Personnel Policies: Capacity Building: Experience of Grameen Bank

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Microcredit, Microfinance and Pension Scheme The
Experience of Grameen Bank
Dipal Chandra Barua Deputy Managing
Director Grameen Bank Dhaka, Bangladesh E-mail
dipal_at_grameen.com Paper presented at the
Workshop on Extending Pension Coverage to
Informal Sector Workers in Asia jointly
Organized by the Government Pension Fund,
Thailand and the World Bank , held on Nov 30 to
Dec 1, 2006 in Bangkok, Thailand.
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Grameen Bank Owned by the Poor

• Grameen Bank Project was initiated by Professor
  Muhammad Yunus in the village Jobra, Chittagong,
  Bangladesh, in 1976 as action research project.
• The action research project became a pilot
  project in 1979, covering an entire district.
  This was undertaken with the financial support of
  the central bank of Bangladesh.
• In October 1983, Grameen Bank was established as
  an independent financial institution.
• It is a private specialized bank, with 94 percent
  of the stocks owned by the poor borrowers
  themselves. Remaining 6 percent is owned by the
  Government.

The mission of the Grameen Bank (GB) is to
alleviate poverty from the lives of the poor
people.
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Grameen Bank Owned by the Poor
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Board of directors from borrowers of 7th GB Board
Ms Rahima Begum Center No. 14/F Rampal Munshiganj
Br. Narayanganj Zone
Ms Rawshanara Begum Center No. 12/F Gorai
Mirzapur Br. Tangail Zone
Ms Rukma Begum Center No. 29/F Fulbari Golapganj
Br. Sylhet Zone
Ms Hasina Akhter Center No. 7/F Baraidhala
Sitakundo Br. Chittagong Zone
Ms Asema Begum Center No. 16/F Ranipukur Biral
Br. Dinajpur Zone
Ms Aroti Rani Center No. 1/F Tularampur Narail
Br. Jessore Zone
Ms Farida Begum Center No. 30/F Madhabpasa
Babuganj Br. Barisal Zone
Ms Taslima Begum Center No. 2/F Dhainagar
Shibganj Br. Rajshahi Zone
Ms Hasna Banu Center No. 36/F Zianagar Dupchachia
Br. Rangpur Zone
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Twenty-Five Years (1976-2002) Later

• Journey from one village to 73 thousands
  villages.
• From 42 poorest borrowers in 1976 to 6.74 million
  borrowers.
• Women borrowers 97
• No of branches 2259 (operated in whole country)
• From first disbursement of Tk. 856 (US 27) to
  cumulative disbursement of Tk. 277.39 billion
  (US 5.82 billion).
• Monthly disbursement Tk. 4.0 billion (US
  57.50 million)
• Cumulative repaid amount of Tk. 265.09 billion
  (US 5.17 billion).
• Recovery rate 99
• The outstanding amount of Tk. 32.29 billion (US
  475.13 million).
• Balance of deposits Tk. 40.32 billion (US 593.30
  million)

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In million US dollar Cumulative
Growth of Loan Disbursement of GB
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The Grameen Bank Structure
Head Office
Zonal Office-36
Area Office-233
Branch Office -2259
Centers - 119,320
Groups 6,737,047

Members- 6.74 million (97 of whom are women)
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Percentage of Borrowers Moving above the Poverty
on the Basis of GBs Ten Indicators
Year Above the Poverty line
1997 15.1 1998 20.4 1999 24.1 2000
40.0 2001 42.0 2002 46.5 2003
51.1 2004 55.0 2005 58.4
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Savings Products of Grameen Bank

• Personal Savings (open to all) September 2000
• Grameen Pension Savings (for GB Members Staff)
  Feb 2000
• Fixed Deposit (open to all) March 2000
• Special Savings (for GB Members) May 2000
• Seven Year Fixed Deposit (open to all) August
  2000
• Fixed Deposit with Monthly Income (open to all)
  March 2001
• Loan Insurance Savings Fund (for GB Members)
  June 2001

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Savings Products with Balance October, 2006
Description
Balance (In Million)
Personal Savings (open to all) TK. 11,211.70
(US 164.97) Grameen Pension Savings (GPS) (GB
Mem. Staff) TK. 11,113.50 (US 163.53) Special
savings (GB Members) TK. 2,565.10 (US
37.74) Loan Insurance Savings Fund (GB Mem
Staff) TK. 3,591.30 (US (52.84) Double in 7
years-Term Deposit (open to all) TK. 6,653.20
(US 97.90) Fixed Deposit (open to all) TK.
698.80 (US 10.28) Fixed Deposit with Monthly
Income (open to all) TK. 1,742.30 (US
25.64) Other Fund (GB Members others) TK.
2,744.70 (US 40.39) Total TK. 40,320.50
(US 593.30)
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Savings (Balance)
Growth of Savings
In million US dollar
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Interest Rate of Grameen Bank Savings Schemes
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Objective of the Pension Scheme

• As borrowers grow older, they worry about what
  will happen to them when they cannot work and
  earn any more.
• Grameen Bank addressed this issue by introducing
  the Grameen Pension Scheme
• Starting in 2000-2001, this has become an
  amazingly attractive feature of GPS with the
  borrowers.
• This is no longer limited to borrowers only, its
  now available to employee of the bank as well.

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Features of Grameen Pension Savings

• GPS requires all borrowers with loans above TK.
  8,000/- (US 138) to deposit a minimum of TK.
  50/- (US 0.86) each month in a pension savings
  account.
• After 10 years a borrowers will receive a
  guaranteed amount (Taka 11,214) which is almost
  double the amount she has put in during 120
  months.

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Features of Grameen Pension Savings (Contd)

• Ownership of the capital by herself.
• To allow them to save for specific reasons such
  as to pay for the education and marriage of the
  children, to enable them to create large asset
  base, and other long term needs.
• GPS have grown quickly, pushed by both supply
  demand-side factors.

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(Balance in million US dollar)
Growth of Grameen Pension Savings
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Growth of Pension Scheme Membership Accounts
Source Stuart Rutherford, The Grameen Pension
Scheme, ADB Quarterly, September 2006, Vol. 7,
No. 3
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Installment Payment Method

• Any day of the month, installment can be
  deposited
• Advance payment is allowed. But no interest for
  the advance period.
• One time Taka 10 commission for opening GPS
  account

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Conditions of Early Closure

• Taka 25 Service Charge
• If closed in less than a year, only principal
  will be returned
• If closed in between one to three years, 8
  simple interest plus the principal will be
  available
• If closed in between one to five years, 10
  simple interest plus the principal will be
  available
• In case of 10 year plan, if closed in more than
  to five years, 12 simple interest plus the
  principal will be available

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Auto-closure and Re-activation

• If installment is not paid within the month,
  account will be closed automatically, but
• If within fourth month, Taka 1 penalty per Taka
  50 installment is paid in addition to arrear
  installments, account can be re-activated
• Other rules of early closure applies

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Maturity Value Payment Method

• Last working day of the next month to the last
  month of installment, is the due date where
  payment is fully settled at the rate given in the
  payment chart in the next slide
• One has the option to draw money as monthly
  pension.

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Payment at Maturity Chart (Taka)
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Special Conditions of the Plan

• No cheque book will be provided
• Installment size and term cannot be changed
• In the event of death, nominee cannot continue
  the account by paying installments
• In the event of death, nominee receives according
  to interest policy discussed
• In the event of death, if nominee is not
  mentioned, legal heir receives benefit according
  to interest policy discussed
• No tax at source will be charged
• Government approves this as tax-free and the
  deposit allowed for tax rebate

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Comparison to other Similar Pension Products

• GPS is not much different from other deposit
  pension schemes (DPS).
• GPS has lower denominations (multiples of Taka
  50) compared to DPS.
• GPS is only available in Grameen Banks where as
  DPS is available in commercial banks, mostly in
  urban areas.

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Life Insurance

• Each year families of deceased borrowers of GB
  receive a total of Tk. 8 to 10 million in life
  insurance benefits.
• The deceased family receives Tk. 1,500.
• Borrowers are not required to pay any premium for
  this life insurance.
• Borrowers come under this insurance coverage by
  being a shareholder of the bank.
• Up to Oct 2006 a total of 87,802 borrowers died
  in GB. Their families collectively received a
  total amount of Tk. 167.89 million (US 3.68
  million).

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(Amount in million US dollar Cumulative)
Families of Deceased Borrowers of GB Received
Life Insurance Benefit
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Does the Grameen Model Address the Key Issues for
Informal Sector Pensions

• Bangladesh has a means tested non-contributory
  scheme which has grown rapidly but covers the
  bottom decile and parts of the 2nd decile.
• Grameen scheme covers those just above the
  eligible group for public scheme and partially
  fills the gap at no direct cost to the Government
• It is a DC model
• It is portable can me moved to any Bank and thus
  transportable between formal and informal
  sectors.
• Incentives built in to contribute.

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Is it Replicable

• Yes but there are some issues to be addressed
• In Bangladesh replicability is possible because
  Microfinance Intermediaries (MFIs) have 25
  million accounts and transaction costs can be
  low to expand for other countries the costs
  will be higher because MFI penetration is low but
  
• Unlike Grameen other MFIs are not Banks and
  cannot accept savings and some changes in
  financial sector rules may be needed.
• Grameen cross-subsidizes pension returns from its
  other earnings not a problem here because
  pensions are owned by the same members for
  others it could be a problem and require some
  publicly financed incentives.
• Grameens huge network of branches reduces the
  transactions costs for others there may be a need
  for initial government grant to get started.