The Review Committee Report submitted to the finance ministry by the Bangladesh Bank on April 25 does not contain any allegations of corruption or misuse of funds by Grameen Bank, Professor Yunus or anyone working within Grameen Bank. In addition, the Report does not contain any objection or statement that Professor Muhammad Yunus, any member of his family or any other person involved in the activities related to Grameen has personally benefitted either financially or in any other way.
The Report confirms that there was no wrongdoing with regard to NORAD funds. The Report recognises that GB’s interest rate is the lowest among microfinance organisations in Bangladesh including government run microfinance programmes.
The Committee has reached the conclusion that Grameen Bank and its sister organisations have had a profoundly positive impact on the socio-economic condition of Bangladesh.
The report does not contain any objections of wrongdoing or lack of transparency of any kind with regard to Grameen Bank’s management of its overall loan, savings, insurance and other programmes.
The Report records that in 1976 Professor Muhammad Yunus experimented with the idea of bringing rural landless people under a credit programme, which led to the creation of Grameen Bank. The Bank has empowered the landless and asset-less people, more specifically women, in rural areas across Bangladesh.
The Review Committee mentions in its report that Grameen Bank and its officers cooperated completely and in good faith with the Committee and it conveys its sincere thanks and gratitude to all at Grameen Bank.
However, even though the Report recognised the positive impact of the work of Grameen Bank, it is clear that the Committee did not have an accurate and clear understanding of the information presented to them. This has resulted in a number of issues that have not been presented correctly in the Report. Below are our responses to these inaccuracies presented in the Review Committee Report.
1. Grameen Bank is a Statutory Public Authority and Professor Yunus and his colleagues are ‘Public Servants.’
Grameen Bank (GB):
Grameen Bank is not a government bank. It is a specialised bank created to serve the rural poor. Grameen Bank was created by a law, i.e., under the Grameen Bank Ordinance 1983, but the majority owners of the bank are poor citizens. In the case of Grameen Bank, the Board of the Bank, not the government, is the competent decision-making body. Nine of the thirteen directors of the Board are elected from among the borrowers. Grameen Bank is not, therefore, expected to conduct its operations in the same manner as nationalised or other government-owned banks, to which their own specific laws apply.
Moreover, according to the Grameen Bank Ordinance, 25% of Grameen Bank’s ownership belongs to the government and 75% belongs to the borrowers of the Bank. To date, the government of Bangladesh has directly or indirectly put up Tk.1.8 crore in paid-up capital; however the borrowers have increased their share of the paid up capital to Tk.53 crore. As a result, the government’s paid-up share of capital is now only 3.3% and the remaining 96.7% of the paid up equity of the Bank belongs to the borrowers. In these circumstances, there is no scope for the Bank to be classified as a government bank.
In terms of legal status, Grameen Bank’s status is similar to that of the Asian University for Women (AUW), located at Chittagong. AUW is an independent international private university created by a special law. However, it is not a government organisation. This should make it clear that an organisation does not become a government organisation just because it is created under a special law.
Grameen Bank’s Board operates independently, with powers vested upon it by law. Its managing director is appointed by the Board, and the majority of the members of the Board are private citizens. Just as Grameen Bank is not a government bank, the managing director and his colleagues are not public servants either. The managing director of Grameen Bank is the managing director of a private bank. By comparison, the vice-chancellor and faculty of AUW are also not public servants for the same reason.
A public servant is defined as someone who draws a salary from the government budget. Grameen Bank does not draw any money from government budget nor does Professor Yunus, or his colleagues, receive their salary from the government.
There is no scope to interpret the Grameen Bank Ordinance as setting up Grameen Bank as a government bank or Professor Yunus and his colleagues as public servants. If anyone insists on such an interpretation, then it would have to be said that he is not familiar with the Grameen Bank Ordinance 1983 or ordinary rules of interpretation.
It was mentioned in one section of the Review Committee report that, “the board members nominated by the government worked with a misconception about the nature of Grameen Bank. They are considering a Statutory Public Authority as a private bank.”
It may be mentioned that the chairman of the Board of Grameen Bank and two of its members have been officials of the rank of secretary to the government, and there are nine private citizens. They all appear to have understood Grameen Bank’s legal status correctly. It is the Review Committee which has misinterpreted the issue of Grameen Bank’s legal status.
2. Tendency of not following the rules and regulations of Grameen Bank.
This is a baseless allegation. This kind of conclusion was arrived at through an incorrect understanding of and misconceptions about Grameen Bank and the relevant rules and regulations applicable to it. Firstly, the Review Committee has assumed that Grameen Bank is a governmental organisation. Thus, wherever they have found any deviation from the practice of governmental organisations, they have come to the conclusion that Grameen Bank has “not followed the law.” In reality, Grameen Bank is a private bank, albeit established by statute, with private citizens comprising the majority of its Board members and its shareholders. If the Review Committee had seen the matter in this light, they could not have reached their conclusions about alleged breaches of the law.
Grameen Bank is a specialided bank created under Grameen Bank Ordinance 1983. From its inception, Grameen Bank has implemented all its programmes by following the provisions laid out in its Ordinance. In carrying out its programmes and activities, Grameen Bank has never violated, as the Report has purported to find, the rules and regulations laid out in the Ordinance. It has also followed rules and regulations it has developed in conformity with the Ordinance, as follows: (1) Grameen Bank Rules Year (2) Grameen Bank loan policies (3) Board Members Election Regulations (4) Grameen Bank Employment Rules (4) Guidelines related to Savings (5) Grameen Bank Purchase Policy and Accounts Policy.
Grameen Bank has not violated any law in carrying out its programmes as the Report has alleged that it has. Since 1997, Bangladesh Bank has carried out annual inspections and has been submitting detailed inspection reports on Grameen Bank. Grameen Bank has duly been complying with the observations in the said inspection reports of Bangladesh Bank, and the reports of previous years do not point to any outstanding or unresolved issues to date with Grameen Bank.
In these circumstances we can state with confidence that Grameen Bank’s transactions (e.g. all transactions with members, savers, workers, associated organisations) have, to the best of our knowledge, been in conformity with the existing legal framework of the country, the Grameen Bank Ordinance, and in line with the rules and regulations applicable to the Bank.
3. There has been no regulator for Grameen Bank since its inception.
As stated above, Bangladesh Bank has been exercising its power of inspection of Grameen Bank under Section 44 of the Banking Companies Act, 1991 since 1997, and as such Grameen Bank has been carrying out its activities under the supervision of the Bangladesh Bank. Grameen Bank has to obtain licence from Bangladesh Bank to open a branch. As the supervisory body of Grameen Bank, the Bangladesh Bank collects all kinds of information from Grameen Bank on a regular basis in prescribed formats with a view to closely monitoring the activities of Grameen Bank. In addition, Bangladesh Bank carries out on-site inspection visits of Grameen Bank, and makes recommendations related to the Bank’s management.
4. The creation of associated companies is beyond the authority of Grameen Bank Ordinance.
Grameen Bank has not created a single company. Grameen Bank is not the owner of any company. It does not own shares in any company. It does not control any other organisation. On the basis of a misunderstanding of Grameen Bank, the review committee has come up with some incorrect decisions and recommendations in this respect.
The review committee was under the impression that all the companies with the Grameen name, and with which Professor Yunus is associated, are legally connected to Grameen Bank. This is completely inaccurate. There is no control over the name “Grameen.” “Grameen” is not a registered trade name or trade mark. There is no reason to assume that an organisation carrying the “Grameen” name would be legally connected to Grameen Bank. There may be business and financial relationships between Grameen companies. However, there is no legal or institutional link between Grameen Bank and these companies.
Since Grameen Bank did not create these companies, there is no question of violating the Grameen Bank Ordinance in the creation of these companies. It is precisely because it would go against the Grameen Bank Ordinance that Grameen Bank did not create any company. In the report, there is even a recommendation to dissolve some of these companies, which are registered under company law as independent companies, and convert them as departments of Grameen Bank. Grameen Bank does not have the legal authority to undertake any such step.
5. Grameen Bank did not have the authority to transfer funds to sister organisation.
Grameen Bank has not transferred funds to sister organisations without the legal authority to do so. All fund transfers took place in line with agreements between the Government of the People’s Republic of Bangladesh and donor agencies. In the same way the Social Advancement Fund, a fund that was created on the terms and conditions set out by donors and meant to be used for the welfare of Grameen Bank members and employees, was transferred to Grameen Kalyan (GK) so that GK could undertake those activities which creates welfare for Grameen Bank members and employees.
In the 1980’s Grameen Bank undertook the Studies, Innovation, Development and Experimentation (SIDE) project. SIDE was undertaken to experiment, invent and design new technologies applicable in rural Bangladesh, and prepare and create new business opportunities and places of work. Various donor agencies granted aid monies for financing of the SIDE project. Donor agencies advised that a separate fund should be formed with this fund. Therefore, on the basis of the advice of donor agencies, the fund received as grant was used to set up a separate fund, known as Social Venture Capital Fund (SVCF). All of these experimental projects were considered risky. In order to protect Grameen Bank from financial losses, donors asked the Bank to keep the accounts of SVCF separate from Grameen Bank account, and that this separation should be made permanent by setting up a separate company out of the SVCF fund, which would then take responsibilities of all SIDE projects. This is detailed in the Annual Review Mission Final Report, dated November, 1990: “The recommendation for a formal legal separation is still important, as it would reduce the risk to the bank. The principle of close-end funding would prevent any further funding from Grameen Bank.”
To enable this to take place, an agreement between the Government of the People’s Republic of Bangladesh and donor agencies was signed and, in addition, a subsidiary agreement between the government and Grameen Bank was signed.
Accordingly, on January 17th, 1994 a new company was set up in accordance with the Companies Act, called “Grameen Fund” (GF) and started its operations. GF was set up as a not-for-profit company limited by guarantee.
Once GF was established, the entire SVCF fund, which was set up for the SIDE project, was loaned to GF.
Grameen Bank did not transfer funds to this sister organisation without the legal authority to do so.
6. Grameen Bank’s managing director and other employees serving in sister organisations as chairman/directors is beyond jurisdiction.
The review committee assumes that, Grameen Bank’s managing director and other employees are “Public Servant.” That is why they conclude that this issue was not handled in accordance with law. As Grameen Bank’s managing director and other employees are not public servants, and their respective terms and conditions of service do not contain any such restriction, hence there is no legal bar against them serving as chairman/ director in different organisations on a completely voluntary basis. The chairman and director of these organisations take their duty as a social responsibility. They do not take any remuneration or honorarium for performing their duties. As a citizen, any individual can serve as un-paid board member in any organisation committed to social goals.
7. The creation of organisations with the personal guarantee of Grameen Bank’s managing director and other employees of the Bank is beyond their
According to the Company Law, when companies that are limited by guarantee are created, the board members of that company have to give a personal guarantee of a specified amount of money. If the company becomes bankrupt, the board members will be personally liable for that specified amount.
Twelve companies with the “Grameen” name have been registered with the provision of such guarantee. The review committee report states that the managing director and other employees of Grameen Bank have given guarantees without prior permission of Grameen Bank’s board. The report states further that it is beyond the jurisdiction for them (managing directors and GB employees) to be involved with the creation of new organisations, and provide guarantee to them. It does not mention in what way and for what reason this is beyond their jurisdiction.
Since no guarantee was given on behalf of Grameen Bank, therefore no liability has been created on Grameen Bank. It is not unlawful or beyond jurisdiction for the individuals to give guarantee on a personal basis. This is a personal decision of individual citizens. There is no relationship at all of this with the Grameen Bank. There is therefore no reason for this to be beyond the jurisdiction of Professor Yunus and his colleagues in Grameen Bank.
8. Grameen Krishi Foundation’s Tk.9.30 crore loan waived.
In 1987-88, Grameen Bank started a project for running agricultural activities, named Rangpur Dinajpur Krishi (agriculture) Project, at the request of the Ministry of Agriculture. This project was operated under Grameen Bank’s SIDE programme. To finance the SIDE projects, a separate fund called SVCF was created with the consent of the donors, with donor money. The Rangpur Dinajpur Krishi (agriculture) Project was given loan from the SVCF fund like other SIDE projects. Later on, in 1991 the Rangpur Dinajpur Krishi (agriculture) Project came into being as a legal entity named Grameen Krishi Foundation. As Grameen Krishi Foundation was formulated as a separate organisation, the loan given to Rangpur Dinajpur Krishi (agriculture) Project from the SVCF fund was transferred to Grameen Krishi Foundation.
To bring the SVCF fund created to finance the SIDE projects, under a separate legal framework, in January 17, 1994, a separate legal organisation was created, named Grameen Fund, in accordance with the advice of the donors. The entire fund of SVCF (including the amount owed to SIDE projects) was given to Grameen Fund as a loan. Grameen Krishi Foundation sent a proposal in 1996 requesting to write off a loan of Tk.11.8 crore.
Though Grameen Krishi Foundation is a losing enterprise, its wide-ranging activities have made a contribution on the national economy. It has contributed immensely to creating a structure for further investment. By considering Grameen Krishi Foundation’s appeal, Grameen Bank’s Board in their 52nd Board Meeting wrote off Grameen Krishi Foundation’s loan of Tk.9.30 crore.
Grameen Krishi Foundation was not given a loan from Grameen Bank’s own fund. Grameen Krishi Foundation was given a loan from SVCF fund, which was created with donor money. The donors gave money to invest in such risky projects and that money was invested as such. While creating SVCF, it was assumed that all projects of this venture fund may not be successful, since it was a venture fund. The fund was created to take this risk. As the money was not invested from Grameen Bank’s own funds, the shareholders’ interests were not hampered through writing-off the loan.