There are four broad reasons directly or indirectly responsible for a repayment crisis: deviation from the core principles or essentials of the Grameen Bank Methodology (GBM); operational errors in implementing the GBM; management lapses and loss of the human meaning inherent within of Grameen system.
Deviations from the core principles or essentials of GBM
- Group formation started without holding a general projection meeting at the outset. Group formation started very close to the branch office.
- More then one member from one family, taken into the group.
- Inclusion of many non-poor in the center. This arises from improper targeting by the field staff, not reaching the bottom poor, a decision taken either willfully by staff or imposed by their managers. This error is based on the common belief that the bottom poor can not repay, so field staff follows a defensive strategy out of fear of future defaults.
- Group members come from different villages; hence that is no cohesion.
- Improper continuous group training (CGT) i.e. CGT does not take place in the village or neighborhood of the members; poverty status is not verified by a check on assets and liabilities; training is conducted by a group member or the center chief and not by bank staff. Worse, groups are formed without any CGT.
- Improper group recognition test (GRT) by supervisors e.g., poverty status is not checked by visiting houses; members’ knowledge of each other is not tested; rote memory of rules without understanding, is accepted.
- Final GRT done by the Branch Manager or even by the senior assistant or the field staff and not by the supervisors.
- Decline of (or failure to develop) peer support and peer pressure in the groups and the centers as decision making and problem solving responsibility is not located within the group and the center, but is taken over by the staff.
Since 1976, Grameen Bank has been making small loans to the poorest of the poor in Bangladesh and maintaining an enviable repayment rate. By the ’90s, numerous programs were attempting to replicate this success, many with equally good repayment. However, these overall figures often mask repayment problems and crises that afflict individual centers, branches, zones and even entire programs.
From a workshop held in August, 1997, CASHPOR has developed a Training Manual entitled Repayment Crises and Rehabilitation Strategies, designed to teach management staff to spot repayment problems before they mushroom and how to overcome them. In this section, Mohammed Mortuza, former head of Monitoring at Grameen Bank, lists the reasons which can underlie a crisis. This Manual is available from CASHPOR.
Operational errors in implementation of GBM
- Field workers pressured to form more than 2 or 3 groups per month. As a result, groups are formed in large members, to meet the target, and not based on quality.
- Rapid (galloping) increase in per head loan amount to quickly raise the volume of outstanding loans in the branch, without considering the absorptive capacity of the members. This pressure usually comes from Area or Zonal levels and branch managers try to please higher officials by approving big joint loans or individual loans prematurely.
- Decisions which should be taken by the center, are decided by the branch staff; e.g., on loan proposals, loan amounts and the 2-2-1 sequence; repayment schedule for group fund loans, etc.
- Loan proposals are done at the street/bazaar/center chief’s home by the staff, rather than at the weekly center meetings.
- Breaking of the pancha chakra system staggered 2-2-1 disbursement which is the primary source of peer pressure and peer support within the group.
- Dropped installments, part or token installments and advance lump sum payments are allowed. Arrears are adjusted out of group fund loans. New loans are disbursed prior to full payment of the previous loan, leading to adjustment of arrears out of the new loan.
- Irregular attendance of members in the weekly meetings. Field staff reluctant to attend the weekly meeting and are frequently late.
- Irregular weekly savings, bank staff paying the savings, and even installment, out of their own pocket to show artificial regularity.
- Members kept waiting a long time for loans.
- Field workers conducting 4 to 5 center meetings a day.
- Center chiefs and group chairpersons are not rotated annually.
- Group fund loans are not available to members at times of emergency or special need.
- Inadequate loan utilization checks.
- Personal financial transactions and other transactions are allowed between borrowers and branch staff.
- Lack of effective monitoring by the management, including loose financial controls.
- Lack of critical information analysis.
- Management pressure for rapid increase in loans outstanding, without checks on quality of loans. Allowing adjustment of arrears against new loans. Unhealthy competition amongst areas and zones to make profits, ignoring the other essentials of Grameen.
- The relationship between field staff and management is either too hard and remote or too soft and lenient ; too regimented or willfully overlooking mistakes.
Loss of the Human Meaning of Grameen
- Field staff become installment collectors only; their role as a teacher and a guide to the members, is lost. They follow a very narrow work objective: secure repayment of loans at any cost. The social development program is neglected.
- Members in arrears are ill-treated by the branch staff; their livestock and other assets are seized.
- Field staff are ill-treated by their supervisors and staff relationship is based on fear and regimentation.
- The means — giving loans and obtaining repayment — become the end, and the real objective of the Grameen program, which is to empower the poor to raise themselves out of poverty and to enable them to live with dignity and self-respect, is now forgotten.
- Members lose confidence in the program and the staff do nothing to re-motivate them.
[In the Training Manual, these factors, which underlie most repayment crises, are illustrated and discussed in the context of four case studies– the crisis in Rangpur , Grameen Bank in 1991, and in ASHI, Dungganon and TS1994. — Editors note.
—- Extracted from Credit for the Poor, CASHPOR Inc, March, 1998.