Page 54 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 3: Indian Banking System

centres. A branch of Grameen Bank, with branch manager and employees covered 15 to 20 Notes
villages, with the covered area not exceeding 50 square kilometres.
Need for a New System

The floods that ravaged Bangladesh in 1998 devastated most of the country, and several
places were submerged under water for over two months. The floods affected more than
1.2 million Grameen members and most of the borrowers were unable to repay their
loans. The bank relaxed the terms of repayment and tried to help the borrowers rebuild
their lives by providing additional loans. It was not long before the borrowers faced the
burden of paying higher instalments, which was beyond their means. The repayment
levels decreased and several borrowers stopped attending the weekly meetings. In order
to cover the defaults, Grameen Bank obtained Tk 2 billion loan from the commercial
banks and raised Tk 1 billion through bonds.
The Grameen II Credit System
One of the major changes that were brought through GGS was that the group liability
system was discontinued and the individual liability system was adopted. The loan of
each member was secured against her word. Against the previous practice of providing
the loans to only two of the needy people in the group, the loans could be provided to all
the members of the group. The first basic loan provided to the new members was Tk 5,000;
fellow members could recommend for a higher or lower loan amount. The final decision
on the amount to be disbursed was made by the Kendra Manager.
Basic and Flexi-Loans

GGS consisted of one prime loan product called the basic loan. It provided flexibility to
design the loan according to the requirements of the borrower. The term of the loan could
range from 3 months to 3 years. When the borrowers had developed their skills, commitment
and discipline for conducting small businesses and expanding existing businesses, larger
loans were provided. If the members were regular in repaying their basic loan, saving,
and attending the weekly meetings regularly, they could opt for business expansion or
special production loans. The borrowers were also allowed to prepay the instalments and
loans.
Savings Account

Since its inception, Grameen Bank had maintained a group fund system. However, under
GGS, the group fund and the group joint account were done away with and the borrowers
were required to open two accounts, a personal savings account and special savings account.
When the loan was taken, 2.5% of the amount was deposited into the personal savings
account. The borrowers were also required to deposit a minimum amount every week
depending on the value of the loan taken. For loans upto Tk 15,000 the weekly savings was
Tk 5 and for loans of Tk 100,000, the weekly saving was Tk 50.

The borrowers could also deposit more money if they wished to. The minimum deposit
amount could also be determined for a centre in consultation with the Kendra Manager.
Borrowers were free to withdraw money from the personal savings account at any point
of time, provided they fulfilled the obligations related to the loan repayment schedule.
Other Products

Insurance: Another new concept introduced in GGS was loan insurance. According to this
scheme, on the last day of the financial year, borrowers were required to deposit a small
amount in loan insurance savings account.
Contd...

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