Microfinance Institutions and Methodologies

Grameen Bank Approach – Bangladesh

“Grameen” (means village, rural, or countryside) Bank began its operations from a small research project in 1976 by Professor Muhammad Yunus. The project was aimed at testing the hypothesis that if financial resources were made available to the poor, they could generate productive self-employment without external assistance.

Features of Grameen Bank Approach: exclusive focus on the poorest of the poor, borrowers are organized into small homogenous groups, special loan conditionally which are particularly suitable for the poor, simultaneous undertaking of a social development agenda addressing basic needs of the clientele, design and development of organization and management systems capable of delivering program resources to targeted clientele, expansion of loan portfolio to meet diverse development needs of the poor

In June 1998, Grameen Bank disbursed total loans amounting to US$2.44 billion.

Bank Rakyat Indonesia – Unit Desa System

Bank Rakyat Indonesia is a government-owned commercial bank specializing on credit delivery to rural cooperatives, farmers, fishermen, low-income households and microenterprises. As a commercial bank, it provides full retail and branch banking business as well as corporate and international banking services.

BRI is a successful micro credit institution with two million borrowers and eight million savers who fullyfinance its loans. Between 1984 and 1989, the Unit Desa System was transformed from a highly bureaucratized and subsidized channel for credit into a self-sustaining and profitable financial intermediary.

Features of the Unit Desa System:

· Simple and cost efficient organizational structure, decentralization of activities to the smallest village units, cost recovery, strategic accessible locations

As of 1990, the Unit Desa System made 115,000 loans each month with an average size of $437. It shows that providing financial services to rural areas can be profitable.

Bank for Agriculture and Agricultural Cooperatives (BAAC) – Thailand

The Bank for Agriculture and Agricultural Cooperatives (BAAC) is the leading financial institution in Thailand mandated to provide credit to farmers and agricultural cooperatives. To fulfill its mandate, BAAC strives to cover the whole rural sector, providing financial services even to the remotest villages in the country, using the joint liability groups (JLGs), a lending machinery unique to Thailand.

The adoption of JLGs as the main lending strategy of BAAC dates as far back its founding in 1996. Joint liability was adopted as a principal basis of loan security in the absence of loan title documents which, in the 60’s only a few Thai farmers could offer as collateral. BAAC adopted mobile banking as an additional strategy in very remote areas in order to provide doorstep services to its clients. The mobile banking is particularly effective in areas where farm activities are seasonal. As of 1996, BAAC has 3.4 million members with total loans outstanding amounting to 162.6 million baht (92% of BAAC’s total loans).

PRODEM – Banco Solidario (BancoSol) – Bolivia

The foundation for the Promotion and Development of Microenterprises (PRODEM) was established as a private foundation in La Paz, Bolivia in 1986, and began lending operations and providing training services in early 1987. It was created by a number of Bolivian businesses, with the support of Accion International, an international NGO, and the Calmeadow Foundation of Canada. Funding from PRODEM’s lending came primarily from USAID, Bolivia’s Emergency Social Fund, and local private firms and individuals.

BancoSol is the first private commercial bank that lends to specifically low-income entrepreneurs. Although it succeeded in covering its operating costs with interest income lending fees it could not grow at a sufficient rate to meet the huge market demand for credit. In 1989, its directors began creating a market-driven alternative to the non-government organization (NGO) model.

By 1990, PRODEM had about 12,000 active clients, a loan portfolio of US $1.6 million, an average loan size of US $160 per loan, and an excellent loan recovery (i.e. non-performing loan was 0.03% in 1989). Today, BancoSol’s success derives largely from its ability to keep the best parts of an NGO while gradually shifting to the more formal, private sector.