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Bangladesh Grameen Bank (BGB) Model PowerPoint PPT Presentation


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Bangladesh Grameen Bank (BGB) Model. 5 members groups, they must be neighbors but not relatives Joint Liability Groups (JLG) or Solidarity Groups (SG) Individual lending within JLG model 7 groups constitute a centre at the village level

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Bangladesh Grameen Bank (BGB) Model

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Bangladesh grameen bank bgb model l.jpg

Bangladesh Grameen Bank (BGB) Model

  • 5 members groups, they must be neighbors but not relatives

  • Joint Liability Groups (JLG) or Solidarity Groups (SG)

  • Individual lending within JLG model

  • 7 groups constitute a centre at the village level

  • All loans must be approved by other group members as well as all other centre members

  • Lending is in the order of 2:2:1 (leader being the last)

  • Every member must contribute Rs. 5/week

  • Inability of a client to pay savings results in the concerned group or centre paying up for that client


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Bangladesh Grameen Bank (BGB) Model

  • 5 % of all productive loans disbursed to a group is collected as tax and deposited in the group fund

  • From this group fund, member can access loans for consumption purposes (maximum 75% of group fund), no interest charge

  • There is also an emergency fund (optional) where each member contribute Rs. 1/week.

  • Loan disbursement is done at the centre level.

  • Weekly repayment schedule (maximum 52 weeks)

  • Interest rate varies between 15-24 % p.a. on flat basis and on a weekly basis.


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SHG V/s BGB Model – Client Perspective

  • Strength for SHG Model

    - Flexible internal operations

    - can select cheaper supplier of funds

    - can evolve from existing groups

    - can evolve into Federations

    - very empowering

    - a major part of the interest is retained within the group fund


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SHG V/s BGB Model – Client Perspective

  • Weaknesses of SHG model

    - Need management skills

    - can be hijacked internally or externally

    - cash may not be secure, if savings are held within the group


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SHG V/s BGB Model – Client Perspective

  • Strengths of BGB model

    - No need for literacy

    - Protected from internal exploiters

    - Poorer are included

    - Bank/MFI can offer tailor-made services

    - savings are safe

    - members are forced to accumulate reserves, which can be used in emergencies


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SHG V/s BGB Model – Client Perspective

  • Weaknesses of BGB model

    - inflexible internal operations, very rigid

    - group composition not in members’ control

    - must meet frequently (weekly), more time consuming


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SHG V/s BGB Model – Bank/MFI Perspective

  • Strength of SHG model

    - lower costs, (one account for whole group) and (appraisal, recovery done by members)

    - groups can fit to any branch

    - No social intermediation cost as groups are promoted by SHPI

    - large access to clients


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SHG V/s BGB Model – Bank/MFI Perspective

  • Weaknesses of SHG model

    - Need SHPI to promote the groups

    - Groups may move to other bank

    - more risks as hard to monitor the groups

    - slow process to increase the scale of business

    - may be forced to link the groups under some “schemes”


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SHG V/s BGB Model – Bank/MFI Perspective

  • Strengths of BGB model

    - Tight control over the groups, so less risk

    - standardized procedures

    - members have the feelings of ‘belonging’ to bank/MFI


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SHG V/s BGB Model – Bank/MFI Perspective

  • Weaknesses of BGB model

    - Higher transaction costs

    - members need continuous guidance and presence

    - needs dedicated system


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SHG Model – Suitable Conditions

  • Existing bank network in rural areas

  • Communities are fragmented, with various different groups based on caste, or wealth level

  • There are credible NGOs or other community development institutions to promote the groups

  • Peoples’ opportunities and financial service needs are diverse


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BGB Model – Suitable Conditions

  • The prospective clients are very poor and marginalized, and are vulnerable to exploitation unless they are protected by a rigid structure

  • Clients are illiterate

  • The area is densely populated, so that it is practical for MFI staff to visit the groups every week

  • The population is fairly homogenous


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Federated SHG Model

  • Federation is apex institution of all SHGs in an area (1000-3000 members)

  • SHG------Cluster------------Federation

  • Federation can be registered under Society registration Act.

  • Helps in promotion of new SHG and strengthening of existing SHGs

  • Facilitate inter-group exchange (financial and non-financial)

  • Access of outside funds to member SHGs


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Federated SHG Model

  • As the number of groups increases, it becomes difficult for SHPI to interact directly with each group

  • SHPI can start withdrawing and can concentrate on other area

  • External funds for on-lending are routed through federation

  • Federation can help SHGs in loan recovery


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NBFC Model

  • Profit maximization through financial services to rural/poor clients

  • Registered as profit making NBFC under the Companies Act 1956

  • Diverse client group

  • Multiple channels

  • Sound financial intermediation, no social intermediation

  • Diversified products for different clients


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