BORROWING YUNUS'

BANKING MODEL TO
AID SOCIAL GROWTH
IN AFRICA
Can this model assist
growth in rural Africa?
This document aims to
highlight if Yunus Banking
Model can work in some
of our African Markets
today
Lungis Concept
4/2/2016

QUICK FACTS ABOUT

BANGLADESH
With a population of more than 160.4 million
people, Bangladesh is the world's 8th most
populated country, it is located in South Asia
and has a parliamentary republic with an
elected parliament called Jatiyo Sangshad.
Bangladesh's real GDP was somewhere around
6.1% in 2015. Consumption will continue to
be supported by the growth in the Agricultural
sector.
Investment into the country is expected to
quicken following the transition to a new
government, it is also likely to be boosted by
the government's efforts to attract foreign
direct investment from India, China and
Russia.
LINKING BANGLADESH TO AN
AFRICAN COUNTRY WITH SIMILAR
GDP PER CAPITA
For us to better understand if this initiative will
be worthwhile, let us select countries with a
similar GDP per capita to that of Bangladesh
so to better understand if the model was to be
implemented, which country will serve best as
an entry point.
Per capita GDP is sometimes used as an
indicator of standard of living as well, with
higher per capita GDP being interpreted as
having a higher standard of living.
According to the World Bank Bangladesh's
GDP per capita in 2014 was recorded at
$1086. Countries in Africa with more or else
similar Per capita GDP are: South Sudan
($1115), Kenya ($1358) and Cameroon
($1407).

A LOOK AT GRAMEEN BANK

MODEL OF FINANCIAL
DISTRIBUTION
Grameen Bank micro credit initiative grants
small loans to poor people who have no
collateral and who do not qualify for
conventional bank loans.
The whole initiative started when Yunus lent
the equivalent of $26 to a group of 42 workers
from his own pocket, with that 62 cents per
person, they bought materials they needed for
a day's work, which includes weaving chairs or
making pots. At the end of their first day as
independent business owners, they sold their
work and soon paid back the loan.
How it works is, the bank requires its
borrowers to organize themselves into groups
of five, all are cut off if one borrower defaults.
They meet every week to make loan payments
at commercial interest rates and critique one
another's business plans. They also pledge to
boil their water, keep their families small and
carry out other good health practices. People
who repay on time can take more loans out
THE MODEL: LOAN APPROVAL
CRITERIA

The women who take out a loan have

to pledge on 16 decisions they will
follow for the period of the loan and so
to continuously improve their lives."

THE 16 DECISIONS THAT

WOMEN HAVE TO MAKE
BEFORE THEY ARE
CONSIDERED FOR
BORROWING

Every year Grameen Bank staff will

evaluate these points and check
whether the socio-economic situation
of its members is improving. The bank
evaluates poverty levels of the
borrowers using 10 indicators which in
turn helps the bank to track the
progress and impacts their loans are
having to their members. The 10
tracking points include:

All children in the family over six

years of age are all going to school or
finished primary school.
Minimum weekly loan installment of
the borrower is Tk. 200 or more.
Family uses sanitary latrine.
Family members have adequate
clothing for everyday use, warm
clothing for winter, such as shawls,
sweaters, blankets, etc, and mosquitonets to protect themselves from
mosquitoes.
Family has sources of additional
income, such as vegetable garden,
fruit-bearing trees, etc, so that they are
able to fall back on these sources of
income when they need additional
money.
The borrower maintains an average
annual balance of Tk. 5,000 in her
savings accounts.
Family experiences no difficulty in
having three square meals a day
throughout the year, i.e. no member of
the family goes hungry any time of the
year.
Family can take care of their health. If
any member of the family falls ill, the
family can afford to take all necessary
steps to seek adequate healthcare.

The family lives in a house worth at

least Tk. 25,000 (twenty five thousand)
or a house with a tin roof, and each
member of the family is able to sleep
on a bed instead of on the floor.
Family members drink pure water of
tube-wells, boiled water or water
purified by using alum, arsenic-free,
purifying tablets or pitcher filters.

AFRICA'S FINANCIAL
DISTRIBUTION: A LOOK AT THE
BANKED VS THE UNBANKED
Now that we have seen how the micro credit
system is working in Bangladesh we need to
compare how African governments and

financial institutions are working into giving

equal financial access to the poor
In Africa, around 24% of adults had saved
money in a formal account in the 2011, while
44% had used a community-based method of
savings. 2% had originated a new loan from a
formal financial institution, but 44% had
borrowed from family and friends. Of all
adults, 1% had a credit card and 1% had a
mortgage.
Reports show that ~80% of Africans are
unbanked, The unbanked remain so due to
geographical inaccessibility, lack of
infrastructure, high cost of banking services
and lack of financial understanding
Until recently, commercial banks across the
continent hadn't made enough effort to reach
out to impoverished Africans in rural areas
because they saw little profit potential. Instead,
they focused on wealthier clients with larger
transactions, which had a better chance of
surpassing the cost of the bank's infrastructure
and staff.
So what the government and private sector are
doing is that they are teaming with each other
to better give financial access to the poor, and
target those who earn less than $10 a day
The biggest challenge that faces the poor is
financial literacy which protrudes banking to
be a complex issue, financial institutions
however face geographical challenges in
which people have to walk long distances to
gain access to a financial institution, and this
not only discourages clients to open a bank
account but is bad for business.
However, telecommunication technology has
proved an effective way of enabling banks to

overcome these issues over recent years. Some

providers allow users to transfer money and
even pay bills or buy groceries with their
phones.
According to research conducted by the World
Bank, in Sub-Saharan Africa this type of
banking has expanded to over 16% of the
market, which is not much but in Africa's
disadvantaged context one would say it is
making significant growth.
"If you can get commercial banks operating in
poor areas you get a financial deepening of
those areas and development" -William ShawLAST REMARKS
It is clear that our African countries are more
dependent on technology to better service their
clients. Half of Africa's one billion population
has a mobile phone which then makes it easy
for financial institution to enable their
customers to send and receive money.
Yunus' model would be a good start in
impoverished countries because it sounds more
like social entrepreneurship than a quick way
to make money from the poor, if the major
concentration of this micro credit initiative by
Grameen Bank is to improve the lives of the
people through lending, then Africa would be
the best next thing to accommodate this
thoughtful social entrepreneurship.