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Unit 3: Indian Banking System
commercial banks so that the people know about the several activities of commercial Notes
banks and can protect themselves from any potential loss in the future.
Self Assessment
Fill in the blanks:
15. Direct action is the last option through which central bank takes a direct action against the
bank which does not act in ……………….. with the policy of Reserve Bank of India.
16. This tool is used by government or Reserve Bank of India to enforce certain …………………..
on the goods that are sold on …………...
Case Study Grameen Bank: The Grameen General Credit System
“Grameen Bank, one of the oldest micro-finance institutions in Bangladesh, is a good example of how
the industry is changing and growing. In 2000, Grameen Bank began to consider how it could
introduce greater client choice while ensuring credit discipline and controlling costs. This led to the
emergence of Grameen II in 2002, offering deposit services to the general public, greatly expanding
the range of deposit services offered to members, including the very popular ‘Grameen Pension
Savings’.”
– Praful C. Patel, South Asia Regional Vice-President, The World Bank, in 2006
“Grameen General System (GGS) is not only a powerful and efficient system, capable of providing
custom-made financial services to support the economic and social upliftment of each individual
borrower family, but also it frees micro-credit from the usual stresses and strains.”
– Prof. Muhammad Yunus, Founder and Managing Director of Grameen Bank, in 2002
The case explains Bangladesh based Grameen Bank’s two microfinance models - Grameen
Classic System and Grameen General System (GGS). For over two decades, Grameen Bank
extended loans to poor people in Bangladesh under its Grameen Classic credit system. In
1998, the floods ravaged the country which led to many poor people default on their loan
payments. This led to the need for a new, more flexible credit system. The result was
Grameen General System which allowed the borrowers to remain as the member of the
bank even when they were unable to pay their loan instalments. The case gives an overview
of the GGS and the success Grameen Bank achieved after implementing the new credit
system.
Saira Begum (Saira) became a member of Bangladesh-based Grameen Bank in 1994. With
the loans given by Grameen Bank, she invested in dairy cattle, and with this investment,
she earned regular income. When her outstanding loan was around Tk 5,000, Bangladesh
was ravaged by floods. Saira Begum lost heavily and was deep in debts.
She received a top-up loan from the bank, which increased the burden of weekly instalments.
Unable to repay the money she owed the bank, she stopped attending the mandatory
weekly meetings of the bank, and she was not able to obtain any more loans. Later, the
branch manager of Grameen Bank approached her and explained to her a new loan offering
of the bank called flexi-loan, which required her to pay only Tk 25 a week as instalment -
a smaller amount than her earlier instalment. Saira began paying the instalments regularly
and repaid her entire loan. This made her eligible for a fresh loan, and using this loan she
Contd...
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