The Grameen model

There are stated to be two models practiced by the Grameen Bank. The essential difference between Grameen I and II is the aspect of group liability.

In the original form, the five poor rural women who formed a group underwrote each others’ loans. This involved a group tax, a portion of the group’s collective savings that was put into an account from which moneyh was withdrawn to pay for unpaid installments. It was a system that was created to ensure high repayment level. The system ran into trouble when group members became intolerant of habitual defaulters, leading to violence and social tension.

This led to Grameen II in which all savings are on an individual basis and there is no group liability. The system is now more flexible and allows a defaulter the option to restructure the amount due into a flexi loan based on the customer’s ability to repay.

See also http://discover-it.blogspot.com/2006/10/dr-muhammed-yunus-and-grameen-bank.html