Lessons of Grameen Bank

By Baik Ju-wang

People often describe our history as a history of war: a war among people;a war against Mother Nature; a war against many. One of the most tragic legacies from these wars is the poverty and associated tragedy they have brought with and them for history. Realizing the seriousness of this poverty, the policy makers have been put so much effort into eradicating it. However, in spite of their efforts, mixed results have been forthcoming, with few clear success stories being told. It simply shows how difficult and complicated it is to fight this devil.

Working at Grameen Bank as an intern, I witnessed positive signs of success being made in Bangladesh, the second least developed country in the world. In spite of poor governance, catastrophic flooding every few years and high levels of corruption, the Grameen Bank introduced successful microfinance programs. The microcredit conducted by Grameen Bank is one approach that appears to hold particular promise for providing a real, immediate, and sustained impact on the financial and social status of millions of Bangladeshi people, in spite of its limitations.

In Korean society, witnessing Grameen Bank's success, the microcredit lending has been an eye-catching social business for poverty reduction. Not only the private sector but also the government sector has shown its interest in implementing the microcredit programs to improve the lot of the poor, who are mostly excluded from formal banking services.

However, there are also several concerns around these movements. Firstly, they point out that it will be difficult to apply a developing country case like Bangladesh to a developed country like Korea. From my study, I also found there are several important hidden agenda in the Grameen Bank's success that supported the microfinance industry, which the other countries might not have.

Secondly, among concerns, many do not see the necessity to help the people who are excluded from formal banking services because they believe that the poor are to blamed for being poor. However, I think this belief is not warranted as can be witnessed by the large number of people applying for the microcredit program who are not credit defaulters. Moreover, there are still many people suffering in the dead-zone of the public welfare system in Korea.

Regardless of these concerns, according to the Korean MFIs (Micro-Finance Institutions), the application forms for microcredit lending have been piling up more and more everyday showing how society has not paid attention to the needs of the poor. Also, the concerns are overlooking the fact that the Bangladesh government has been supporting the MFI ensuring its legal status, while the Grameen Bank has been working for more than 20 years as an independent bank for the poor. For these years, thereafter, the Grameen Bank could stabilize its system as a financial institute.

From my studies and experiences at Grameen Bank, I conclude the banks shows well how an organization aimed at poverty reduction could achieve its goal. Behind its success is one of the most important hidden agendas, which is about the 'supporting system for microcredit lending in Bangladesh.' Grameen Bank has been formally and informally supported by the Bangladesh government. In the bank's history, with the sponsorship of the central bank of the country and support of the nationalized commercial banks, the Grameen project could be extended in 1979. The Grameen Bank Project was transformed into a formal bank by government legislation in October 1983. Without the government's recognition of Grameen Bank as a financial institute, it could not maintain its financial, legal stability.

In Korea, even though the microcredit programs are still questionable in many ways, such needs of the poor to access financial resources are increasingly on the rise. None of the MFIs in Korea has shown the positive results of Grameen Bank. However, it is maybe too early to cast critical eyes on microcredit programs in Korea. Compared with Grameen Bank, Korean MFIs are just at the beginning level. Moreover, unlike Bangladesh, Korea does not have a supporting system for microcredit lending. None of the MFIs in Korea have yet registered as financial institutes but as non-government organizations. Due to their legal status, most of their programs depend on donations. Because of this, they cannot develop programs, which could guarantee both an organization's financial stability and sustainability.

As mentioned earlier, poverty problems have existed since human history. They will not be solved within 10 or 20 years. It is more likely a matter, which requires everlasting attention. In this context, I hope Korean policy makers will pay attention to the poverty issue. In a situation of increasing need for microcredit from the poor, the policy makers should build a supporting system like a special financial law for MFIs so the institutions can maintain financial stability and sustainability. This could be the lesson from the Grameen Bank, which we can adopt for Korean society.

The writer works at the Graduate Institute of Peace Studies. His email address is baikjuwang@gmail.com.