By By Rutherford, S., Maniruzzaman, M., Sinha, S. K. & Acnabin & Co. (Jan and April 2004)
http://www.safesave.org/GRAMEEN%2011%20Status%20report%20Final%2019%20Apr%202004.pdf
Abstract
The authors researched the impact of the implementation of Grameen II, taking particular interest in understanding what the new policies mean for its members, clients, and local staff, as well as for microfinance practice in Bangladesh and worldwide. This is a preliminary report, since the research project will continue until the end of 2005.
Summary
Grameen’s new rules aim to provide more flexible schemes that meet the individual needs of the clients. Among the innovations to the model are: individual savings accounts (vs. group savings accounts in the original model); loans that can be disbursed to more than one member of a group at a time; allowing non-members to save (but not borrow); requiring a compulsory Pension Scheme (GPS) for those taking larger loans (above 7,000 taka); explicit removal of joint-liability or group-guarantee practices; and the introduction of the flexi-loan concept (or long-term loan) for borrowers who fall into difficulty.
Grameen II emphasizes the benefits from a greater use of Grameen’s formal status and its right to mobilize deposits. Also, it includes stricter procedures for monthly recognition of loans at risk, for provisioning them, and for writing them off.
Changes to the model have not yet been fully implemented, however. Loan officers and staff on the ground have been reluctant to implement the more flexible philosophy embedded in Grameen II. They believe that being more lax on the Grameen discipline will get the system in trouble. The field staff has resisted allowing clients to withdraw their savings at a time of their choice. They have not introduced more flexibility into their lending activities. They mostly continue to provide fixed term loans with fixed repayment schedules. Loan officers continue to pressure clients to meet their fixed term commitments, before considering to give a flexi-loan.
Management changes have had a better impact. Based on the study of the balance sheets of three branches, the authors found that at the branch level, savings deposits have grown remarkably, and that growth is strongest in member-owned GPS accounts and in the new public deposits. One of the three branches tripled its savings portfolio in a three-year period. The loan portfolio has not changed significantly over the 3-year period of analysis. Profitability results are mixed, but the quality of the portfolio seems to be improving significantly. The ratio of doubtful loans to total outstanding loans in 2001 was 12% and 21% in two of the branches and by June 2003, it was 8% and 6%, respectively. However, the authors warn that it is too early to attribute these improvements to Grameen II.
The authors present the views on Grameen of the different stakeholders:
- Headquarters staff The 1998 floods exposed weaknesses in the classic Grameen model, especially its inflexibility in responding to the repayment difficulties of its members. This was the main motivation to introduce Grameen II. However, in the field, inflexibility of loans continues and Dr. Yunus’ explanation is that Grameen’s classic product needed limited scope, but has now evolved to one that allows the staff to be creative and design their own products
- Field staff The field staff’s self-image as guardians makes them cautious. They have been reluctant to take the risks from the more the flexible terms and conditions allowed, a view also shared by some senior staff at headquarters. Besides, they see some problems with the withdrawal of savings, which could lead to ‘bad habits’ such as customers constantly withdrawing to make their weekly payments.
- Villagers Villagers are aware of rule changes, but loan-flexibility, variable terms and conditions, and savings withdrawals are not well-understood. In general, issues to do with savings/i> are highly regarded. The shift to Grameen II did not make a big difference in the way loans are dealt with, however, the GPS caused a big stir and was immediately welcomed by many. Some members joined only to be able to open a GPS; others hold several GPSs or GPSs bigger than required.
- Competitors The competition doesn’t seem to be very aware of the changes in Grameen loans. Only one of the interviewed staff from other NGO’s had heard about Grameen’s GPS.
The Pension System’s success Grameen is currently leading the massification of contractural savings products like GPS, and it has been having an impressive response. Although other NGO’s had tried it before, it is Grameen who is making it available to the masses. Instead of setting aside a small amount each week to pay down loans, the poor seem to be beginning to prefer to build up savings with a rock-solid deposit-taking institution. The GPS done at the Grameen scale could change the demand side of microfinance dramatically. A caveat with the GPS is in regard to the high rate of interest it pays (12% per year for the ten-year term) relative to other providers. Dr Yunus maintains that as long as cost-covering margin is maintained between loans and savings interest rates, the absolute values of these rates are not a matter of concern. However, if the GPS turns out to be extremely popular it might displace some borrowing, potentially leading to a mismatch between a growing savings long-term portfolio and a static or even shrinking short-term loan portfolio.