Page 49 The main factors behind the excellent recovery of loans may be (a) the genuine credit need of the poor, (b) the bank's ability to limit credit services to its target group, (c) the provision of loans for activities that generate regular incomes, and (d) the procedure of collecting repayments in small amounts through weekly installments. But most important... is the strict supervision by the bank workers of the loan utilization process and the pressure to repay the loan in time by fellow group members. (Hossain and Afsar 1988) Survey figures indicate that the amount of working capital managed by an enterprise borrowing from Grameen Bank had increased by about 300 percent within 2.25 years. Investment in fixed assets was about 2.5 times higher for loanees with more than three years' membership compared to those who joined during 1984-85. The number of cattle owned per hundred borrowers increased from 61 before joining the bank to 102 at the time of the survey, an increase of about one-fourth yearly. Initial loans tended to focus more on productive lines. Later loans may focus more on housing, education, or other forms of basic consumption (which may have an enabling effect on production).

Grameen Bank loans have also helped generate employment. The labor force participation rate (workers as a percent of household members) increased from about 33 to 41 percent. The proportion of female workers was about 24 percent among Grameen bank borrowers compared to about 9 percent in the nonparticipating households in the survey villages.

The survey also found that the Grameen Bank members had about 50 percent more income than the target group in the control villages, and about one-fourth more than the target group nonmembers in the project villages. The increase in income was highest for the absolutely landless, followed by the marginal lando;ners, but the income of the nontarget group is lower in the project village than in the control villages and the difference is larger for the groups with more land. The project and control villages have similar endowments of land and male workers, but average household income is about one-sixth higher In the project villages. About 48 percent of the Grameen bank participants remain severely impoverished, compared to about three-fourths of nonparticipants in the target group in both project and control villages.

Constraints on expansion of Grameen Bank might include the potential market for nonfarm goods and services, maintaining a stable institution with high staff morale, and limiting the cost of operations (particularly the village-based outreach of the Grameen staff). The interest rate that borrowers pay is about 16 percent, comparable to other lending institutions in Bangladesh. For 1986, the cost of funds to Grameen Bank was about 21.7 percent, including a substantial subsidy since the Bank had a concessional IFAD loan. The cost of funds would have been 26.5 percent without the concessional fundz,. Thus the implied subsidy is about 39 percent at the actual cost of funds and about 51 percent at the opportunity cost. But Grameen Bank achieves much higher loan recovery rates than most formal credit institutions in Bangladesh, and the director believes the subsidy is necessary primarily to finance The Bank's expansion into new areas.

Sources: Hossain and Afsar 1988; Hossain 1987