GRAMEEN BANK

Grameen Bank

Grameen Bank

Introduction

The history of the creation of Grameen Bank is now well known. However, very few of these accounts are able to articulate the early struggle the Bank faced to establish its legitimacy. To provide the right context, it will be useful to revisit a bit of the early part of the history of Grameen Bank as well as the history of state intervention in the provision of credit in Bangladesh.

The British Colonial Government got involved in dispensing credit in rural areas in the 19th century. This was in response to its belief that indebtedness caused by the oppressive informal credit market was the cause of periodic famines. The Strachey Famine Commission of 1880 recommended that the Government of British India should advance loans to the rural poor and subsequently the Government enacted the Land Improvement Loans Act of 1883 and the Agricultural Loans Act of 1884 (Roy and Rafiquddin, 1994). These Acts enabled the government to advance loans to the rural poor. The Famine Commission of 1901 recommended the establishment of mutual credit associations to provide agricultural credit. This led to the enactment of the Co-operative Societies Act of 1904 and later the Bengal Co-operative Societies Act of 1940 in order to satisfy the credit demands of rural people. After partition, The East Pakistan Provincial Co-operative Bank Ltd. was established in 1948. Later the Government of Pakistan set up the Agricultural Development Finance Corporation in 1952 and the Agricultural Bank of Pakistan in 1957. Following the 1959 recommendation of the Credit Inquiry Commission, these two institutions were merged to form the Agricultural Development Bank of Pakistan (ADBP) in 1961.

After Bangladesh gained independence in 1971, ADBP was renamed Bangladesh Krishi Bank (BKB). In 1986, Rajshahi Krishi Unnayan Bank (RAKUB) was created with the BKB branches of Rajshahi Division assigned to meet credit demands in northern rural areas of the country. Commercial banks were nationalized in 1971 and the Government directed them to open more rural branches to supply credit to the priority sectors such as agriculture and industry. As of 31 March 1994, out of 5762 total bank branches, over two-thirds were located in rural areas. The special agricultural credit program initiated by the government in 1977, under which banks were required to open two rural branches for every new urban branch, was responsible for such rapid expansion of Nationalized Commercial Banks (NCBs) in rural areas. This ultimately resulted in unplanned proliferation and sub-optimal geographical coverage by rural branches and most of these branches were hardly making any profit. In 1982-1983, BKB was asked to take over more than one hundred loss making branches of some NCBs. In 1994 more than 70% of BKB branches incurred losses.

Grameen Bank started as an action research project by Muhammad Yunus, a Bangladeshi economist in Chittagong in 1976. The objective of the project was to test whether the poor are creditworthy and if credit can be supplied without any collateral. Later with the help from some Nationalized Commercial Banks, Professor Yunus was able ...