Grameen Bank - History

History

Muhammad Yunus, the bank's founder managing director, earned a doctorate in economics from Vanderbilt University in the United States. He was inspired during the terrible Bangladesh famine of 1974 to make a small loan of US$27.00 to a group of 42 families so that they could create small items for sale without the burdens of predatory lending. Yunus believed that making such loans available to a wide population would have a positive impact on the rampant rural poverty in Bangladesh.

The Grameen Bank (literally, "Bank of the Villages", in Bengali) is the outgrowth of Yunus' ideas. The bank began as a research project by Yunus and the Rural Economics Project at Bangladesh's University of Chittagong to test his method for providing credit and banking services to the rural poor. In 1976, the village of Jobra and other villages surrounding the University of Chittagong became the first areas eligible for service from Grameen Bank. The Bank was immensely successful and the project, with support from the central Bangladesh Bank, was introduced in 1979 to the Tangail District (to the north of the capital, Dhaka). The bank's success continued and it soon spread to various other districts of Bangladesh. By a Bangladeshi government ordinance on October 2, 1983, the project was transformed into an independent bank. Bankers Ron Grzywinski and Mary Houghton of ShoreBank, a community development bank in Chicago, helped Yunus with the official incorporation of the bank under a grant from the Ford Foundation. The bank's repayment rate was hit following the 1998 flood of Bangladesh before recovering again in subsequent years. By the beginning of 2005, the bank had loaned over USD 4.7 billion and by the end of 2008, USD 7.6 billion to the poor.

The Bank today continues to expand across the nation and still provides small loans to the rural poor. By 2006, Grameen Bank branches numbered over 2,100. Its success has inspired similar projects in more than 40 countries around the world and has made World Bank to take an initiative to finance Grameen-type schemes.

The bank gets its funding from different sources, and the main contributors have shifted over time. In the initial years, donor agencies used to provide the bulk of capital at very cheap rates. In the mid-1990s, the bank started to get most of its funding from the central bank of Bangladesh. More recently, Grameen has started bond sales as a source of finance. The bonds are implicitly subsidised as they are guaranteed by the Government of Bangladesh and still they are sold above the bank rate.