1. Adding value: How Grameen II Complements Informal Finance in Bangladesh Stuart Rutherford SafeSave Bangladesh, & IDPM Manchester Global Conference on Access to Finance Washington May 30-31 2006

2. In Bangladesh, we found evidence that Grameen Bank’s revamped services: sometimes get incorporated into existing practices sometimes complement them have certainly extended them and for some households are beginning to replace them In general, this is a healthy development

3. ‘Financial Diaries’ Record the financial activity of households in detail by means of interviews at two week intervals for at least one full year The first diaries were done in Bangladesh in 1999-2000 (for IDPM) and found that poor rural and urban households had active financial lives: even the poorest used at least four instruments (including both savings and borrowings) in the year. See www.fiancialdiaries.comwww.fiancialdiaries.com ‘Grameen II’ Is the radical redesign of Grameen Bank’s products menu for its 5.5 million clients in Bangladesh, introduced from 2001 on Its loans feature a wide range of terms, payment schedules, and values, and loans can be ‘topped-up’. It offers passbook savings and a new long-term commitment savings plan. For three years (2002-2005), funded by MicroSave, we used the financial diaries technique to see how the Grameen II products were taken up and used by villagers. See www.microsave.orgwww.microsave.org

4. Incorporation Example: MFI loans, including Grameen II loans, are often on-lent within the village Of 239 MFI loans we tracked, 27 (11% of them, 15% of total value) were fully on-lent to other villagers (not in the MFI client’s household) When Sheelu’s husband lived abroad and remitted regularly, she became a village moneylender. Now her husband is back, but Sheelu is still often asked to lend to neighbours. She uses her membership in two MFIs to fund her lending. The bigger loans (of up to $600) that she can get under Grameen II’s ‘special investment’ terms, are particularly useful. Sheelu is a good saver, too, and has $630 in Grameen’s commitment savings.

5. Complementing Example: MFI loans, including Grameen II loans, may be used to refinance private loans Of 239 MFI loans we tracked, 25 (10% of them) were used wholly to pay down other debt, and another 30 were used in part for this purpose A priority for Jahanara’s family in 2003 was to send her 15 year old son to work abroad. To raise money for this expensive project they borrowed locally, both on interest and interest-free. The fact that Jahanara had membership of two MFIs (Grameen & ASA) helped in two ways: it gave them local creditworthiness, and they used her MFI loans to repay the private debt. In late 2004 the son went to Malaysia and by mid 2005 was remitting cash to his parents.

6. Extension Example: Grameen II’s ‘Grameen Pension Savings’, a 10-year commitment savings plan, has provided a service unobtainable in the informal market. Most Grameen members we tracked opened a GPS, many making monthly deposits greater than the minimum required to hold a large loan. Jharna left Grameen Bank after many years of membership when she became a widow and felt unable to repay loans regularly. But she retained her GPS account, which will be worth $3,400 when it matures in 2010. The payment of the $15 monthly deposit is shared by Jharna and her two sons and a son-in-law, who jointly run a tea-stall. Jharna, illiterate, expounded the arithmetic of the GPS to us correctly, and clearly explained why in her situation saving-up long term was a better option than borrowing short-term.

7. Replacement Example: The full range of flexible deposit and loan products now available under Grameen II has lead some villages to adopt Grameen as their sole service provider. Joshna has been in Grameen Bank for 17 years, and has been a shrewd user of financial services of all kinds. But our records show that over the three years of ‘diary’ research she paid off a bank loan and several private loans, and now has no transactions outside Grameen. Now that she has a passbook saving account at Grameen she doesn’t need to borrow locally for day-to-day needs (such as for Grameen loan instalments). Her passbook savings is her ‘transaction’ account.