The Ambassadors Magazine - January 2009

The hypothesis of this research article is that the Grameen Bank of Bangladesh has successfully used both formal and informal participatory methods to be accountable to and engage their beneficiaries in alleviating poverty through providing rural credit services to the poor. Grameen Bank which means village bank has always strived to use participatory methods to be accountable and effectively combat poverty amongst the poor of Bangladesh. This hypothesis will be supported through evidence from a variety of sources and thesis’ written about the bank’s participatory methods.

Accountability to beneficiaries and hence participatory methods has gained in recognition and importance as a critical tool to improve development efforts over the last decade or so. It is evident that to have effective and long term impact through development initiatives, it is imperative to include beneficiaries as significant stakeholders in participatory methods. This article discusses the experience of the thriving Grameen Bank in Bangladesh and will go into detail of how Grameen Bank has been accountable to its beneficiaries and how they have used participatory methods to improve the lives of their beneficiaries. The article will draw key lessons from the Grameen Bank experience and provide analysis and evidence on how and what development NGOs could learn from Grameen Bank’s extensive experience. Although arguably, participatory methods used by Grameen Bank have been largely successful, this article will also attempt to critically reflect on potential weaknesses of the participatory methods used by Grameen Bank with the objective of providing a balanced view of these methods.

Throughout the study of this course, the one underlying significant theme was the importance of NGO accountability by engaging beneficiaries as stakeholders in participatory methods of NGOs. In particular, the following three readings were the primary inspiration for the topic of this research essay:

Shah’s chapter is a great example of how a Southern NGO used participatory methods successfully to engage the constituencies they are serving. It is natural then to examine the participatory methodologies used by one of the largest Southern NGOs in the world today, Grameen Bank as an accountability measure and provide analysis of its effectiveness in empowering the poor.

Shah’s chapter provides a comprehensive run through of the process tested by the Aga Khan Rural Support Program (AKRSP-I) to engage their grassroots constituency. As a leading Southern NGO practitioner, Shah’s insights add significant weight and substance to the argument for greater NGO accountability to their grassroots through participatory engagement efforts.

Although most NGOs involve community institutions in program monitoring and evaluation, they are less active in engaging communities to evaluate performance of the NGO itself as a support institution. AKRSP-I’s bold move in developing a participatory method as a way to improve their performance and accountability to the constituents they work with, served to strengthen the argument for such an imperative need. The overall successful outcome of this process is a critical validation of participatory tools as a way to be accountable to grassroots constituents and further proof of the effectiveness it has on improving the way NGO’s carry out their work.

Hashemi’s chapter takes the reader through a concise overview of the relationship between NGOs and government, NGOs and Donors and NGOs and beneficiaries in Bangladesh. In particular, the discussion on the relationship between NGOs and beneficiaries is of relevance to this research article. Hashemi’s premise is that there is no downward accountability to the poor, that there is an inherent belief that the poor are incapable of making any significant decisions for themselves and it is the NGOs that know what is best for them. Hashemi stipulates that participatory methods engaging beneficiaries is not a widely accepted methodology in Bangladesh.

By not highlighting the work of Grameen Bank (and BRAC) in this area, Hashemi does not portray a fair image of NGO accountability to beneficiaries in Bangladesh. This begged the question in my mind as to why he does not discuss the participatory experiences of the two largest NGOs in Bangladesh and hence further provided a basis for the topic of this article.

The last reading that provided the motivation for this article was the chapter written by Mayhew. Although the subject matter goes into depth about NGO legislation and government relations, the importance of accountability to beneficiaries is highlighted throughout and one of the key themes of this article is that governments, donors and NGOs each have a role to play in ensuring upwards and downwards accountability. While Mayhew does not discuss the importance of participatory methods in detail, she certainly alludes to it. Furthermore, the fact that NGOs in Bangladesh have such an uphill battle in terms of government bureaucracies and regulations, it begs the question of whether Hashemi’s assertion that participatory methods have yet to flourish in Bangladesh has some correlation to the restrictions placed by the government on NGO activities.

For this research article, we will review and analyze a myriad of articles and chapters ranging from writings by Grameen Bank employees to development academics with viewpoints on accountability and participatory methods to critiques that question Grameen Bank’s actual use of participatory engagement of their beneficiaries. The article uses a wide variety of perspectives from case studies, reports and evaluations so as to provide a balanced argument. This article will also draw from my own personal experiences of having spent a couple of months as a Grameen Bank intern in 1994 and also informal interviews I conducted with a number of borrowers, bank staff and senior management staff over the last three years during visits to the Bank.

There has been so much written on this topic that it is almost impossible to cull out what are the real facts. Clearly there are biases on both ends of the spectrums. Writers who view Grameen Bank favourably will only highlight the positive aspects of the Bank and authors that do not believe in the accomplishments of Grameen Bank will only find fault with the work of the organization. In fact, even my personal experiences and informal interviews may have some biases as the borrowers and the bank staff I interviewed was selected in advance and not randomly. However, this article will attempt to take an impartial view and provide both sides of the argument.

Before we begin our analysis of Grameen Bank’s experiences in participatory methods, it is important to give a brief historical overview of the bank. The Grameen Bank was founded by Dr. Muhammad Yunus, 2006 Nobel Peace Laureate in 1976 and converted into a fully functioning bank by 1983. The objective of the bank according to the Grameen Bank website was to extend banking facilities to poor men and women; eliminate the exploitation of the poor by money lenders; create opportunities for self-employment for the vast multitude of unemployed people in rural Bangladesh; bring the disadvantaged, mostly women from the poorest households, within the fold of an organizational format which they can understand and manage by themselves; and reverse the age-old vicious circle of "low income, low saving & low investment", into a virtuous circle of "low income, injection of credit, investment, more income, more savings, more investment, more income.

This article asserts that Grameen Bank has indeed been successful in achieving its accountability goals through their use of participatory methods engaging their beneficiaries. From its inception, Grameen Bank knew that in order to be successful in their mission, they would have to engage their beneficiaries and hence has strived to include its beneficiaries in carrying out its work throughout its history. Although participation started off at a more informal level, formal participation methods are now an integral part in the work of the Bank.

The core focus of Grameen Bank is to deliver a credit system that addresses the needs of the poor. In his autobiography, Dr. Yunus talks about the initial stages of the Bank where he and his students would survey villagers to find out what their needs are and what changes would help them improve their lives. Thus the idea of extending credit was born. From the first individual that they spoke to, Sufiya in Jobra village to the 7.5 million (mostly women) borrowers today, Grameen Bank has effectively integrated participatory methods as a formal process in their activities as well as in shaping their accountability to their beneficiaries.

The article will now focus on exploring some of the participatory methods used by Grameen Bank and assess the strengths and weaknesses of them in terms of Grameen’s accountability to its stakeholders. The Bank has been able to be successfully accountable to its beneficiaries as it operates only to serve the poor and is primarily answerable to them. The strongest evidence of Grameen’s success of accountability to its beneficiaries is the fact that they (beneficiaries) are seen as the key stakeholders of the organization. The borrowers of Grameen Bank own 94% of the shares of the Bank and represent the majority vote on the Board of Directors. The borrower board members are elected by a formal process spanning across the nation and represent the interests of the Bank’s beneficiaries. The board meets several times a year and thus issues and concerns facing beneficiaries are highlighted and given a platform at the top level. This bottom up approach of including borrowers on the decision making board ensures that the Bank remains accountable to its largest stakeholders, the beneficiaries. Although we will be discussing a couple of participatory methods used in beneficiary accountability, this fact alone is sufficiently strong enough to support the asserted hypothesis of this article.

However, an argument to refute this assertion is that the representative Grameen bank board members are only symbolic board members and not the real decision makers of the Bank. Since Grameen bank borrowers are typically uneducated there is criticism as to the actual extent of Grameen bank board member participation at these meetings. Having said that however, overwhelmingly decisions made by the board address the issues of the beneficiaries, so it is more than likely that Grameen Bank borrowers are engaged in the decision making and hence this is not a strong enough criticism of Grameen Bank’s accountability to its beneficiaries.

It is interesting to note that the Bank has not needed donor funding since the mid 1990s and is a self sustainable organization funding its operations from the loan portfolio generated through recycled loans. Donor accountability would bring with it a whole layer of reporting bureaucracies and often unintentionally dilutes the development work of NGOs. As the Grameen Bank is not accountable to any donors, they can focus all of their accountability to their key stakeholders, the borrowers of the Bank. It is then legitimate to argue that NGOs that do not rely on donor funding for their operations tend to be more accountable to their beneficiaries.

A key participatory method used by Grameen Bank is the weekly meetings where borrowers gather to repay their loans. Yunus in his autobiography describes how this meeting is held in the open so as to ensure the accountability of the NGO staff to the beneficiaries. These weekly meetings also provide a regular platform for beneficiaries to air any concerns or engage in dialogue with the NGO staff. Non borrowers are welcome to attend the meetings as observers so this further increases the accountability of Grameen’s staff to the borrowers as it prevents situations or accusations of Grameen staff trying to trick the illiterate borrowers.

These weekly meetings not surprisingly have proven to be an excellent way for borrowers to share new ideas and innovative approaches to discussing solutions to problems that they may be facing. Grameen’s field staff then shares these ideas and work with senior Grameen Bank managers to implement the most viable solutions in their areas. Often, if these solutions are successful in the pilot run, they are expanded to other regions of the country. To illustrate with an example, borrowers raised the issue that often their livelihood income would be impeded with the untimely death of their husbands and they wanted some kind of safety net that would protect their loans. The Grameen Bank staff with approval from their superiors proposed a loan insurance scheme whereby a borrower’s loan would not be considered to fall into arrears if such unfortunate circumstances were to beset the borrower. This product was an immediate success and very quickly incorporated in to Grameen’s services. Addressing the needs of the beneficiaries needs in a timely manner is further proof of Grameen Bank’s accountability to them.

The weekly meetings hence allowed beneficiaries to develop close relationships with the Bank staff and vice versa. Grameen Bank’s field staffs reside in the villages they serve and therefore know the lives of their beneficiaries intimately, often spending ten hours a day visiting with borrowers. Whenever beneficiaries are facing difficulties, ranging from problems with loan repayments to even private domestic problems, the bank workers are the first to know as beneficiaries often turn to them for help and guidance. These strong relationships based on trust create further incentive for bank workers to have a high degree of accountability to the beneficiaries.

Clearly this is a great aspect of NGO accountability to its beneficiaries as there is a high degree of involvement not only through an effective participatory method whereby the beneficiaries can give feedback on the services that Grameen Bank provides, but also because of the close personal relationships that are built, it fosters significantly higher accountability.

However, it is important to highlight that there could be certain potential weakness of the weekly meeting system. For instance, it is possible that the beneficiaries may not actually voice their opinions openly in fear of retribution. Given the cultural paradigm in Bangladesh where women are not expected to be vocal, this could actually prevent female borrowers from being active participators. Although this is an important point to note, the fact that Grameen Bank has amended so many of their practices based on feedback from their clients, suggests that this does not weaken the hypothesis of this article.

A weakness of this system that has been referenced is that borrowers could take loans citing the use would be for income generating activities but end up using it for consumption purposes. Critics maintain that there is no effective way to keep a track of this bait and switch tactic used by borrowers. Although this is a fair point, because of the high degree of trust and interaction between borrowers and the Grameen staff, field officers would very quickly discover if a borrower was using their loan for any other purposes than income generating. It has been cited that the staff would then work with the borrower to help her find a way to repay her loan. This lends support to the hypothesis following the line of reasoning that without a high degree of accountability to the borrowers, the Grameen Bank staff would not take the time to try and negotiate a reasonable alternative for the borrower to repay her loan.

Another strength of Grameen Bank’s operations can be attributed to the rigid transparency of their operations. Everyone, from government officials to the beneficiaries have access to all financial records held by Grameen Bank. In fact, recent accusations in 2007 (coincidentally made by political parties of Bangladesh when Dr. Yunus announced his intention of running for elections) of charging high interest rates to their borrowers were dispelled when Dr. Dipal Barua, Deputy Managing Director of the Bank invited critiques to review financial data of Grameen Bank.

However it is necessary to discuss possible weaknesses of this financial transparency and is best illustrated with an example. If for instance, a beneficiary is suspicious about whether their loans and savings amounts are being accurately recorded or not, unless they are literate (which is often not the case) or have a family member who is literate enough to help them read and understand their records, transparency of their financial records does not really add much value to them. Having said that however, the fact that there is such a high level of transparency, it naturally makes the Bank and its staff accountable to the beneficiaries. This is further corroborated by the fact that incidents of embezzlement of loan funds by staff are almost unheard of.

Empowering the Grameen staff in decision making adds to increased accountability towards beneficiaries and improved participation methods. In Holcombe’s research, she has shown that when staff feels empowered and motivated by their superiors in decision making they tend to be better workers and hence more committed in engaging beneficiaries in the participation process. Grameen Bank spends a significant amount of time in motivating their staff through training and instilling a culture of open communications. Given the close association that the field officers have with the beneficiaries it is critical that they feel empowered enough to make suggestions to improve processes of the credit delivery system. Often, recommendations made by bank workers have been incorporated in the operations hence providing greater motivation for the staff to be better workers and to also strive to seek ways of improving accountability to their beneficiaries.

Grameen is in a unique position of having been able to successfully recruit a cadre of committed individuals to its cause. A potential weakness to bear in mind especially for NGOs of other countries trying to emulate similar staff empowerment training could result in failure if not done in a careful and well constructed manner. There have been many reports from microfinance institutions in other countries that they have not had as much success in recruiting and retaining motivated staff of the same calibre and commitment of Grameen Bank staff. Discussions with former Grameen Foundation colleagues indicate that this is due to the low motivation of these MFI staff members hence providing secondary support of the theory that one of the reasons why Grameen has a high level of accountability to its beneficiary is due to its motivated and empowered staff.

In conclusion, it is clear from the above outline that the hypothesis of this article that Grameen Bank is highly accountable to their beneficiaries through the use of participatory methods engaging their beneficiaries holds true. Grameen Bank's success may be traced to its unique organizational structure, which although formal and hierarchical, it also incorporates participatory approaches and provides effective linkages with the community structures. The evidence presented in this article is very strong and lends a high degree of support to this hypothesis. There are many important lessons to be learnt from the Grameen Bank experience foremost of which is that beneficiaries should be treated as the key stakeholders in accountability measures. Furthermore other factors such as 100% transparency in NGO activities and a high degree of NGO staff empowerment contribute towards a higher level of accountability to NGO beneficiaries. Grameen Bank although a unique experience provides many critical lessons to other NGO and with the right level of discipline and commitment, NGOs could easily emulate the success of Grameen Bank in their own work. Various states, nongovernmental and multilateral organizations across the globe have sought to replicate the Grameen experience, albeit with mixed results. Randhawa asserts that studies have shown that the crucial determinants of success are decentralization of decision making within the lending organization, devolution of power to the actual borrowers, and identification of potential recipients. Continuous research and reflection on Grameen Bank’s accountability measures will only lend more credibility to this practice and encourage other NGOs to adopt similar methodologies. In order for there to be tangible and measurable progress in development it is necessary to continuously scrutinize Grameen Bank’s work (along with the work of other successful NGOs) so that they continue to improve their impact on the overall development progress of their beneficiaries.

The author, Tania Ashraf, with Grameen Bank Founder Muhammad Yunus

Grameen Bank--Photo Gallery
(photos by Stephen Hanson)

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Hashemi, S.M, “NGO Accountability in Bangladesh: Beneficiaries, Donors and the State” Beyond the Magic Buller: NGO Performance and Accountability in the Post- Cold War World. USA. Kumarian Press. 1996.

Holcombe, S. Managing to Empower: The Grameen Bank’s Experience of Poverty Alleviation. UK. Zed Books Ltd. 1995.

Mayhew, S. H. “Hegemony, Politics and Ideology: the Role of Legislation in NGO- Government Relations in Asia”. The Journal of Development Studies, Vol. 41, No. 5, July 2005, pp 727-758.

Mueller-Glodde, U. Poor, But Stong: Women in the People’s Economy of Bangladesh. Germany. German Commission for Justice and Peace. 1994.

Nazrul, I. “Grameen Bank Bangladesh: A credit institution for housing”. Habitat International Coaltion Case Study. 1996
<http://www.hic-net.org/document.asp?PID=110>

Shah, P & Shah, M.K, “Participatory Methods for Increasing NGO Accountability: A Case Study from India”. Beyond the Magic Buller: NGO Performance and Accountability in the Post- Cold War World. USA. Kumarian Press. 1996.

Yunus, Muhammad. Banker to the Poor: Micro-Lending and the Battle against World Poverty. USA: Public Affairs. 1999.

Tania Ashraf a native Bangladeshi, is a world traveler by default. She has an undergraduate degree in Economics from the Australian National University and is pursuing a part time MBA at the George Washington University. Tania has had a long association with Grameen Bank and Dr. Muhammad Yunus. She considers herself a huge fan of the Bank and its mission to alleviate poverty and bring empowerment in Bangladesh. Her email is: tania.ashraf@gmail.com

Nazrul, I. “Grameen Bank Bangladesh: A credit institution for housing”. Habitat International Coaltion Case Study. 1996 <http://www.hic-net.org/document.asp?PID=110>

Nazrul, I. “Grameen Bank Bangladesh: A credit institution for housing”. Habitat International Coaltion Case Study. 1996
<http://www.hic-net.org/document.asp?PID=110>