Business Model Implemented By The First Microfinance Bank

Based on its organizational structure, a microfinance institution can be a bank or an informal lending organization

. But these organizations provide financial assistance to the poor and low-income borrowers, who fail to meet the lending criterions of commercial banks. The small loans granted by these institutions have been effective in eradication of poverty by creating sustainable earning opportunities in the rural areas. Most of these microfinance institutions implement the basic business model implemented by Grameen Bank, the first microfinance bank launched in Bangladesh.

Experimenting with a Unique Lending Model:

The microfinance bank was started by Professor Mohammad Yunus as a project in 1976. Professor Yunus realized the difficulties of the poor people while working as an Economic Professor at Chittagong University. He wanted to experiment with a distinct lending model that can help the village women to live better lives. The model concentrates of providing funds to the poor people to start and grow their own business. As the poor people want to get loans at low interest rates and flexible repayment schedule, the project aimed to make funding accessible to these small entrepreneurs.

Success of the Initial Experiment:

The success of the initial project encouraged Prof. Yunus to launch Grameen Bank to implement the unique lending model throughout Bangladesh. Despite of being started with an intention to change the lives of poor people, Grameen Bank became profitable in 1983. The distinct lending model also get the attention of people by convincing them that an organization can still earn profit by offering loans to the poor people. Many microfinance institutions in India also try to earn profits by extending small loans to the poor people at low and affordable interest rates.

Objectives of the Bank:

The typical aid programs often fail to help the poor people residing in rural areas. All these programs are started with a noble intention, but the levels of corruption and government controls affect the proper implementation of the scheme. So the lending model devised by Prof. Yunus intends to support individuals by raising funds from the private sector. The Bank mostly provides funds to the poor women.

These women also form an organization structure so that they can monitor, supervise and help themselves in achieving preset goals. As the financial support is purely treated as loans, the borrowers will further try to earn more money to repay the full loan. Further, some of these borrowers are also encourages to raise their earnings by selling their products or services to other members of the self-help group.

Applying Technology to Transform the Grameen Bank Lending Model

When Prof. Yunus experimented with the micro-lending model, he did not use any of the latest communication technology. But within the last few decades, the advancement in communication technologies has made it easier for the microfinance institutions to raise funds. Nowadays, most of the microfinance institutions run their business websites to highlight their mission, objectives and projects. Some of these organizations also encourage people to extend the loan online.

The application of technology has further made the entire lending model more organized and transparent. However, some of the microfinance institutions also wrongly implemented the basic microfinance model by charging high interest rates. But the microfinance model implemented by Grameen Bank still acts as the foundation to develop more efficient and organized lending model to help the poor and underprivileged people.

by: Gurudutta Mohanty

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