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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
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
bangladesh grameen bank bgb model2
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.
shg v s bgb model client perspective
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

shg v s bgb model client perspective4
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

shg v s bgb model client perspective5
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

shg v s bgb model client perspective6
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

shg v s bgb model bank mfi perspective
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

shg v s bgb model bank mfi perspective8
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”

shg v s bgb model bank mfi perspective9
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

shg v s bgb model bank mfi perspective10
SHG V/s BGB Model – Bank/MFI Perspective
  • Weaknesses of BGB model

- Higher transaction costs

- members need continuous guidance and presence

- needs dedicated system

shg model suitable conditions
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
bgb model suitable conditions
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
federated shg model
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
federated shg model14
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
nbfc model
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