NCPA - National Center for Policy Analysis

Bumps in the Road for Microloan Bank

November 27, 2001

With its launch in Bangladesh in 1976, Grameen Bank pioneered the practice of giving tiny loans to poor people so they could launch businesses. The bank was innovative, fulfilled a real need - and it was successful. To the surprise of many people, borrowers grew their businesses and fulfilled their repayment promises.

Grameen's success made it a model for thousands of similar microloan banks around the world.

But it has emerged that in recent years the rate of repayments has fallen -- and supporters of the concept are concerned that Grameen's troubles will have a negative effect on other microloan concerns.

  • There are now an estimated 7,000 microlenders with 25 million clients globally.
  • Although Grameen has for many years publicly proclaimed a repayment rate of over 95 percent, it now appears that 19 percent of its loans are at least one year overdue -- and 10 percent are overdue by two years.
  • Its loan portfolio has shrunk to 1996 levels, at $190 million -- and its profits have declined about 85 percent.
  • The bank has 1,170 branches, all in Bangladesh, and high operating costs -- since its loans are often much less than $100.

The bank's founder, Muhammad Yunus, an economics professor, blames its troubles on political upheavals, a 1998 flood and management errors. Borrowers are also reported to have become more rebellious.

Source: Daniel Pearl and Michael M. Phillips, "Bank that Pioneered Loans for the Poor Hits Repayment Snag," Wall Street Journal, November 27, 2001.

 

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