have risen out of acute poverty, measured by standards like all children in school, three meals daily, a sanitary toilet, clean water, and a rainproof house. Independent verification of such claims is difficult.
The Nobel and the Downfall
In October 2006, the Norwegian Nobel Committee awarded the Peace Prize jointly to Grameen Bank and Muhammad Yunus "for their efforts to create economic and social development from below." It was extraordinary recognition. Grameen became the only business corporation ever to win a Nobel Prize.
The prize ceremony in Oslo featured Mosammat Taslima Begum accepting on behalf of the bank's borrowers. She had taken her first Grameen loan in 1992—sixteen euros—to buy a goat. By 2006, she was a successful entrepreneur and an elected member of the bank's board. Her journey from goat buyer to Nobel laureate perfectly embodied Grameen's narrative of transformation.
Professor Ole Danbolt Mjøs, chairman of the Nobel Committee, explicitly noted that the prize was meant to highlight achievements of the Muslim world, the women's perspective, and the fight against poverty. Bangladesh celebrated. The country had produced a genuine global hero.
Five years later, the Bangladesh government forced Yunus to resign.
The official reason was technical: at 72, he exceeded the legal retirement age for the position. But the underlying conflict was political. Yunus had briefly considered entering politics, which threatened the ruling party. The government began investigating matters related to a nonprofit bank he oversaw. Yunus reportedly reached out to the Clinton Foundation for help—he had donated substantial sums through various Grameen entities—but no rescue came.
The founder was out. The institution he built continued without him.
The Expansion
Grameen's model spread far beyond Bangladesh. By 2017, Grameen America operated nineteen branches in eleven American cities, serving nearly 100,000 borrowers—all of them women. The World Bank launched initiatives to finance Grameen-type lending systems globally. Similar projects emerged in over 64 countries.
The potential market is staggering. An estimated one billion people worldwide could benefit from microcredit, with total loan demand around 250 billion dollars. As of the late 2000s, the global microfinance industry served about 100 million people with 25 billion in loans—roughly 10 percent of the potential market.
Back in Bangladesh, Grameen continued growing. By January 2022, the bank served nearly 9.5 million borrowers across 81,678 villages—94 percent of all villages in the country. Total disbursements since inception exceeded 33.7 billion dollars. The original twenty-seven dollars had multiplied by a factor of more than a billion.
The Village Phones
One of Grameen's more unexpected innovations was the Village Phone program. Women entrepreneurs borrowed money to purchase wireless phones, then operated them as pay-per-use services in rural areas that lacked telecommunications infrastructure.
By the mid-2000s, over 55,000 phones were in operation, reaching 80 million people in 28,000 villages. Farmers could check market prices before selling crops. Families could receive news from relatives working in cities. A piece of technology that wealthy countries took for granted became, in the hands of village women entrepreneurs, a profitable business and a community lifeline.
The program won the 2004 Petersburg Prize, worth 100,000 euros, for its contribution to development through technology. The citation noted that Grameen had "created a new class of women entrepreneurs who have raised themselves from poverty."
Beggars and Boundaries
In 2003, Grameen started lending to beggars.
This pushed against the very boundaries of what microcredit could mean. Traditional Grameen borrowers, however poor, had some productive capacity—they made bamboo stools or wove baskets or raised chickens. Beggars, by definition, survived on charity. Could they transform into entrepreneurs?
Grameen provided tiny loans and let the beggars decide how to use them. Some bought small items to sell door-to-door alongside their begging. Some invested in goods they could trade. The program represented Grameen's most radical bet: that virtually anyone, regardless of how degraded their current circumstances, contained untapped economic potential.
The Training
Working for Grameen is not a comfortable job. Employees spend six months in on-the-job training, shadowing experienced staff across multiple branches. The goal is explicitly philosophical: trainees must learn to "appreciate the unexplored potential of the destitute."
They work in difficult conditions—traveling to remote villages, conducting weekly meetings in borrowers' homes, managing the complex social dynamics of lending groups. After six months in the field, trainees return to Dhaka headquarters for review and critique before final assignment to a branch.
As of October 2007, the bank employed over 24,700 people serving nearly 2,500 branches. The organization that started with one professor and forty-two families had become a substantial institution with its own training systems, bureaucratic structures, and operational complexities.
The Ongoing Struggle
Grameen's relationship with the Bangladesh government has remained contentious. The government's ownership stake fluctuated from 60 percent at founding in 1983, down to single digits by the early 2010s, then back up to 25 percent. In 2013, parliament passed a new Grameen Bank Act authorizing the government to make rules for any aspect of the bank's operations—a significant assertion of control.
As of early 2025, a proposed ordinance aims to reduce the government's stake from 25 percent to 5 percent, lower government-appointed directors from three to one, and shift election of the chairman from the government to the twelve-member board. The changes would restore something closer to the pre-2011 framework, increasing control for borrowers and decreasing state involvement.
In 2024, Professor Abdul Hannan Chowdhury was appointed as the new chairman. The bank continues operating, continues growing, continues debating what it means and who should control it.
The Larger Question
Does microcredit actually work?
The honest answer is: it depends on what you mean by "work." Grameen has undeniably provided financial services to millions of people who previously had none. It has created savings habits, built homes, funded small businesses, and enabled school attendance. Its repayment rates, whatever the accounting controversies, far exceed what skeptics predicted when the whole enterprise began.
But microcredit is not a cure for poverty. Small loans cannot substitute for functioning governments, quality education, reliable infrastructure, or macroeconomic policies that create jobs. Some critics argue that the Nobel Prize's emphasis on microcredit actually distracted from more systemic approaches to development—that it affirmed a neoliberal worldview where individual entrepreneurship, rather than collective action and state investment, drives progress.
Yunus himself has always been careful about this. "Credit alone cannot end poverty," he's acknowledged. Grameen's Eighteen Decisions, with their emphasis on education, sanitation, and social reform, reflect an understanding that money is necessary but not sufficient.
What Grameen proved, beyond dispute, is that poor people are not untouchable by the financial system. They can borrow, repay, save, and invest. They can participate in formal economic life. The question of whether that participation transforms their fundamental circumstances—lifts them permanently out of poverty rather than merely making their poverty more manageable—remains open, complicated, and deeply contested.
It started with twenty-seven dollars and forty-two families trapped in a cycle of debt. Fifty years later, the argument continues.
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