“I believe that credit is by no means inherently unavailable to the poor. It is a right that everyone should enjoy!” said Professor Yunus, the founder of Grameen Bank.
Grameen Bank provides small, unsecured loans to women on low incomes and lends based on mutual trust, encouraging the idea that the poor are also trustworthy.
Grameen Bank not only provides financial assistance to these low-income women but also provides a platform for them to communicate in groups of five. The five-member teams hold weekly meetings with loan specialists. Everyone communicates with each other, assists one another during the meeting, supervises and promotes progress, participates in training, and repays a part of the loan at the same time.
As the bank that assists women at the most basic level with microfinance, its unique operation mode and humanistic care achieved not only great success in Bangladesh but also managed to help countless people to escape poverty. According to the Bangladesh National Bureau of Statistics, the absolute poverty rate in Bangladesh dropped from 82 percent in 1972 to 11.3 percent in 2018. This is the outcome of the joint efforts of the Bangladeshi government, the people of Bangladesh, and Grameen Bank.
The Grameen model has been replicated and promoted internationally: 41 countries, including China and the United States, have tried to localize it.
Gao Zhan, CEO of Grameen China Ltd, discovered Yunus’ “Grameen Model” and began to imitate its methods. In 2014, Grameen China was officially and successfully established in the presence of Yunus and villagers from Lukou Village in Jiangsu Province. Currently, Grameen China has 10 project sites providing financial services to about 3,000 women.
In the past few years, the organization has had success in helping a number of women get out of poverty or get through difficult times.
Under the management of Gao Zhan, the Grameen development concept and business model have been strictly implemented. After several years of development, “Grameen China” has blossomed in Xuzhou, Jiangsu Province, Kaifeng, Henan Province, Shenzhen, Guangdong Province, and Ankang, Shaanxi Province. And it has tried to cooperate with many institutions including Fudian Bank, Zhongyuan Bank, and China Construction Bank, to gradually work out a model suitable for development in China.
The Fudian-Grameen Poverty Alleviation Loan Program is one of the organization’s most successful programs. In May 2016, the Fudian-Grameen Poverty Alleviation Loan Program was launched, and the first loans were disbursed in Taiyi Village, Dali City. As of 2020, loans of 14.33 million yuan ($2.12 million) were disbursed in the village to 335 families. As a result, the village had managed to eradicate poverty by the end of 2019.
Zhang Zifeng, 47, joined the Fudian-Grameen project in July 2016 and borrowed 20,000 yuan to buy agricultural products and 12 pigs. After raising the animals for six months, she managed to earn herself 6,000 yuan. Zhang said: “With the help of the Fudian-Grameen poverty alleviation loan program, as long as I work hard, life will get better day by day.” She has since taken a new loan of 10,000 yuan to buy five pigs and some grain.
The changes brought by the Fudian-Grameen project are not simply economic, members have also reported improvements in their mental health. Before joining the program, they could not even write their own names, were hesitant to touch new things and meet strangers, and did not believe they could run their own small businesses.
With the continuous efforts of the center manager, the members participated in the poverty alleviation loan program with a positive mindset. After a few center meetings, they gained the courage and confidence to look the manager in the eye and communicate, unlike before when they were evasive and shy when talking about how much money they had earned with the loan. They also put forward their own ideas, such as increasing their loans, increasing the frequency of communication between groups, and strengthening the commercialization model to make the project more sustainable.
But Grameen in China also faces difficulties. It cannot accept donations or legally absorb savings. Instead, it can only lend money in partnership with commercial banks and organizations.
First of all, in China, the only recipients to accept donations are charitable social organizations and non-profit institutions established by law. Unlike these, Grameen is not qualified as a charitable non-profit institution in China, so it cannot obtain funds through donations.
Likewise, in China, one can only legally absorb public deposits with the approval of the People’s Bank of China. Grameen has failed to obtain the legal formalities to issue microloans and it is only permitted for them to provide loans but not legally absorb deposits. Altogether, these regulations makes it harder for Grameen financially. Furthermore, if microfinance institutions take in deposits for the unspecified public, they may be accused of illegal fundraising.
Therefore, its promotion cannot be done without the help and support of external financial institutions and main partner banks. The partner banks not only lend money at low-interest rates, but also pay all the expenses for the normal operation of Grameen project sites. The cooperation between banks and Grameen follows a social enterprise model, supporting the alleviation of poverty. The banks do not make profits, so the cooperation with Grameen lacks long-term sustainability. Broadening the sources of funds and establishing a long-term relationship with partners is an important issue for Grameen’s sustainable development.
Although cooperation with banks can solve the problem of loan capital, Grameen’s operation will be restricted by the partner banks. For example, while Grameen America can release the loan after five days of training, Grameen China needs to receive approval off the bank or financier before releasing the loan, which takes longer.
Grameen China is actively pursuing answers to these challenges. Currently, the organization is attempting to establish a foundation in Guangzhou, which will allow the collection of donations. In addition, Grameen China is speeding up the process of approving license applications. And last year, the organization attempted to engage with Guangzhou Municipal Local Financial Supervision and Administration Bureau, with the aim of obtaining a license for a microfinance organization.
In comparison, Grameen America operates more smoothly.
In 2008, the first Grameen America was established in Queens, New York. Today, Grameen America covers 22 cities, and has provided financial assistance to more than 150,000 women and has issued a total of $2.41 billion in loans, with a repayment rate of 99 percent.
Grameen America follows the tradition of having five-member teams, building a stable and reliable customer base where the members have a great relationship with their team leaders.
“I’m so grateful for Grameen America and the friendships I’ve made through the program. I now know I can always rely on my fellow members when I’m going through a difficult time,” says Meregilda, who migrated from the Dominican Republic 34 years ago. She joined Grameen America in 2014 and has received 13 microcredit loans since then.
One of the reasons for Grameen America’s success is that it enjoys Section 501(c)3② of the United States Internal Revenue Act. This act legally allows the organization to accept donations and to benefit from certain federal income tax deductions. Section 501(c)3 2 of the Internal Revenue Act allows “non-profit organizations that exist for religious, charitable, scientific, literary, or educational purposes to be exempt from federal income tax”. According to research, there are over 1.6 million tax-exempt organizations in the United States, suggesting that the government supports the long-term development of non-profit organizations.
In 2017, Grameen America received legal qualifications for loan issuance in New York. This license allowed the organization to provide more financial services and professional training to low-income women, making Grameen’s services more accessible.
DFS said, “We are honored to be working with Grameen America to further its cause in aiding low-income women entrepreneurs to build small businesses and achieve financial independence in the New York communities.”
Moreover, to help members accumulate capital and expand services, Grameen America formed partnerships with over 30 financial institutions, including Bank of the West, Bank of America, East West Bank, and Silicon Valley Bank. These banks all fund Grameen America and provide benefits to the organization’s customers: members can open free bank accounts with no minimum deposit.
Grameen America provides members with high-quality services in most regions of the United States. Places such as the Southwest region and Long Beach, California, received numerous donations from Grameen America’s partners Wells Fargo and East West Bank.
Besides the help provided by financial organizations, Grameen has also received strategic advice from professional companies regarding operations and marketing. In 2012, the American Express Serve2Gether Consulting Program officially launched a partnership with Grameen America. This program provides key strategic consulting services and a meeting is held at Grameen’s headquarters every 10 weeks to develop new products and marketing strategies.
In addition, Grameen America also partners with the country’s elite universities. For instance, in 2011, Mike Ferguson, a graduate student, posted his internship experience at Grameen on social media, expressing the support Duke university had provided for the Grameen program. Other schools, such as Columbia Business School and St. John University, have also established similar partnerships.
Grameen America is committed to helping women living in poverty start their own businesses for financial mobility, and start-up funding is just one part of its services. Grameen also provides aid for healthcare services. Grameen Promotoras is a medical project established in 2016 and now has three branches in the United States (The Bronx, Jackson Heights, and Charlotte).
Grameen Promotoras supports women in the community with jobs, training, and healthcare services. All services of the program are free, making it more accessible to low-income women. Grameen Promotoras has supported more than 13,000 women and hopes to expand this year.
While Grameen America has achieved impressive outcomes, it has also encountered challenges. Expanding services and influence requires a lot of lending capital, and the organization has tried multiple funding methods, including off-balance sheet debt, board building, and more. Furthermore, retaining qualified employees has also become an issue. To solve this problem, Grameen America has continued to invest in internal training programs. Courses are offered for managers and branch managers, and career paths from loan officers to business managers are designed.
Lessons learned from the US to China
China has comprehensively achieved poverty alleviation, but it still has areas where it can improve. A large number of people living in urban areas remain unable to apply for loans from a regular bank. These practical problems still prove the necessity of verifying the Grameen model in China. For Grameen China, Grameen America’s success can be used for reference.
During the pandemic, Grameen America’s management quickly adjusted its business pattern to provide financial assistance, healthcare, educational resources, and other means for the needs of its members. These positive, timely responses are characteristics that Grameen China could emulate.
Grameen America also adapted to the growing digital age. Grameen America’s Chicago branch has gone 100 percent virtual, with branch managers enrolling new members via video calls and distributing microloans through digital payments.
“The digital pattern of Grameen America is one thing Grameen China needs to do in the future,” Grameen China’s program director said in an interview.
There are several benefits of digital models. First, technology is integrated with financial inclusion to improve efficiency, and fintech such as information technology and the internet are used to reduce the construction and maintenance costs of infrastructure. Second, the application of technical skills requires women to be trained. Grameen’s services to its members should not only be limited to teaching them the basics of investing but also help women better integrate into society by keeping them abreast of the changing market and teaching them how to use new technologies in an increasingly technologically advanced society. Lastly, digital models are easier for maintaining transaction records, exchanging information online, and setting up archives for female members to ensure the safety of information.
Although Grameen has different limits and levels of progress in China and the United States, both countries are making continuous efforts to localize the “imported” model from Bangladesh and empower more women in their countries. Grameen’s philosophy is that all Grameen projects are committed to providing the most appropriate and effective help to the groups that have been left out of traditional finance. With this philosophy and continuous learning from each other, Grameen will go further toward the vision of empowering more women.