December 08 specification of Grameen Microcredit by Dr Yunus

Whenever I use the word microcredit I actually have in mind Grameen type microcredit. But if the person I am talking to understands it as some other type of microcredit my arguments will not make any sense to him.

Let me list below the distinguishing features of Grameen type microcredit. This is an exhaustive list of such features. Not every Grameen type programme has all these features present in the programme. Some programmes are strong in some of the features, while others are strong in some other features. But on the whole they display a general convergence to some basic features on the basis of which they introduce themselves as Grameen replication programmes. General features of Grameencredit are:

(a) it promotes credit as a human right (

b) Its mission is to help the poor families to help themselves to overcome poverty. It is targeted to the poor, particularly poor women.

(c) Most distinctive feature of Grameencredit is that it is not based on any collateral or legally enforceable contracts. It is based on "trust", not on legal procedures and system.

(d) It is offered for creating self-employment for income generating activities and housing for the poor, as opposed to consumption

(e) It was initiated as a challenge to conventional banking which rejected the poor by classifying tem as "not creditworthy". As a result it rejected the basic methodology of the conventional banking and created its own methodology

(f) It provides service at the door step of the poor based on the principle that the people should not go to the bank but the bank should go to the people

(g) In order to obtain loans a borrower must join a group of borrowers

(h) Loans can be received in a continuous sequence. New loan becomes available to a borrower if her previous loan is repaid.

(i) All loans are to be paid back in instalment (weekly, or bi-weekly)

(j) Simultaneously more than one loan can be received by a borrower.

(k) It comes with both obligatory and voluntary saving programmes for the borrowers

(l) Generally these loans are given through non-profit organisations or through institutions primarily owned by the borrowers. If it is done through for profit institutions not owned by the borrowers, efforts are made to keep the interest rate at a level which is close to a level commensurate with sustainability of the programme rather than bringing attractive return to investors. Grameencredit's thumb rule is to keep the interest rate as close to the market rate, prevailing in the commercial banking sector, as possible, without sacrificing sustainability. Reaching the poor is its non-negotiable mission. Reaching sustainability is a directional goal. It must reach sustainability as soon as possible, so that it can expand its outreach without fund constraints.

(m) Grameencredit gives high priority on building social capital. It is promoted through formation of groups and centres, developing leadership quality through annual election of group and centre leaders, electing board members when the institution is owned by the borrowers. To develop a social agenda owned by the borrowers, something similar to the "sixteen decisions", it undertakes a process of intensive discussion among the borrowers, and encourages them to take these decisions seriously and implement them. It gives special emphasis on the formation of human capital and concern for protecting the environment. It monitors children’s education, provides scholarships, and student loans for higher education. For formation of human capital it makes efforts to bring technology, like mobile phones, solar power, and promote mechanical power to replace manual power.

Grameencredit is based on the premise that the poor have skills which remain unutilised or under-utilised. It is definitely not the lack of skills which make poor people poor. Grameen believes that the poverty is not created by the poor, it is created by the institutions and policies that surround them. In order to eliminate poverty all we need to do is make appropriate changes in the institutions/policies, and/or create new ones. Grameen believes that charity is not an answer to poverty. it only helps poverty to continue. It creates dependency and takes away any individual's initiative to break through the wall of poverty. Unleashing of energy and creativity in each human being is the answer to poverty.

Grameen brought credit to the poor, women, the illiterate, the people who pleaded that they did not know how to invest money and earn an income. Grameen created a methodology and an institution around the financial needs of the poor, and created access to credit on reasonable terms enabling the poor to build on their existing skill to earn a better income in each cycle of loans.

If donors can frame categorywise microcredit policies they may overcome some of their discomforts. General policy for microcredit in its wider sense is bound to be devoid of focus and sharpness.