Concept

Grameen Bank is a microfinance organization and community development bank founded in Bangladesh. The term Grameen Bank is Bengali for "Rural" or "Village" Bank. The bank small loans target the poorest of the poor, with a particular emphasis on women, who receive upwards of 95 percent of the bank's loans. Example of the types of loans that Grameen makes are for hand-powered wells, housing, wireless phone services, seasonal agricultural loans and equipment and livestock to help the poor improve their agriculture. The loans are generally on a low interest, long term payment basis. The bank requires borrowers to participate in organized savings plans.

There are no written contracts between the bank and its borrowers; the system is based on trust, but these loans have had a high re-payment rate. Since 1995, Grameen has funded 90 % percent of its loans with interest income and deposits collected. The rest of its financing is from many different sources, but the bank is ultimately guaranteed by the Central Bank and the Government of Bangladesh. The bank attempts to educate its borrowers, emphasizing that they need to send their children to school. The bank now operates in more than 43 countries. The bank's success has inspired similar projects in many countries, including a World Bank initiative to finance Grameen-type organizations.

In October 1983, the bank was authorized by national legislation in Bangladesh to operate as an independent bank. The process was supported by Shore Bank, a community development bank in Chicago and by a grant from the Ford Foundation. The bank expanded into other countries, and it grew significantly over the years. As of January 2022, the total borrowers of the bank number nearly 9.5 million, 96.81% being women. Dr Yunus was awarded a Nobel Peace Price in 2006 for his work in creating the bank and associated projects. He has written a number of books and has served on faculty positions internationally.

Solidarity Lending

Solidarity lending is the practice where small groups borrow collectively and group members encourage each other to repay the borrowed funds. The Grameen Bank was an early pioneer of solidarity lending. The solidarity group may be members of a village, a church group, or any other affiliation. Although some organizations accept group liability, Grameen favors groups with only a moral responsibility, and members of the group may voluntarily help each other financially and later reciprocate. There is a social pressure, in that Grameen will not extend further credit to a group in which a member defaults. Since these dealings often result in several loans, there may be a cost saving for the lending institution.