Bangladesh Grameen Bank (BGB) Model

1
Bangladesh Grameen Bank (BGB) Model

• 5 members groups, they must be neighbors but not
  relatives
• Joint Liability Groups (JLG) or Solidarity Groups
  (SG)
• Individual lending within JLG model
• 7 groups constitute a centre at the village level
• All loans must be approved by other group members
  as well as all other centre members
• Lending is in the order of 221 (leader being
  the last)
• Every member must contribute Rs. 5/week
• Inability of a client to pay savings results in
  the concerned group or centre paying up for that
  client

2
Bangladesh Grameen Bank (BGB) Model

• 5 of all productive loans disbursed to a group
  is collected as tax and deposited in the group
  fund
• From this group fund, member can access loans for
  consumption purposes (maximum 75 of group fund),
  no interest charge
• There is also an emergency fund (optional) where
  each member contribute Rs. 1/week.
• Loan disbursement is done at the centre level.
• Weekly repayment schedule (maximum 52 weeks)
• Interest rate varies between 15-24 p.a. on
  flat basis and on a weekly basis.

3
SHG V/s BGB Model Client Perspective

• Strength for SHG Model
• - Flexible internal operations
• - can select cheaper supplier of funds
• - can evolve from existing groups
• - can evolve into Federations
• - very empowering
• - a major part of the interest is retained
  within the group fund

4
SHG V/s BGB Model Client Perspective

• Weaknesses of SHG model
• - Need management skills
• - can be hijacked internally or externally
• - cash may not be secure, if savings are held
  within the group

5
SHG V/s BGB Model Client Perspective

• Strengths of BGB model
• - No need for literacy
• - Protected from internal exploiters
• - Poorer are included
• - Bank/MFI can offer tailor-made services
• - savings are safe
• - members are forced to accumulate reserves,
  which can be used in emergencies

6
SHG V/s BGB Model Client Perspective

• Weaknesses of BGB model
• - inflexible internal operations, very rigid
• - group composition not in members control
• - must meet frequently (weekly), more time
  consuming

7
SHG V/s BGB Model Bank/MFI Perspective

• Strength of SHG model
• - lower costs, (one account for whole group) and
  (appraisal, recovery done by members)
• - groups can fit to any branch
• - No social intermediation cost as groups are
  promoted by SHPI
• - large access to clients

8
SHG V/s BGB Model Bank/MFI Perspective

• Weaknesses of SHG model
• - Need SHPI to promote the groups
• - Groups may move to other bank
• - more risks as hard to monitor the groups
• - slow process to increase the scale of business
• - may be forced to link the groups under some
  schemes

9
SHG V/s BGB Model Bank/MFI Perspective

• Strengths of BGB model
• - Tight control over the groups, so less risk
• - standardized procedures
• - members have the feelings of belonging to
  bank/MFI

10
SHG V/s BGB Model Bank/MFI Perspective

• Weaknesses of BGB model
• - Higher transaction costs
• - members need continuous guidance and presence
• - needs dedicated system

11
SHG Model Suitable Conditions

• Existing bank network in rural areas
• Communities are fragmented, with various
  different groups based on caste, or wealth level
• There are credible NGOs or other community
  development institutions to promote the groups
• Peoples opportunities and financial service
  needs are diverse

12
BGB Model Suitable Conditions

• The prospective clients are very poor and
  marginalized, and are vulnerable to exploitation
  unless they are protected by a rigid structure
• Clients are illiterate
• The area is densely populated, so that it is
  practical for MFI staff to visit the groups every
  week
• The population is fairly homogenous

13
Federated SHG Model

• Federation is apex institution of all SHGs in an
  area (1000-3000 members)
• SHG------Cluster------------Federation
• Federation can be registered under Society
  registration Act.
• Helps in promotion of new SHG and strengthening
  of existing SHGs
• Facilitate inter-group exchange (financial and
  non-financial)
• Access of outside funds to member SHGs

14
Federated SHG Model

• As the number of groups increases, it becomes
  difficult for SHPI to interact directly with each
  group
• SHPI can start withdrawing and can concentrate on
  other area
• External funds for on-lending are routed through
  federation
• Federation can help SHGs in loan recovery

15
NBFC Model

• Profit maximization through financial services to
  rural/poor clients
• Registered as profit making NBFC under the
  Companies Act 1956
• Diverse client group
• Multiple channels
• Sound financial intermediation, no social
  intermediation
• Diversified products for different clients