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) 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 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 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 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 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 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 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 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 Perspective Weaknesses of BGB model

- Higher transaction costs- members need continuous guidance and presence- needs dedicated system

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 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 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 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 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