A look at the Nobel Peace prize winning Grameen Bank

The Associated Press
13 OCTOBER, 2006

The Grameen Bank, together with its founder Muhammad Yunus, won the 2006 Nobel Peace for pioneering the use of microcredit, the extension of small loans to benefit poor entrepreneurs.

WHAT IS IT: The Grameen Bank hands out microcredit, or very small loans, to the poor of Bangladesh who do not qualify for loans from conventional banks. No collateral is needed and repayment is based on an honor system.

HOW DID IT START: In 1974, Yunus, then an economics professor recently returned from the United States, lent a total of US$27 to 42 villagers who made bamboo furniture. The loans, which were all paid back, allowed them to cut out the middlemen and purchase their own raw materials. Emboldened by his experiment, Yunus won government approval in 1983 to open Grameen, Bengali for "rural."

WHY DO IT: Microcredit proponents believe these small loans are an effective means of alleviating poverty and stimulate the economy from the bottom up.

WHO QUALIFIES: Anyone can qualify, but they must belong to a five-member group. Once the first two members begin to pay back their loans, the others can get theirs. While there is no group responsibility for returning the loans, the bank believes it creates a sense of social responsibility, ensuring all members pay pack their loans.

DOES IT WORK: Grameen claims a 99 percent repayment rate. According to a recent Grameen survey, 58 percent of the families of Grameen borrowers have crossed the poverty line.

WHO OWNS THE BANK: The government of Bangladesh owns 6 percent of the bank while the borrowers own the other 94 percent.

WHAT ARE THE NUMBERS: The bank has handed out US$ 5.72 billion (€4.56 billion) since its inception to 6.61 million people and been repaid US$ 5.07 billion (€4.04). Women account for 97 percent of the loan takers. Grameen Bank has 2,226 branches, works in 71,371 villages and has a total staff of 18,795.

WHAT THE CRITICS SAY: Critics are skeptical about the 99 percent repayment figure and charge that the system leads to the borrower becoming dependent on the loans. Yunus has also been criticized for the level of interest rates that climb as high as 20 percent for loans to businesses that generate income.