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David Roodman's Microfinance Open Book Blog


Prime Minister Sheikh Hasina's first formal act after publicly vilifying the Grameen Bank last winter was not to sue Muhammad Yunus for being 70, but to launch a committee to investigate the charges of wrongdoing in Tom Heinemann's documentary and, presumably, whatever else it could dig up. The committee's report, originally scheduled for April 4, is now due April 21.

Two articles in the Bangla press this week previewed the committee's findings. I was sent translations on an anonymous basis (article in the Daily Jugantor, article in the Independent). The translator is welcome to identify him/herself. Correction: The Independent is in English.

The big question is what can be inferred about the government's intentions by reading between the lines of these articles. Is the government after judicious reforms that will help the Grameen Bank thrive beyond the tenure of its founder? Or is this investigation a prelude to a takeover to extract short-term political benefit (loan forgiveness, anyone?) to the long-term detriment of the Bank and even other microcreditors?

To my eye, the Daily Jugantor article generally admits both interpretations. It speaks of:

  • Requiring the Grameen Bank to keep its Statutory Liquidity Ratio funds (including the Cash Reserve Ratio funds) in an account at the Bangladesh Bank, which is the country's central bank. Currently Bangladeshi banks are required to maintain an SLR of 19%, meaning that of each 100 taka of deposits they accept, at least 19 must go into very safe forms such as cash, gold, government bonds, deposits at the Bangladesh Bank. This policy has two purposes: providing the central bank with control over money supply and inflation (by limiting how much of their deposits banks can on-lend) and, by the same token, protecting savers by limiting the risks that banks take with their money. Currently the SLR requirement does not appear to apply to the Grameen Bank. The last note of its 2009 audited financial statement shows only 0.5% of its reserves in such safe places. Thus the proposal here can be seen as affording Grameen's low-income savers the same protection as depositors at commercial banks.

    Grameen could easily meet the requirement by shifting money from the ~1-year certificates of deposit (time deposits) it holds at commercial banks. However, this would cut into its interest income. That would make the 12% interest rate it promises on 10-year savings even more untenable than it became after the country's interest rates fell a couple of years ago. (That decline should have hit Grameen in 2010 as its higher-rate 2009 time deposits expired, so I expect its 2010 financial statements, due soon, will show a deterioration.) As noted before, Grameen's high rates on deposits have attracted an influxover the last decade, which in turns appears to have compelled the Bank to lend more. In 2009, Grameen increased its borrower rolls while ASA and BRAC, the other members of the big three, shrank. So a careful reversal of these patterns could be healthy. An abrupt one, on the other hand, could be destabilizing.

  • Changing how the board of directors is constituted. Currently 9 of the 12 members are elected from the Bank's membership. I know next to nothing about this selection process. So I am not in a position to contradict this passage:

    As a result of this, women who are not experienced in banking, uneducated or semi-educated are sitting on the Bank Board. Hence these women are not able to contribute positively to the policy-making role of the Board; in fact, other than being present, some of these elected members do not have any role in the Board meetings. Thus, for all this time, the Board has been operating as a "one man show."

    It seems plausible to me that this board majority has not provided the informed, independent oversight that a good board must, but rather has voted as told by Grameen management; and, if so, then a full succession has not occurred at the Grameen Bank. There is a fundamental constitutional question here: can a legitimate, democratic process select from the Bank's 8.4 million members 9 who are suited for the responsibility of providing oversight for a big bank, which requires the highest legal and financial savvy?

  • On the other hand, the focus on the board is also consistent with the hypothesis that the government wants to take over and effectively undermine the Grameen Bank. After all, the Board must consent to the choice of successor, so its member-majority is now the primary obstacle to government control. And the Independent article signals a more adversarial stance, quoting Monowar Uddin Ahmed, the chair of the investigative committee:

    Regardless of the loopholes we have found during the review process the majors shortcomings of micro-credit operations as a social business is that it has no policy guidelines.

    My best guess about what the means is that the Bank has no policy guidelines from the government, i.e., the government needs to exercise more control.

    This is also intriguing and ambiguous:

    He said the committee has probed a number of details, including the relationship between GB and its more than 50 affiliated organizations, along with fund transfers from the organization to another. He said the committee has tried to identify benefits enjoyed by the bank's directors and other shareholders over two decades.
    The committee has also looked into the bank's transparency and accountability on financial transactions with various organizations.
    "We have found many questionable relationships among the bank's sister organizations, along with some dubious transactions. But we will disclose the facts after handing over the report to the government", Ahmed said.

    Indeed, this gets to something I have wondered about. Legally separate from the Grameen Bank are many "Grameen" companies. My impression is that most are small, while a few, such as Grameen Shakti (which does solar power), have taken off. Their activities were separated from the Bank both as a matter of propriety (financial troubles in non-banking activities should not threaten the finances of the bank) and to give them more independence from the government than the Bank has (which see, current events). Most of these organizations seem rather opaque, and their leadership apparently overlaps heavily with that of the Bank. So Yunus may still run most of his empire.

    Of particular interest is Grameen Telecom (out-of-date website here), which owns $1.1 billion in Grameen Phone stock (34.2% of a market capitalization of 230.1 billion taka at 71.17 taka/$). It is easy to imagine that this wealth has been tapped to finance other Grameen companies. The legal transfer of funds from the Grameen Bank to Grameen Kalyan, which triggered the dispute with the Norwegians exposed in the Heinemann documentary, could be one of many such shuttlings, albeit perhaps one of the very few involving the Bank. Whether transfers between Grameen companies other than Bank would be illegal or merely fodder for insinuations, I don't know. If the wealth of Grameen Telecom is supporting much of the rest of the Grameen family, this could be an appropriate reinvestment of profit from one social venture into others, within the mission statement and law governing the non-profit Grameen Telecom.

    But I'm sure the government is aware of that wealth and is gazing upon it with curiosity, if not covetousness.

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