International Journal of Management (IJM), ISSN (Print), ISSN (Online), Volume 5, Issue 2, February (2014), pp.

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1 INTERNATIONAL JOURNAL OF MANAGEMENT (IJM) International Journal of Management (IJM), ISSN (Print), ISSN (Online), ISSN (Print) ISSN (Online) Volume 5, Issue 2, February (2014), pp IAEME: Journal Impact Factor (2014): (Calculated by GISI) IJM I A E M E IMPACT OF GLOBALIZATION IN GRAMEEN BANKS Soma Nayaka S 1, Indira T 2 1 Research Scholar, Department of Economics, University of Mysore, Mysore 2 Administrative Officer, Devanga First Grade College, Sampagirama Nagara, Bengaluru ABSTRACT The Grameen Bank is a Nobel Peace Prize-winning microfinance organization and community development bank started in Bangladesh with dedication to rural area. Micro-credit loans are based on the concept that the rural poor people have skills that are under-utilized, and with incentive, they can earn more money. A group-based credit approach is applied to use peerpressure within a group to ensure the borrowers follow through and conduct their financial affairs with discipline, ensuring repayment and allowing the borrowers to develop good credit standing. The bank also accepts deposits, provides other services, and runs several development-oriented businesses including fabric, telephone and energy companies. It plays a major role in globalization of rural banks for betterment of nation development through micro-cerdit system. Keywords: Globalization; Grameen Bank, Rural, Economics, Micro-credit. GLOBALISATION In the 19th century there was a massive growth in the banking industry. Banks played a key role in moving from gold and silver based coinage to paper money, redeemable against the bank's holdings. Within the new system of ownership and investment, the state's role as an economic factor and grew substantially. The Late-2000s financial crisis caused significant stress on banks around the world. The failure of a large number of major banks resulted in government bail-outs. The collapse and fire sale of Bear Stearns to JP Morgan Chase in March 2008 and the collapse of Lehman Brothers in September that same year led to a credit crunch and global banking crises. In response governments around the world bailed-out, nationalised or arranged fire sales for a large number of major banks. Starting with the Irish government on 29 September 2008, governments around the world provided wholesale guarantees to underwriting banks to avoid panic of systemic failure to the whole banking system. These events spawned the term 'too big to fail' and resulted in a lot of discussion about the moral hazard of these actions. 126

2 GRAMEEN BANK HISTORY The Grameen Bank is a Nobel Peace Prize-winning microfinance organization and community development bank founded in Bangladesh. It makes small loans known as microcredit or "grameen credit" to the impoverished without requiring collateral. The name Grameen is derived from the word gram which means "rural" or "village" in the Bengali language. Micro-credit loans are based on the concept that the rural poor people have skills that are underutilized, and with incentive, they can earn more money. A group-based credit approach is applied to use peer-pressure within a group to ensure the borrowers follow through and conduct their financial affairs with discipline, ensuring repayment and allowing the borrowers to develop good credit standing. The bank also accepts deposits, provides other services, and runs several developmentoriented businesses including fabric, telephone and energy companies. The bank's credit policy to support under-served populations has led to the overwhelming majority (98%) of its borrowers being women. Grameen Bank originated in 1976, in the work of Professor Muhammad Yunus, Professor at University of Chittagong, who launched a research project to study how to design a credit delivery system to provide banking services to the rural poor. Based on his positive results, in October 1983 the Grameen Bank was authorized by national legislation as an independent bank. In 2006, the bank and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize. In 1998 the Bank's "Low-cost Housing Program" won a World Habitat Award. In 2011, the Bangladesh Government forced Muhammad Yunus to resign from Grameen Bank, saying that at age 72, he was years beyond the legal limit for the position. Yunus developed the principles of the Grameen Bank from his research and experience. He began to expand microcredit as a research project together with the Rural Economics Project at Bangladeshs 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 near the University of Chittagong became the first areas eligible for service from Grameen Bank. Proving successful, the Bank project, with support from the central Bangladesh Bank, was extended in 1979 to the Tangail District (to the north of the capital, Dhaka). The bank's success continued and its services were extended to other districts of Bangladesh. By a Bangladeshi government ordinance on October 2, 1983, the project was authorized and established as an independent bank. Bankers Ron Grzywinski and Mary Houghton of Shore Bank, 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 suffered from the economic disruption following the 1998 flood in Bangladesh, but it recovered in the 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 continues to expand across the nation and provide 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, including a World Bank initiative to finance Grameen-type schemes. The bank has gained 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 low rates. By 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. 127

3 Characteristics Scoring units Maximum- Minimum Age Education Family size Farm size Number of years Years of schooling Number of members Size in hectares annual income In Taka ( 000 Tk) Credit availability Organizational participation Communication with GB employee and staff Non-localite behavior Attitude towards community Attitude towards micro-credit program of GB Change in livelihood status Source: Field Survey In Taka ( 000 Tk) Table 1. Grameen Bank Program Characteristics Obtained score Categories of characteristics Young (up to 30) Middle aged (31-45) Old aged (above 45) Illiterate Can sign only (0.5) Primary (1-5) Secondary (6-10) Higher secondary (> 10) Small family (below 4) Medium family (5-7) Large (above 7) Landless (< 0.02 ha) Marginal (> ha) Small(> ha) Medium( ha) Large (>3.0ha) Low (up to 30) Medium (31-100) High (> 100) Low (up to 7) Medium (8-10) High (11 and above) Score Low (up to 5) Medium (6-10) High (above 10) Score Low (up to 4) Medium (5-8) High (above 8) Score Low (up to 14) Medium (15-24) High (25 and above ) Score Low (up to 14) Medium (15-22) High (23 and above ) Score Low (up to 14) Medium (15-24) High (25 and above ) In 000Tk Low change (up to 10) Medium change (11-17) High change (18 and above ) Women Number and percent Mean Standard deviation The characteristics included age, education, family size, farm size, annual income, credit availability, organizational participation, communication with Grameen Bank employee and staff, non-localite behavior, attitude towards community, attitude towards micro-credit program of Grameen Bank and change in livelihood status were described, after involving themselves with micro-credit program of Grameen Bank. 128

4 Table 2. Farming community status in the terms of before and after involvement with Grameen bank micro-credit Average Calculated t-value Variables with 99 df Before After Change of farm and house hold materials (score) ** Change of housing, health and sanitation (score) ** Change of annual family income (score) ** Source: Field Survey The findings indicated that the average beneficiaries increased from scores to scores after involvement with micro-credit program. The t value with 99 df showed in between before and after involvement clearly indicated improvement of beneficiaries. Table 3. Farming community status and their selected characteristics Pearson Tabulated value of (r) Dependent Independent Correlation (r) Variable Variables values with level 0.01 level df (n-2) Age * Change in livelihood Status Educational qualification ** Family size NS farm size NS annual income ** Credit availability * Organizational participation NS Communication with GB employee and * staff Non-localite behavior * Attitude towards micro-credit program * of GB ±0.196 ±0.254 Correlation is significant; ** = Correlation is significant at the 0.01 level (2-tailed); and NS = Not significant Source: field Survey Correlation analysis indicated education, annual income, credit availability, communication with GB employee and staff and attitude towards micro-credit program. Also, it was found that family size, farm size, organizational participation and attitude towards community do not show any GB relationship with change in farmer status. 129

5 CHALLENGES As per the rules, the payment of installments and interest starts just within a week of borrowing. But many borrowers cannot even invest the borrowed money within a week, let alone getting interest from their investment. So, they face problems in paying the initial installment. Due to natural disasters or other reasons, sometimes the agricultural investment or investment on livestock go in vain. In such cases, the Bank do not pressurize much to repay the loan, rather it reschedules the installments to give the borrowers chances to pay it within a longer period. Nevertheless, it is an unbearable burden for the poor people who loose their entire investment. The Bank prefers to lend money to women. So, many people send their wife, daughter, mother or other female relatives to borrow money for them. However the male guardian of the family is incharge of the loan amount. But the woman borrower remains bound with the entire obligation to pay back the loan. In some cases, when her male supporter spends the money unwisely, it creates a financial burden on the woman rather than empowering her. Many of the borrowers opined that 16 per cent interest rate on loan is unjustified. Table 4. Problems faced by Beneficiaries Statement of the Problem Extent of Problem (%) High Medium Low Not at *PCI all Credit disbursement delaying due to linger process Lack of sufficient amount of credit Limited for Rural income-generating activities (IGAs) (Rural IGAs include postharvest activities, cow fattening and milking, goat farming, backyard poultry rearing, pisciculture, agriculture, horticulture, food processing, cane and bamboo works, silk reeling, handloom, garment making, fishnet making, coir production, and handicrafts etc ). Delaying of receiving credit in due to less responsibility of concern staffs High rate of interest Belief on dogmatism and fatalism *PCI= Problem Confrontation Index Source: field survey The data in indicated that the problems faced by the beneficiaries of Grameen Bank in respect of lack of sufficient amount of credit was the most serious problems with problem index of 242. Credit disbursement was delayed due to linger process of disbursement was the second problem with problem index 234. The problem was belief on dogmatism and fatalism with problem index 199. The problems were high rate of interest, delaying of receiving credit in due to less responsibility of concern staffs and limited for IGAs. postharvest activities, cow fattening and milking, goat farming, backyard poultry rearing, pisciculture, agriculture, horticulture, food processing, cane and bamboo works, silk reeling, handloom, garment making, fishnet making, coir production, and handicrafts etc with problem index 198, 196 and 159 respectively. 130

6 IMPACT OF THE GRAMEEN BANK Social Wellbeing: The Bank started its journey by giving loans to 42 farmers. By 1980 the umber of member- borrowers increased to around 15,000; by mid-1984 its membership grew to nearly 100,000. By the end of 1998, Grameen had a membership of 2.34 million people, where 2.24 million comprised of farmers. At present (2008) the Bank services extends to 7.56 million poor people, 97% of whom are farmer. The Grameen Bank provides this service through its 24,638 staff with 2,529 branches in 82,994 villages. It is estimated that the average household income of Grameen Bank members is about 50 percent higher as compared to the target group under the control of non-grameen Bank villages. From Grameen Bank service, the landless have benefited most, followed by marginal landowners. This has resulted in a sharp reduction in the number of Grameen Bank members living below the poverty line, that is, 20 percent in comparison to 56 percent non- Grameen Bank members. Thus, Grameen Bank has not only provided help to the poorest to come out of abject poverty but also provided employment to thousands of educated young people. Ease of Service Delivery: Delivery of service at the clients door-step is the first principle of Grameen Bank. Every week the Grameen Bank's staff or officers commonly known as bicycle banker meet the borrowers at their door-step in the villages. Repayment of Grameen loans is also made very easy by splitting the loan amount in small weekly installments. The Grameen officers visit their clients every week to collect repayment and to provide assistance with problems related to usage of micro credit. Transparency and Accountability: Most transactions take place in the presence of the members of the groups. Further all transactions are well documented and open for scrutiny to the stakeholders. However all other decisions like the sanction of loans, rate of interest, repayment installments follow specific rules or guidelines. Thus, the overall banking system ensures high level of operational accountability. Sustainability: Since its inception, it has made profits every year, except for the years 1983, 1991 and In 1995, Grameen Bank decided not to receive any more donor funds. Since then Grameen Bank has become self-reliant. The Grameen Bank today has over 7.5 million borrowers. Out of which 65 percent has managed to improve their socio-economic conditions and are able to push them self out of extreme poverty. Grameen Bank takes deposits from its borrowers and non-borrowers also who have sufficient funds for its operations. Replicability of the Grameen Bank model is well recognized. In 1976 it started at Jobra, today (2008) the bank functions in 82,994 villages which cover around 95 per cent of Rural Bangladesh. Internationally, the Grameen model is replicated in some of the African countries, in India and even in Australia. CONCLUSION The rural activities like, goat farming, backyard poultry rearing, pisciculture, agriculture, coir production, and handicrafts which have enough potentiality to increase their socio-economic conditions. This leads to improvement of their livelihood status. Micro credit availability especially rural areas had positive correlation with change in livelihood status in the study. Credit is the most important assets to mobilize in Grameen Bank which ultimately increase livelihood status. Communication with Grameen Bank employee and staffs gives important way to utilize the credit in rural areas which increase their income as well as improve livelihood status. Copy Right: Each manuscript must be accompanied by a statement that it has been neither published nor submitted for publication, in whole or in part, either in a serial, professional journal or as a part in a book which is formally published and made available to the public 131

7 REFERENCES 1. Anonymous, For further information on the agenda of the Microcredit Summit Campaign, see the web address: org/. 2. Anonymous, For further information on the policies and programs of CGAP, see the CGAP Microfinance Gateway at: Microfinancegateway.org. 3. Anonymous task=view&id=19&itemid=114 on Chambers,R. and G. Conway Sustainable Rural Livelihoods: Practical Concepts for the 21 st Century. IDS Discussion Paper 296, Brighton: IDS. 5. Easton, Tom The Hidden Wealth of the Poor. The Economist 377 (8451) (November 5-11): Hulme, D. and Mosley, P Finance against poverty, Vol. 1. London: Routledge. 7. Microcredit Summit (MCS) Declaration and Plan of Action. Washington, DC: Microcredit Summit. Available: 8. Milgram, Lynne. B Operationalizing Microfinance: Women and Craftwork in Ifugao, Upland Philippines. Human Organization 60 (3): Milgram and Lynne. B Banking on Bananas, Crediting Crafts: Financing Women's Work in the Philippine Cordillera. Atlantis 26 (2): Rahman and Aminur., Microcredit and Poverty Reduction: Trade-Off Between Building Institutions and Reaching the Poor. IN Livelihood and Microfinance: Anthropological and Sociological Perspectives on Savings and Debt, Hotze Lont and Otto Hospes (eds.). Delft: Eburon Academic Publishers, pp Rokonuzzaman, M. and Kashem, M.A Changes of housing, health and sanitation after implementation of Meghna-Dhonagoda Irrigation Project In Matlab Upazila Under Chandper District, Bangladesh Journal of Agricultural sciences, 32(1): Rokonuzzaman, M Impact of Meghna-Dhonagoda Irrigation Project in Improving the Socio-economic Conditions of Farmers. An unpublished MS thesis submitted to the Department of Agricultural Extension Education, Bangladesh agricultural university, Mymensingh, Bangladesh. 13. Yunus, Mohammad Banking on the Poor. Dhaka: Grameen Bank