Understanding the bangladesh grameen bank operations

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Bangladesh Grameen Bank (Grameen) is one of the greatest phenomena of modern times. The brainchild of Dr. Mohammed Yunus, a US educated professor who came to teach at Bangladesh's University of Chittagong, Grameen is the pioneer of microfinance.

Microfinance, a lending practice for the poorest of the poor, which was conceptualised by Dr. Yunus in the course of his field work with his students in Bangladesh, has now spread across the world (Holcombe, 1995, p 4 to 13). The poor have historically tended to remain poor and become even poorer because of the reluctance of the formal banking sector to lend them small amounts of money because of their low incomes and inability to provide collateral. Dr. Yunus brought about a radical change in such thoughts by introducing and implementing a banking system that is able to provide loans without collateral to the poor for setting up small enterprises, charge them viable rates of interest, and yet recover money from them in time (Holcombe, 1995, p 4 to 13).

The microfinance model has become a great success in Bangladesh and has touched the lives of hundreds of thousands of Bangladeshi citizens. Dr. Yunus and Grameen were honoured with the Nobel Prize in 2006. Their microfinance model has been emulated by numerous organisations in different countries (Grameen..., 2010, p1).

This short research study attempts to investigate the growth and operations of Bangladesh Grameen Bank, analyse its PESTEL and SWOT features, and thereafter make appropriate recommendations for its future growth.

2. Background, Structure and Objectives

The concept for Bangladesh Grameen germinated in Chittagong, Bangladesh, at the instance of Dr. Mohammed Yunus, who came to take up a professorship at the University of Chittagong after completing his PhD from Vanderbilt University. Dr. Yunus, whilst engaged in rural development work with his students on the outskirts of Chittagong, found local villagers to be living in abysmal poverty, despite working continuously at making small jute utility items, because of their lack of access to structured banking and finance facilities. Organising a sum of approximately 1200 Dollars from his own and his students' resources, he provided micro loans of 27 USD each, without any security, to 42 families, for financing their micro level production activities (Jain, 1995, p 3 to 9).

With his experiment at this revolutionary type of lending being startlingly successful, both in terms of recovery and in terms of economic upliftment and business growth of borrowers, Dr. Yunus developed a model for providing banking services and loans to extremely poor people Bangladesh, one of the poorest and most densely populated countries of the world, provided abundant opportunities to Dr. Yunus for putting his banking theories into practice. Grameen grew steadily over the years through the application of numerous innovative financing and business techniques to become a truly effective and empowering organisation (Jain, 1995, p 3 to 9).

The bank as of now has practically 8 million borrowers, the overwhelming majority (97%) of whom are women. Millions of families have been helped to overcome the poverty and illiteracy trap through its banking and lending facilities (Grameen..., 2010, p1). The bank today has approximately 25,000 employees, about 2500 branches and works in more than 80,000 villages. The bank, which is owned by poor borrowers and the Bangladesh Government in a 94:6 ratio, has distributed approximately 7 billion USD in loans and has a claimed recovery rate of more than 98% (Grameen..., 2010, p1).

The objectives of the bank are well known and relate to extension of banking to the poor, elimination of exploitation of poor individuals by money lenders, creation of self employment opportunities for unemployed Bangladeshi citizens, bring oppressed and disadvantaged women within an organisational structure, and reversing "the age-old vicious circle of 'low income, low saving & low investment', into virtuous circle of 'low income, injection of credit, investment, more income, more savings, more investment, more income'. (Grameen…, 1998)

3. Methods of growth

The growth of Bangladesh Grameen has been driven by a number of factors that include (a) its unique lending philosophy, (b) its organisational structure, (c) its mode of operations, (d) the distinctiveness of its intervention methods, (e) the vision of its leadership, and (f) its management culture (Holcombe, 1995, p 4 to 13).

Grameen bases its lending philosophy upon its objectives and has accordingly developed a lending philosophy that is based on lending to poor people who cannot access the formal banking system, because of their inability to provide collateral for loans and their small transactional capacities. Dr. Yunus is very firm in his conviction on the role of women in the economic and social enhancement of poor families and the overwhelming majority of Grameen loans are given to women. A clear focus on its target clientele has enabled Grameen to carefully construct lending, recovery and growth policies (Holcombe, 1995, p 4 to 13).

Grameen has over the years built a sophisticated organisational system that has evolved in response to the developmental requirements of its target clientele (David, 1994, p 2 to 11). The organisational structure of the institution has two aspects, namely the receiving system and the delivery system. The receiving system consists of groups and centres and is an important institutional tool for the organisation of operating units. The delivery system of the bank comprises of branches, area and zone offices, and the head office. The organisational structure is institutionalised, focussed on decentralisation, and is essentially democratic and participative (David, 1994, p 2 to 11).

Grameen has developed specific criteria for eligibility, which exclude people who are not poor, in accessing its facilities (David, 1994, p 2 to 11). Priority is given to women and the delivery system is designed to meet the various socio-economic requirements of poor people. Unlike orthodox banks, Grameen officials go to clients; officials train new groups, help in their development and oversee the gradual progress of disbursing loans to new borrowers. Care is taken to simplify borrowing processes, keep loan sizes modest and ensure that banking rules are complied with and that repayments made on schedule. Grameen has a phenomenal recovery rate of more than 98%, an achievement that has occurred primarily because of the shared responsibility of group members for the repayment of loans of individual members of the group (David, 1994, p 2 to 11).

Grameen's management vision, organisational culture and intervention methods are all dictated by its key objectives and constantly aim at greater flexibility of operations and de-bureaucratisation of systems, even as responsibility is devolved to lower operating levels to ensure that the benefits of Grameen's facilities are not misused by vested interests and are delivered to people in need (Holcombe, 1995, p 4 to 13).

The bank has grown enormously during the last 30 years often disproving its critics from the mainline banking industry.

4. SWOT Analysis

A SWOT analysis involves a careful investigation and elaboration of the (a) internal strengths and weaknesses of an organisation and (b) its environmental opportunities and threats (White, 2004).

Grameen's enormous success in its area of growth leads to the conclusion that the organisation has numerous strengths, which it has effectively used to exploit environmental opportunities.

Grameen's strengths arise basically from its firm and committed vision of focussing only on the poor in order to (a) provide them with appropriate and practical banking and lending facilities and (b) to empower them to behave like responsible and trained entrepreneurs and business persons.

The vision and commitment of its management has now been translated into strengths, with the use of a range of unorthodox and essentially participative management practices, in areas of organisational structure, service delivery and the management of its target group. The organisation has more than 25,000 committed workers who constantly work with their target clientele and strongly believe in their corporate mission.

The extremely high recovery rate and good levels of interests have ensured that the bank has a very strong financial structure and does not have to approach outsiders for contributions or loans. All its loans are made from its deposits and the financial storm that has wrecked the largest American and European banks has left Grameen untouched. The bank can use its very strong financial base, its developed organisational strengths and its totally committed customer base to bring about significant economic change and upliftment in Bangladesh.

Some observers feel Grameen's growth and its essentially decentralised structure have created organisational inefficiencies. The bank has a comparatively high attrition level at the entry level and many employees quit shortly after joining. With employees at Grameen having to work much harder than their counterparts in government or in the private sector, it is conceivable that the bank can face a workforce crunch in future (Jain, 1995, p 3 to 9).

Whilst the bank has achieved enormous success, Bangladesh continues to be a poor country and the bank can extend its facilities to millions of people. With its expert knowledge in the area of microfinance, the bank should be able to play a key role in bringing the benefits of microfinance to poor people in other societies.

Whilst the bank is unlikely to face threats from competition, its borrowers are prone to the effect of collective disasters like floods or cyclones, which, when they occur can adversely affect their repayments. The operations of Grameen have previously being adversely effected during natural calamities and famines (Jain, 1995, p 3 to 9).

5. PESTEL Analysis

The PESTEL (Political, Economic, Social, Technological, Environmental and Legal) analysis of Grameen helps in a clearer understanding of the environment in which the organisation operates (Porter, 1980).

Bangladesh, ever since it achieved independence in 1971, has experienced extreme volatility in its political conditions, with democratic functioning often being disturbed by periods of military rule. Whilst the country is now a democracy, it is too soon to assess whether the political situation will continue to be stable in the future. The organisation, because of its size and the extent of its operations has to continuously interact with governmental policy makers and officials. Although the bank has continued to grow despite different political dispensations, it is possible that governmental policies could in future affect its operations.

Bangladesh continues to be an extremely poor society. The country is however experiencing better rates of growth than it did in the past. Grameen essentially works for the poor and has been instrumental in changing the lives of millions of economically underprivileged people. The company's activities are closely associated with the country's economy and the bank is accepted to be a key driver of the country's economy growth.

Bangladesh society is predominantly Islamic by way of religion. Literacy levels are low and the position of women is subservient to that of men. Grameen specifically aims at uplifting type conditions of women and approximately 97% of its clients and owners are female. Many of the bank's lending policies are shaped by the need to improve literacy and lending terms and conditions to borrowers are set accordingly. It is for example imperative that all borrowers of Grameen send their children to school.

Whilst the country is technologically not very advanced, Grameen is doing its best to change the environment through the bringing in of wireless payphone services. The organisation was awarded the Petersburg Prize in 2004 for its contribution to technology (Porter, 1980).

With a largely agrarian economy, Bangladesh does not have serious environmental issues. Legal institutions are also in the process of development and legal recourse is difficult to obtain swiftly. Grameen ensures through its innovative and participative debt collection system that it does not have to go to the courts for legal recourse (Porter, 1980).

6. Conclusion

Bangladesh Grameen is the result of a man's vision and commitment to bring about long lasting economic and social and economic change in tremendously adverse conditions. Whilst the western world had for long written of Bangladesh as a "basket" case with very few chances of growth, Grameen, through its understanding of the social and cultural milieu of the country and the needs and abilities of its citizens is bringing about change that has clearly proven to be much beyond the likes of the World Bank. It is an example of the achievements that can be made with ****

Part B

1. Retail Fast Food Industry

The retail fast food industry is influenced by a number of factors. Such factors can start with the type of establishment and extend to the demographics of the local community. There are different types of restaurants that cater to different customer preferences for food. Whilst the most popular fast food n the UK has traditionally been fried fish and potato chips, contemporary times are seeing an increase in establishments that serve beef burgers, Indian fast food and Lebanese kebabs (Gambone, 2010, p1).

The geography of a fast food restaurant is also important to its success. Whilst restaurants often do good business in populated areas, their sales can be affected by the presence of other fast food establishments in the same area. Competition often leads to the emergence of additional product and service features and lower prices (Gambone, 2010, p1).

The size of a fast food restaurant can have a major impact on its success. Larger restaurants facilitate the provisioning of better seating, more comfortable environments, the opportunity to service greater number of customers and more alternatives in eating choices.

Recent decades have seen the growth and emergence of a number of branded fast food companies like McDonalds, Burger King, KFC and Subway. The development of a strong brand is now clearly associated with the success of fast food chains.

Competition has increased intensely in the fast food industry in the UK in recent times. Whilst the fast food industry in the UK in the past was dominated by Fish and Chips stalls, until McDonalds came along and established its presence across towns and cities, recent years have seen the emergence of a range of enterprises, both in the single shop segment and in the fast food chain sector.

The fast food sector in the country is now characterised by the presence of small standalone shops and local and international chains. London, with its cosmopolitan environment and its position as an important commercial and tourism centre is home to fast food shops that deal with a range of cuisines that include English, American, Asian, European and Latin American food items. Such competition has occurred because of a numerous reasons like growth in population and incomes, greater number of women entering the workforce, a more multicultural society, smaller families and single parents.

2. Body Shop

The Body Shop was started by Anita Roddick in 1987.

The company has since its inception been committed to the production of natural and healthy cosmetics. The organisation ensures that all its products are made with natural ingredients, are never tested on animals and are packaged in recyclable packing material. Whilst these aspects of the company's philosophy have placed it in direct rivalry with department stores, they have helped in the building of an organisational culture and image that has helped Body Shop to grow into a globally renowned organisation with thousands of employees, and stores in approximately 50 countries. The organisation's culture calls upon employees to work towards social and environmental sustainability, to balance the human and financial requirements of stakeholders, and to contribute towards the local and international community (The Body Shop..., 2009, p 1).

The organisation has never had a marketing or advertising department and uses its stores to create consumer awareness. The company's organisational culture is focused on strengthening its product heritage, expanding customer brand experience, reducing production and inventory costs and increasing purchases from ethical suppliers. The company engages in strong stakeholder consultation to maintain its commitment of delivery value. The organisational culture of the company aims to translate Anita Roddick's commitment towards healthy and natural living into practical and down to earth organisation practices, many of which have helped to propel Body Shop's growth (Charles, 1994, p 4).

Corporate structures provide unambiguous ways and means to ensure that employees know their jobs, understand the tasks of their colleagues, and realise lines of communication and organisation. Such structures help them to appreciate accountability and responsibility and resolve work related problems.

Body Shop has overtime evolved an effective corporate framework, which aims to oversee business and decision making routines, financial implications of operations and maintenance of corporate governance objectives, in its different areas of work. The majority of the ten member board of directors are non-executive and provide balanced, holistic and external perspectives to the company's operations and strategies. Body shop also makes use of a range of committees that oversee areas like corporate governance, nominations of non executive directors, auditing and accounting and maintenance of ethics. The organisational structure of the company aims to translate the basic vision of the company's management and its objective into reality and has contributed significantly to the company's growth.

3. Tesco Plc / Virgin Group

Diversification concerns a change in the business definition of organisations in terms of products, technologies, customer functions and customer groups of a firms business or businesses.

Tesco and Virgin Plc are two UK based companies that have grown significantly in recent years. Both the organisations have engaged in extensive diversification. Tesco, the largest food retailer of the UK, initiated its diversification plan in 1997 and is by and large following Ansoff's growth model by first focusing on introducing new products to its existing customers and then moving on to establishing new markets for its existing products.

The company's diversification strategy aims at growth in non-food, financial services, and telecom businesses, in its large and expanding home markets, and at the establishment of new markets in Central Europe, Asia and the United States (Tesco Plc, 2009, p 1).

The diversification strategy of the Virgin group is on the other hand identified with the entrepreneurial spirit of its founder, Richard Branson. The Virgin group has a number of ventures, many of which like airlines, mobile phones, railways and financial services are in unrelated areas of business. The company, many experts feel, has engaged in over diversification, which has led to lack of focus, over emphasis on the Virgin brand, and operational and financial inefficiencies. Whilst the group's diversification policies are in line with the unorthodox and creative attitude of its founder, the group keeps individual company's independent, thus avoiding the legal problems faced by conservative conglomerates. The various companies are however linked in strategy and knowledge sharing and help each other (Grant, 2008, p 279-297).

Concentric diversification occurs when an organisation engages in an activity in a manner whereby such activity is related to the current business or businesses. Concentric diversification can be related to marketing, to technology or to both. Whilst concentric diversification can help in the realisation of synergies in areas of finance, information, operations and personnel it can also increase risk, reduce flexibility, divert resources, dilute management focus and open conglomerates to the risks of managing new activities (Kenny, 2009, p 12 to 31).

With the different units of a conglomerate being closely related to each other in matters of financial and corporate structure the business failure of one of the units can lead to adverse effects upon the other members of the group.

4. Leadership Styles for Managing Change

Autocratic leaderships refer to leaders who tell employees what to do, issue orders and expect unthinking obedience.

Most strong historical leaders have been autocratic and effective leadership, even in the modern day, is associated with elements of strength and paternalism. Research reveals that employees are often anxious when clear leadership cannot be clearly identified. Such attitudes spawn the belief that autocratic leaders can get things done effectively and are ideal in situations of emergency or change, when things need to get done and strong decisions are required (McCrimmon, 2007, p 1).

Whilst emergencies could on occasion require strong willed leaders, the bringing about of effective change in the modern day business environment is associated with provisioning of direction, communication of the need and benefits of change, building change champions, and steering organisations with firmness through the disturbances that are essential to extensive change management initiatives. There is very little scope for autocratic leadership in modern day change management scenarios. In fact autocratic leadership during change management failed miserably during the merger of Chrysler and Daimler (McCrimmon, 2007, p 1).

The popular maxim of people being born to be leaders is associated with the Traits Theory of Leadership and assumes that only people with certain types of traits can be leaders. Early trait theories stated that leadership was essentially an innate and instinct quality that a person have or did not have. Training for leadership development of leadership, in such circumstances was futile.

Modern day leadership theory has progressed far beyond this approach and organisational managements are constantly investigating ways and means to develop leadership qualities in their employees. The traits theory however does help in the identification of qualities that are required in good leaders. Modern day organisations try to understand the important features of different leadership theories and try to develop leadership skills through training. The adoption of such an approach does not however imply that all people are equally suited for becoming good and effective leaders. It is thus important for organisations to choose individuals, either from outside or from within the organisation, who have specific character traits. Such people can then be very effectively groomed to assume leadership positions through appropriately designed and efficiently delivered leadership training programmes.

5. Kentucky Fried Chicken

The decision on entering the foreign market is extremely important for the success of expansion initiatives. The most common and basic level of entry into foreign markets is through exports of goods or services from the home country. Such exports are often converted into more active involvement in a foreign market through licensing or franchising, engagement in joint ventures and foreign direct investment in a country. Foreign direct investment relates to the actual ownership of facilities in a host country and can be made either through establishment of an enterprise or through the acquisition of an existing business (Johanson, 2000, p 1).

KFC adopts a number of ways to enter its foreign markets. The company entered Mexico and Puerto Rico through company owned subsidiaries, whilst it entered small Caribbean markets through franchises. The company has in recent years pushed for expansion through franchises in its new markets in Asia, where local entrepreneurs provide the company with a better understanding of local market characteristics (KFC Corporation, 2010, P 1).

KFC has proved to be immensely successful in the international market despite strong competition from companies like McDonalds and Burger King. The company's success, experts feel is due to the company's policies of focusing on product quality, standardisation and uniformity and on the local preferences of its customers. The company operates a similar organisational format for all its stores, which is marked by cleanliness, hygiene and a use of best quality materials. Apart from ensuring standardisation in its product and service offerings, the company takes great care in choosing its foreign partners and ensures that it teams up with people who are financially sound and have impeccable business reputations. The company also places great emphasis on the eating preferences of local customers and tailors its menus accordingly. As such whilst customers in China have an option of Peking chicken, customers in India are served their chicken with an overload of spices. This combination of marrying global standards of production and hygiene with local customer preferences is felt to be the major reason for KFC's international success (KFC Corporation, 2010, P 1).