The Creditworthiness of the Poor: A Model of the Grameen Bank

Abstract

This paper analyzes the role of expected income in entrepreneurial borrowing. We claim that poorer individuals are safer borrowers because they value more the relationship with the bank. We study the dynamics of a monopolistic bank granting loans and taking deposits from overlapping generations of entrepreneurs with di¤erent levels of expected income. Matching the evidence of the Grameen Bank we show that a bank will focus on individuals with lower expected income, and will not disburse dividends until it reaches all the potential borrowers.We …nd empirical support for our theoretical results using data from a household survey from Bangladesh. We show that various measures of expected income are positively and signi…cantly correlated with default probabilities.

Credit risk in the microfinance industry: The role of gender affinity

“…Female borrowers are also more likely to apply for smaller loans (Armendáriz and Morduch 2010). Furthermore, Kowalik and Martinez-Miera (2010) find that MFIs serving individuals from rural areas and, more specifically, women from those rural areas, are those with higher repayment rates. The traditional banking literature (and also economic logic) posits that higher income generation results in better loan repayment rates.…”

Microcredit Impact on Children's Education and Women Empowerment: A Review Experience of Grameen Bank Microfinance Schemes in Bangladesh

“…Grameen Bank is the name of revolt in the world for its great initiative of group based microcredit model for poverty alleviation. The origin of this concept came out from the famous action research on Jobra village undertaken by Professor Yunus in 1976 resulted in various ground breaking Microcredit programme s. His research ended up finding the popular theoretical causes behind today's success of conventional MFIs' (Basher, 2007(Basher, , 2010Chowdhury, 2001b;Dossey, 2007;Dowla, 2006;Kowalik, 2010).…”

“…The extension of this theoretical understanding summarized for greater policy role in terms of bringing in a wider generation of poor people in productivity and making their effort sustainable to help the country keep growing. Group based microcredit model is process of opportunity for peer lending, peer monitoring, homogenous matching, and joint liability with credit risk between the group members (Chowdhury, 2001a;Dossey, 2007;Dowla, 2006;Fernandez, 2010;Hossain, 1988;Kabir Hassan and Tufte, 2001;Karim, 2008;Kowalik, 2010;Kuhinur and Rokonuzzaman, 2010;Osmani, 1998).…”

“…After one more month, the last member gets a loan. Because most loans last exactly one year, staggered disbursement reduces the risk of domino default because some borrowers must finish repayment before they know whether their comrades will default (Dossey, 2007;Dowla, 2006;Kabir Hassan and Tufte, 2001;Kowalik, 2010;Kuhinur and Rokonuzzaman, 2010;Wilkins and Jennifer, 2007;Zaman, 1999) Historical development of grameen bank: Grameen Bank is the name of miracle story in the state of traditional financial institutions for providing financial assistance to the helpless and hopeless hard core poor people without physical collateral security. The birth history of Grameen (Grameen means "rural" or "village" in Bangla language) came about (Chowdhury et al, 2005;Hossain, 2005;Khandker, 1998b;Osmani, 1998;Schreiner, 2003).…”