“Applicability of MF to the world – Lessons learned from Experience in Grameen Replication in Kosovo and Myanmar” - The best Models- Written by: Md. Abul Kalam, Senior Principal Officer, Grameen Bank, Bangladesh. (Ex. Consultant microfinance project UNDP/UNOPS Myanmar and now working Kosovo Project).

Introduction Poverty and hunger is very two main human suffering issues of the world. At present more than 1 billion people are living under the poverty line around the world. If we look at the millennium development goals, which is taken by UN we found that to eradicate poverty is also one of the goal. The Microcredit Summit has announced two new goals to be reached by 2015, harmonized with the United Nations Millennium Development Goals, which include reaching 175 million poorest families with microcredit, and ensuring that 100 million of those families have graduated out of poverty, by 2015. Grameen Bank of Bangladesh proved that we can easily create poverty free country if we have taken lot of microfinance program according to respective country’s contexts. Grameen proved that microcredit is a very powerful tool to fight against poverty. But Grameen believes it is not microcredit alone which will end poverty. Microfinance has become accepted over the last two decades as an effective and sustainable strategy for poverty alleviation and socio-economic development. Microfinance programs mushroomed all around the world, and many of them grown to become large sustainable financial institution for the poor. The rapid expansion of microfinance programs in more than 100 countries means the replicability and effectiveness of microfinance programs in widely varying social, economic, political and cultural contexts. As we know more than 1 billion people are living under the poverty line in the world and it is not enough for microfinance merely to be replicated. More important is that it should reach the very poor, and ensure that those reached can come out poverty within definable time frame.

The Microcredit Summit provides an opportunity for us to review our collective efforts over the last two decades and distill from these experiences what have been the main lessons learned. While there is no easy formula to be applied, these lessons can help provide a road map for future expansion in microfinance, and may avoid the costly mistakes of the past. Origin of Grameen Bank “Grameen Bank” means the Rural or Village Bank. The rural landless people who are desperately in need of credit generally remain outside the orbit of the banking system. Dr. Muhammad Yunus, Professor of economics, Chittagong University, Bangladesh, launched an action-research program, which is called Grameen Bank project in 1976 with the following objectives: 1. To extend the banking facilities to the poor men and women. 2. To eliminate the exploitation of the moneylenders. 3. To create opportunities for self- employment for the vast unutilized and underutilize manpower resource. 4. To bring the disadvantaged people within the folds of some organizational format which they can understand and operate, and can find socio-political and economic strength in it through mutual support. Transformation in to Grameen Bank The project demonstrated its success in village Jobra and other neighbouring villages during 1976-1979. With the sponsorship of Bangladesh Bank (Central Bank of the country) the programme was extended in 1979. In October 1983 the Grameen Bank project was transformed into a formal bank under a special law passed for its creation, with the name “Grameen Bank”(GB). At present GB borrowers own 94% of the total equity of the bank and the remains 6% owned by the government. Now, it is owned by the poor borrowers who are mostly women. It works exclusively for them.

Board of Directors of GB, which is the highest policy making body, consists of 13 members of whom 9 are elected from among the borrowers shareholders. Various activities of the Bank are organized and implemented by the four tiers of administrative set-up,e.g. Branch office, Area office, Zonal office and Head office. Experience in Bangladesh In Bangladesh 90% population are Muslim and the Muslim fundamentalists are still against Grameen. Normally Muslim women are not allows to go out from the house very often. From beginning Grameen is giving priority to the women for having microcredit and as a result over 7 million women are organized by Grameen since inception and having credit and changing their socio-economic condition. The experience of the Grameen Bank in Bangladesh is very well known. Started as an action research project in 1976 Grameen Bank is the largest bank in the world working exclusively for the poor. Today it provides loans to 7.5 million poor people, 96 per cent women, in almost all over Bangladesh. It has disbursed, a total of more than US $ 5.7 billion in loans, of which US $ 5.1 billion has been paid back. The repayment rate is over 98%. Grameen Bank is financially self reliant and makes profit. Grameen Bank has not received any fresh donor money since 1995. Grameen Bank plans to reach over 12 millions borrowers by 2010. All this expansion is taking place with Grameen’s own deposits, mobilized from both its members as well as the public, which are growing at a rate to support the expansion of the branch network. Grameen Bank gives income generating loans, housing loans, student loans and micro enterprise loans to the poor families. Studies have shown that Grameen Bank has reduced poverty among its clients, as well as in the village in which it operates at large, increasing opportunities for the entire community.

Thus, Grameen Bank not only provides financial services to its clients, but with the rest of the Grameen family of enterprises has been working to meet the diverse economic and social needs of its clients. Grameen Bank provides micro-enterprise loans, to those members who have been successful in building up their income generating activities quickly. Core Features of Grameencredit (a) It promotes credit as a human right. (b) Its mission is to help the poor families to help themselves to overcome

poverty. It is targeted to the poor, particularly poor women. (c) The most distinctive features of Grameencredit is that it is not based on

any collateral or legally enforceable contracts. It is based on “trust” not on legal procedures and system.

(d) It is offered for creating self-employment for income-generating activities and housing for the poor, as opposed to consumption.

(e) It provides service at the door-step of the poor based on the principle that the people should not go to the bank, bank should go to the people.

(f) In order to obtain loans a borrower must join a group of borrowers. (g) Loans can be received in a continuous sequence. New loan becomes

available to a borrower if her previous loan is repaid. (h) All loans are to be paid back in installments (weekly or bi-weekly). (i) It comes with both obligatory and voluntary savings programs for the

borrowers. These elements of Grameen Bank work together to make it an effective and sustainable institution geared exclusively to the needs of the poor. Development through credit √ Independent studies show that microcredit has a lot of positive impacts on families that receive it. √ A World Bank study in 1998 reports that 5% of Grameen borrowers move out of poverty each year.

√ A large number of impacts studies have been made on Grameen Bank from different perspective .They are all come up with findings showing significant impact on its members cross wide range of economical and social indicators. The findings are √ Increased income, improved nutrition, better food intakes, better consumption on clothing, better housing, lower child mortality, lower birth rate, better health care, better access to education for the children, empowerment of women and better participation of social and political activities. √ According to Grameen Bank’s own survey, 65% of its borrowers families have crossed the poverty line by 2007. Procedures that suit the poorest women 1. Microcredit programs are successful because they tailor their programs to meet the needs of the poor in a variety of ways. There are many elements that contribute to loan conditions and procedures that are suitable for the poorest, but most important among these is that no collateral or external guarantee is required. This has been the feature that has enabled the poorest people to participate in microcredit programs. The self selection and screening that members themselves perform replaces the need for collateral by ensuring that reliable people are brought into the program. 2. A second very important element is banking at the doorsteps of the very poor. In most poor countries, the poorest women are unable to travel long distance or even out of their villages. Grameen Bank and other microcredit programs have succeeded in bringing poorest women into the fold of the program by delivering the financial services to their doorsteps, which makes it both convenient and safe for the members. Added to this, the fact that procedures are simple and transparent makes its easy for the poor women to participate, particularly since many are illiterate.

3. It is important for the initial loans to be small, which grow bigger as the poor member gains the capacity to repay. 4. Frequent repayment helps poor women not feel the burden of having a loan as much, since the amount of installment, usually weekly or bi-weekly, are small and manageable. 5. Members become eligible for larger loans as they repay each loan successfully, as part of process that would enable her to eventually overcome poverty over a five to ten years period. 6. Savings form an essential part of microcredit programs. Voluntary savings that the poor can withdraw in times of need is important, while compulsory savings component which can be withdrawn during times of need provide a safety net in an emergency. Group Responsibility and Ownership A very important factor in maintaining the cohesiveness within the membership of the program is for the members to choose each other themselves as well as for them to select their own loan activity. Groups of five works best at Grameen Bank because it allows interaction and easy management. Many programs undertake staggered disbursement of loans, and selecting other members of the group from among people they know, all of which help peer pressure and support to come into effect. Sustainability While most microcredit programs begin with grants, eventually these will not be enough to fuel their expansion. While Grameen Bank attracted a great deal of international funding in the early years, microcredit programs today compete for much scarcer donor funds. Thus, the management of microcredit programs has to be very creative in organizing funding for their expanding programs. Ultimately the only sustainable way is through the mobilization of savings or to borrower from commercial financial institutions and markets.

It is important for microcredit programs to be run professionally and in a business like way following clearly formulated business plan, especially as they seek funds from commercial sources and donors. To become sustainable at an early point, it should become more efficient e.g. in terms of staff productivity, reducing costs, increasing outstanding loans, keeping a nearly 100% repayment rate, diversifying loan portfolio, charging appropriate interest rate to enable it to cover its costs and to attract savings. To attain sustainability, focus on these issues is key. Legal status One issue faced by replicators at the outset is that of an appropriate legal status for the operation of microfinance program. There are constraints that NGO face such as not being able to mobilize savings, which is key to becoming sustainable. NGO also find it difficult to raise funds from commercial sources, set realistic interest rates and so on. NGO be allowed to mobilize deposits but only from their members and not from the general public. Ultimately however microfinance programs should have the option of converting into microfinance banks. Wholesale Funds An intermediate source of funding for microcredit can be wholesale funds. Donor funding for microcredit programs has been shrinking over the years. Increasingly donors are insisting that microcredit programs become financially self sufficient so that they can attract funds from commercial sources. In the period between start up and reaching that stage, however, microcredit programs do require easily accessible funds for expansion and on reasonable terms. Such wholesale funds, which provide concessional funding as well as technical assistance, and can be an important intermediary source of funds before the programs are able to gain access to commercial funding sources, or are able to become microcredit banks themselves and mobilize enough deposits to finance their loan portfolio. Applicability of Grameen Approach

The principles of Grameen Bank have been applied successfully in varying degrees to countries and Africa, Asia and the Pacific, Latin America, USA and Europe with very different cultural, socioeconomic, religion and demographic characteristics. Grameen approach is applicable and replicable all around the world and it is axiom truth. Of course many projects have to modify or adapt the group based system to effectively ensure the participation of the poor. The process of adaptation is something often that is achieved as the project is implemented. Grameen Bank itself has modified its program and products over the years to meet the changing needs of its clientele adding many new loan products, savings products. The process of innovation works best as it happens spontaneously in response to needs of the clientele that the institution is serving. BOT: an effective approach In a different type of program, Grameen Trust of Bangladesh also goes into a countries to create a microcredit program directly on the ground with experienced staff from Grameen Bank, under a Build-Operate-Transfer (BOT) contract. This is a very efficient approach which shows good results and can be scaled up quickly. Direct Participation and Observation- Experience from Myanmar and Kosovo I have got chance to work and implement Grameen Replication Project in Myanmar and Kosovo directly under BOT program of GT. Both countries are culturally completely different from Bangladesh and located in different continent. Grameen approach is very much effective and successful in Myanmar and Kosovo and both project are running very well and commercially viable. Myanmar (Burma) In 1997 at the request of and with the financial support from UNDP/UNOPS, GT started implementing a microfinance program in Delta zone of Myanmar following Grameen Bank Approach under the name of ‘Sustainable

Livelihood Through Microfinance for The poor’. It built the project with six senior management staff from Grameen Bank, Bangladesh and I was one of them. Although Myanmar is our neighboring country but culturally completely different from Bangladesh. Not only culturally different but also religiously there is a difference. Grameen approach is very much successful in Myanmar. We recruited 120 local staff from Myanmar and trained on Grameen methodology. We organized more than 50,000 poorest women in Delta zone in Myanmar through 10 branches, gave them microcredit loans, mobilized their savings and created a strong foundation for its sustainable operation. The project maintained 100% rate of repayment although. The project achieved operational viability. The economic and social impact of the project have been reflected in the improvement of the quality of life of its clientele. Having built the local capacity of the project and developing it into a viable one, we handed over the project on 17 May 2002. The project is running smoothly and total borrowers over 100 thousand since inception 1997. Kosovo From December 2007 I am working in Kosovo and my finding is- Grameen approach is very much useful in Kosovo. Grameen Trust has directly implemented since June 2000 a microcredit project in Kosovo called “Kosovo Grameen Missione Arcobaleno Microcredit Fund”(KGMAMF) with financial assistance of US$ 5.00 million from Missione Arcobaleno, Italy (Missione Arcobaleno, a private citizen’s fund formed by donations from Italian citizens in favor of the war victims of Kosovo). The objective of the project was to provide Grameen types microcredit those who have been affected by the recent war in Kosovo, such as returning refugees, the internally displaced persons and vulnerable residents to reconstruct their activities and lives. The project also aimed to demonstrate that microcredit can play an important role in helping people, particularly women, get back on their feet in a war ravaged country. The others objectives are:

- To create self employment opportunity. - To involved women in various incomes generating activities. - To build community among the borrowers. - To empower the women. - To create savings habit. - To build up self confidence.

The project is organized over 11000 borrowers since inception 2000 through 4 branches. It has disbursed, a total of more than US $ 49 million in loans, of which US $ 43 million has been paid back. The repayment rate is still 100%. The project is completely financially viable. Conclusion I am working with Grameen Bank since 1986 in home and abroad. As a microfinance practicioner over 20 years I can say Grameen Bank itself came about through a process of replication and it has applicability any country in the world and it can be commercially viable.