Bangladesh: Grameen Bank's Higher Education Loan Program

I a climate of government disinterest in higher education equity in developing countries, one nongovernmental organization (NGO) in Bangladesh has unexpectedly begun its own effort at financial aid in the higher education sector. Grameen Kalyan, the welfare division of Grameen Bank, famous since 1983 for its innovative lending programs for the landless poor, has expanded its objectives beyond microenterprise to include higher education. The managing director of Grameen Kalyan, Shaikh Abdud Daiyan, states that NGOs must now begin to “consider the economy of the poor—and help them to rise to the highest levels of education.” Grameen Kalyan has devised a program—the Higher Education Loan Program (HELP)—that identifies intellectually talented young villagers and helps them to finance their university education through loans. Using Grameen Bank’s network of 1,118 branch offices throughout rural Bangladesh, Grameen Kalyan wants to encourage poor children not only to complete the equivalent of secondary education, but also to attend public university. The hope is to create a new generation of highly educated poor who will have one more weapon with which to attack the cycle of poverty. In the context of Bangladesh, one of the least-developed countries in the world, such a task would seem enormous if not impossible. Branch officers of Grameen Bank canvass their local communities and encourage adult borrowers from Grameen microcredit programs to identify the most promising children for student loan consideration. Due to the lack of formal schooling opportunities in some rural areas of Bangladesh, many candidates emerge from nontraditional educational programs (often organized by nongovernmental organizations). Even if a poor nontraditional student gains admission to university, expenses associated with studying at that level in Bangladesh can easily surpass $400 per year—an astronomical sum for the sons and daughters of rural families that typically live in grass huts and survive on less than one dollar per day. To be eligible, applicants for HELP loans must be the dependents of Grameen Bank borrowers, the poor without assets who have qualified for a loan through the bank’s existing microcredit program. Under Grameen’s definition, a dependent is not necessarily a child related through birth, but can also include a child “who eats regularly from the same pot”—an important criterion in rural Bangladesh, where village families often share food and child-rearing responsibility. Most Grameen borrowers are women—fully 94 percent. All Grameen borrowers are considered “members” of the bank. The loan qualifications for first-time “members” at Grameen run counter to the lending criteria of traditional banks: rather than having to show collateral or income to guarantee repayment, Grameen borrowers must demonstrate poverty and propose an income-generating activity that they will establish with their first loan, at market interest rates. The average loan dispersed by Grameen Bank is approximately $195. As part of their loan agreement, borrowers must join a local five-member group that meets each week and assumes collective responsibility for the other group-member loans. Groups are free to add members, but they must conduct the initial screening of borrowers for Grameen, further strengthening the internal system of accountability and support. Groups, therefore, expand carefully and look for trustworthiness and cooperation as the main criteria to expand their borrowing circles. Borrowers contribute a very modest membership fee to Grameen Bank for each loan, giving them small, yet important, shares of ownership in the bank. This membership system has actually shifted the majority ownership of Grameen from the donor agencies and government to the individual borrowing members, who now control fully 92 percent of the shares—up from only 40 percent in 1983. After a first-time borrower of Grameen repays her loan, she obtains a guarantee of lifelong credit from the bank. Today, Grameen members have an added benefit: the opportunity to have their dependents eligible for HELP.