Alternative Finance Models Essay Example | Topics and Well Written Essays - 2000 words

Alternative Finance Models - Essay Example After the end of World War II there have been various innovations in the Banking sector and communication and technology have played a major role in aiding these innovations. The question is, however, whether the financial system that countries have been following is reliable or not. The system failed in the recent financial crisis and many countries such as Bangladesh are now finding alternative finance models such as Grameen Banking and the Gulf countries have now introduced Islamic Banking. Both of these models have certain attributes that differentiates them from the conventional Banking system. The choice of the system depends on the nature of the country and the series of policies being followed by the government. According to the World Bank estimate, around 1.3 billion people live on less than a dollar per day. Grameen Bank system was formed in 1976 by Muhammed Yunus, with a vision to eradicate poverty from Bangladesh. (Anon., n.d.) This Bank is designed especially for the poor who have no education, no credit history and no assets to offer to the Bank (Latifee, 2008). The bank also aims to empower poor women who are usually the bread earners of the family (Anon., n.d.). Women in Bangladesh are engaged in activities such as farming or raising poultry and they need small loans in order to meet their daily needs. Furthermore, women in Bangladesh are not educated and lack the basic knowledge about banking activities. The Grameen Bank was formed especially for women in the rural areas who do not have the finances to pay for their children’s education or to pay for basic necessities such as food and water. With the Grameen bank designed especially for the poor these women and men can now go to the bank and avail the financial services like any other individual residing in the urban area. For example women can get loans from the Bank and start up their own business. The loan can be repaid within a period of 3 months or 3 years depending on the amount. There are no requirements for getting the loan but members are usually required to memorize the resolutions proposed by the Bank. These resolutions include statements such as â€Å"I will use clean drinking water, I will wash vegetables with clean water, I will use contraception when possible† and so on. It has been estimated that the population growth in Bangladesh fell after the Grameen Banking system was introduced (Yunus, 1999). The concept of resolutions was Muhammed Yunus’s idea and he wanted to educate the women of his own country and help them improve their standards of living. His strategy has worked and over 5% of borrowers from the Grameen Bank rose above the poverty level and extreme poverty decl ined by 70% in a span of 5 years (Yunus, 1999). The Bank also serves the beggars though its struggling members program. The main features of this program are: The rules of Grameen Bank do not apply to these members and they can form their own rules All loans given to these struggling families are free of interest and they can pay installments in any way they are comfortable with The beggars are not asked to give up begging but they are asked to engage in other income generating activities. The main idea behind this step is to slowly move these beggars away from beggary and introduce them to other income generating activities. Such programs help the poor in ways one could not have imagined. Grameen Bank is probably the first Bank in the history of Banking which is 100% made for the poor and of the poor. The poor own the Bank; after a year of membership they can buy shares in the bank and become members. According to the founder Muhammed Yunus around 94% of the bank is owned