By Wunwun Jiang, Rui Lu, and Shiting Dai
“Poverty does not belong in civilized human society. Its proper place is in a museum. That’s where it will be,” said Professor Muhammad Yunus, a Bangladeshi economist and founder of Grameen Bank.
Grameen Bank, established in 1983, provides unsecured microloans to the poor, especially women.
In addition to providing microloans, Grameen Bank requires each member to join a five-member group. They will receive training about on loans, savings, and other financial knowledge. After that, the member can receive a microloan and have a weekly meeting to make repayments. Through the weekly center meeting, members can build a support network with each other.
The model of providing microcredit services to people excluded from traditional financial services has made Grameen Bank a success in Bangladesh. As of 2022, Grameen served nearly 10.24 million members in Bangladesh, with a repayment rate of about 97%. The absolute poverty rate in Bangladesh dropped from 82% in 1972 to 11.3% in 2018, according to the Bangladesh National Bureau of Statistics, due to the combined efforts of the Bangladeshi government, the Bangladeshi people, and the Grameen Bank.
Based on Grameen Bank’s great contribution to lifting people from the bottom out of poverty, the Grameen model has been promoted in 41 countries.
Grameen America Changes Lives
Among many countries, the United States is one of the countries with the best implementation of the Grameen model.
In 2018, Professor Yunus said in an interview: “Apart from Bangladesh, I am most satisfied with the Grameen America, which is running very efficiently.”
Grameen America was established in New York in 2008 and currently has 22 branches in the United States. As of 2022, Grameen America had granted more than $2.7 billion in loans to 158,600 women entrepreneurs.
Grameen America offers loans of up to $2,000 to new members as well as financial training to support their small businesses. The interest rate on loans issued is between 15% and 18%. As part of the Grameen America program, members open free savings accounts with commercial banks and make weekly deposits. Grameen America also strictly enforces Grameen’s five-member group model.
Many members get to benefit from the services offered by Grameen America.
Nine years ago, Rosaura took a chance and opened a beauty salon that she has owned and run it ever since. In 2019, Rosaura decided to join Grameen America on the advice of a friend to support her growing expenses, including products, rent, and employees. Since receiving her first loan of $2,000 three years ago, Grameen America has invested over $12,000 in Rosaura’s salon.
“My life definitely changed for the better after joining Grameen America. Until I became a member, I did not have a group of women like I do now who understood what it is like to own a business. My center supports each other and exchanges ideas even though we have different businesses.”
In addition, Grameen America provides health care services to Grameen members.
Grameen Promotoras is a health program that attempts to enhance the health and well-being of low-income people, particularly women of color.
Community health workers, known as Promotoras, specialize in leading health-related workshops at weekly Grameen America Center Meetings. Promotoras work directly with participating members and increase members’ knowledge and awareness of health-related topics through some workshops. They assist in identifying and utilizing existing community health resources, including primary care, dental screenings, etc. Grameen Promototas also provide access to biometric tests such as blood pressure, and sugar level testing.
Since 2016, the Grameen Promotoras program has served 12,600 women and will scale in the future. In April 2022, Grameen Promotoras launched a new, $20 million campaign to serve fifteen Grameen America branches over the next five years. This expansion will impact over 57,000 women with access to health education and resources in their communities.
With the help of both financial and non-financial services, the lives of many members have improved considerably.
The non-profit organization MDRC and Grameen America collaborated on a study to evaluate the impact of Grameen America’s microloan services on members. The evaluation used a randomized controlled trial design to explore the mechanisms of program operations and whether the model leads to improved outcomes for borrowers. The 36-month study examined 1,492 women in 300 loan groups who applied to the Grameen America microloan program in Union City, NJ. The results showed that women in Grameen America reduced material hardship by 7 percentage points, were more than 17 percentage points more likely to receive a credit score, and increased the amount of non-retirement savings by an average of $839. The average monthly net income of women in Grameen America was $173 higher than women in the control group, and they were 8 percentage points more likely to be very satisfied with life as compared with the control group.
The factors that have contributed to Grameen America’s success
There are many reasons for the success of Grameen America, including the appropriate tax bill, the support of authorities and celebrities, the improvement of technology, and adequate financial support.
In Section 501(c)3 2 of the Internal Revenue Act, the U.S. government allows non-profit organizations like Grameen Bank to be eligible to receive tax-deductible contributions in accordance with Code section 170 and accept donations. This legal act allows Grameen Bank to have long-term development in the United States.
In addition to benefiting from legal provisions, Grameen America has received support and assistance from politicians.
Later in 2005, before Grameen America was founded, Grameen Foundation USA (GFUSA) had been working with the Clinton Foundation’s Clinton Global Initiative program which promised to provide millions of dollars of microloans for the poor.
Yunus first met Hillary Clinton in April 2009 in Washington. Six months later after the meeting, the U.S. Agency for International Development (USAID), the foreign aid arm of the U.S. State Department, announced that it was partnering with the Grameen Foundation in a pledge of $162 million to promote its microfinance concept abroad. USAID also began making loans and grants to the Grameen Foundation, totaling $2.2 million during Clinton’s tenure.
At the 2014 Clinton Global Initiative Annual Meeting, Hillary Clinton announced Grameen America’s commitment to invest $50 Million in more than 7000 Women-Owned Businesses in Harlem through 2020.
What’s more, in an effort to raise its profile and grow its membership, Grameen America has partnered with celebrities.
In 2022, Grameen America announced their cooperation with Jennifer Lopez, one of the highest-paid Latina actresses in the history of Hollywood, to accelerate financial empowerment for Latina female entrepreneurs who were usually ignored by the financial mainstream.
Lopez joins as Grameen America’s National Ambassador. Grameen America will cooperate with her own Limitless Labs, a global social innovation agency, in order to improve the living conditions and provide high-quality education, and loans to Latina entrepreneurs in disadvantaged communities efficiently.
Lopez and Grameen America detailed their collective goal: to “empower Latina entrepreneurs across 50 U.S. cities with $14 billion in business capital and 6 million hours of financial education and training by 2030.”
Collaboration between Grameen America and financial institutions is also an important factor for Grameen America to gain such success.
Grameen America gathers capital and allows members to open free bank accounts without a minimum deposit by cooperating with over 30 financial institutions such as East West Bank, Silicon Valley Bank, Bank of West, Bank of America, and Wells Fargo.
In 2016, Wells Fargo, a leading financial services company with approximately $1.9 trillion in assets, announced to provide $7 million to Grameen America as revolving loans, of which $1 million for quite equivalent investment and $6 million for senior debt facility. These loans are estimated to create an additional $42 million loans within a three-year period for more than 10,000 low-income businesswomen.
In 2019, East West Bank, the largest independent bank headquartered in Southern California, donated $ 2 million to the third Grameen America branch in Los Angeles to help more women access loans and capital.
At the same time, personal devotion offers cardinal and powerful support to Grameen America. In 2020, Grameen America announced that it accepted the devotion of philanthropist Mackenzie Scott, valued at 25 million dollars. The investment has accelerated the organization’s strategy over the next decade, including recovering America from the epidemic.
Along with various funding sources, Grameen America has improved its technology to make the payment process more flexible and convenient for members.
In 2014, Grameen Bank have started to cooperate with PayNearMe, a modern billing and payment platform. PayNearMe allows borrowers to repay their loans using cash at their local 7-Eleven store.
There are around 7,800 participating 7-Eleven stores in the US and most of them operate 24 hours a day. In this case, members can pay easily. They just need to hand the cashier at 7-Eleven their PayNearMe payment code and cash.
This platform allows members to take payments through its cash network so the center managers do not need to risk their safety and spend time carrying around the money, enhancing financial controls and efficiencies.
“We no longer stress about the amount of cash we are carrying to the bank, and the borrowers feel safer not having to congregate in one place every week with large chunks of cash,” said Ursula Lalone, Grameen’s Charlotte, North Carolina center manager. “With PayNearMe, we don’t have to count and collect cash. It’s a huge advantage to focus our meetings on helping the women invest, save and grow their businesses.”
In 2017, Grameen America completed a three-year technology transformation project to migrate all systems to tablet-accessible cloud applications, go cashless and paperless, and digitize disbursements and repayments.
In 2022, the organization is undertaking two new large-scale innovation projects, including a multi-functional mobile application and a new data and analytics platform.
The continual improvement of these techniques can better promote the management efficiency of Grameen America.
Grameen model in a different context
However, not all countries implement the Grameen model as effectively as Grameen America does. For instance, Grameen China is hard to go through.
Before the establishment of Grameen China, Grameen tried to manage directly in China, but they all lost. At the end of 2010, the Grameen trust fund, One Foundation, and Alibaba collectively established Songpan Grameen Company. The first batch of loans was released after one year of the company’s establishment. In that period, the expense of the company was one million RMB. Under the challenging circumstance, Songpan loan company closed after One foundation dropped out.
In 2011, Shangdu Grammen Loan Company was established in Inner Mongolia but it was lost because of operational issues. The company was handed over to a local loan company called Chonghe Bridge in 2016.
After the establishment of Grameen China, the model is still hard to promote. It is faced with the trouble that it could not get a financial license. Yunus once said saving is one of the important factors that makes a contribution to microfinance institutions and the Grameen Bank. Grameen China cannot take in the savings of the public without a license because it would involve illegal fundraising.
Therefore, Grameen China turned to cooperating with commercial banks, trying to explore the relationship of cooperation and expand the development. Unfortunately, there are several conflicts about philosophy and system between Grameen China and commercial banks.
For example, China Construction Bank, which cooperates with Grameen China Shanxi requires borrowers to provide a long-period business license and qualified credit investigation records. Additionally, the loan will be given to the borrower after both husband and wife sign. The reality is that some people cannot provide long-period licenses and therefore they are unable to apply for loans.
Grameen’s philosophy has historically been to help the bottom of society, emphasizing that it provides unsecured loans, and the borrowers are women. Therefore, Grameen China’s potential to develop is constrained by the restrictions of commercial banks, which hinders its expansion. Till now, Grameen America has a larger scale than Grameen China, which includes only three thousand members.
Despite the fact that the Grameen model has more or less encountered some challenges during the localization process, it has been put into practice in several nations as a way to reduce poverty.
Grameen America uses cardinal factors like interpersonal networks, funds, and technology to build a model that helps the poor, especially women. The success of Grameen America is proved by a lot of real examples. The examples have inspired other countries to learn the operation pattern of Grameen America. In the future, other Grameen Banks besides Grameen America will have more opportunities and challenges helping the people living in poverty.
- Grameen Bank – Bank for the Poor