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Microlending–Yunus Model

Mhammad Yunus. Banker to the Poor. Perseus Books, 2003. Micro Lending Principles he explains in Banker to the Poor, 2003:

Lend to the poorest, as the less poor will drive out the poor.

Muhammad Yunus began his first Grameen Bank (reefers to rural) loans in Bangladesh in 1977. He reports more than 98% of the loans are repaid. The format is five women form a group. A new group receives loans to two members. The group approves the loan request of each member. They pay back the loan on a weekly basis. If these two repay for the next six weeks then two more members can request loans. The chairperson is usually the last borrower of the five. For a group to be certified, all 5 prospective members have at least seven days of training on bank policies, and are examined orally by a bank official.

Loans are to be paid back in a year with weekly payments of 2% of the loan amount, starting one week after the loan with an interest rate of 20%. Passbooks record transactions. If an individual doesn’t pay back her loan, her group may be ineligible for larger loans. In case of a disaster, they get a new loan and the old one is converted to a long-term loan. If someone dies, the family gets money from the Central Emergency Fund. Yunus’ emphasis on the importance of giving credit to the poor has spread around the world, including developed nations.

Borrowers must deposit 5% of each loan in a group fund. Any borrower can take an interest-free loan from the group fund if all members agree and the loan is not over half of the fund.

Up to 8 groups in a village form a center headed by a chief who meets weekly with a bank worker.

It’s difficult in some rural areas to find women bank workers who can travel from village to village because they’re not supposed to mix with men. Bank workers are not allowed to accept food or gifts. They train on the job for six months in an established project.

When a bank worker starts a new project he or she writes a report on the village’s history, culture, and economy. Village and religious leaders, teachers, and government officials are invited to a meeting to explain how the bank works.

Members learn to recite the Sixteen Decisions:

1.    We shall follow and advance the four principles of the Grameen Bank—discipline, unity, courage, and hard work—in all walks of life.

2.    Prosperity we shall bring to our families.

3.    We shall not live in a dilapidated house. We shall repair our houses and work toward constructing new houses as the earliest opportunity.

4.    We shall grow vegetables all the year around. We shall eat plenty of them and sell the surplus.

5.    During the plantation seasons, we shall plant as many seedlings as possible.

6.    We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.

7.    We shall educate our children and ensure that they can earn to pay for their education.

8.    We shall always keep our children and the environment clean.

9.    We shall build and use pit latrines.

10. We shall drink water from tube wells. If they are not available, we shall boil water or use alum to purify it.

11. We shall not take any dowry at our sons’ weddings; neither shall we give any dowry at our daughter’s wedding. We shall keep the center free from the curse of dowry. We shall not practice child marriage.

12. We shall not commit any injustice, and we will oppose who tries to do so.

13. We shall collectively undertake larger investments for higher incomes.

14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.

15. If we come to know of any breach of discipline in any center, we shall all go there and help restore discipline.

16. We shall introduce physical exercises in all our centers. We shall take part in all social activities collectively.

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