an evaluation of the grameen bank project of bangladesh

8/2/2019 An Evaluation of the Grameen Bank Project of Bangladesh

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An Evaluation of the Grameen Bank Project of Bangladesh

Introduction:

The origin of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus,Head of the Rural Economics Program at the University of Chittagong, launched an actionresearch project to examine the possibility of designing a credit delivery system to providebanking services targeted at the rural poor. The Grameen Bank Project (Grameen means "rural"or "village" in Bangla language) came into operation with the following objectives:

i. extend banking facilities to poor men and women;ii. eliminate the exploitation of the poor by money lenders;iii. create opportunities for self-employment for the vast multitude of unemployed people

in rural Bangladesh;iv. bring the disadvantaged, mostly the women from the poorest households, within the

fold of an organizational format which they can understand and manage bythemselves; and

v. reverse the age-old vicious circle of "low income, low saving & low investment", intovirtuous circle of "low income, injection of credit, investment, more income, moresavings, more investment, more income".

The action research demonstrated its strength in Jobra (a village adjacent to ChittagongUniversity) and some of the neighboring villages during 1976-1979. With the sponsorship of thecentral bank of the country and support of the nationalized commercial banks, the project wasextended to Tangail district (a district north of Dhaka, the capital city of Bangladesh) in 1979.With the success in Tangail, the project was extended to several other districts in the country. InOctober 1983, the Grameen Bank Project was transformed into an independent bank bygovernment legislation. The rural poor whom it serves own today Grameen Bank. Borrowers of

the Bank own 90% of its shares, while the remaining 10% is owned by the government.

Micro-credit and Grameen Bank:

What is Microcredit?The word "microcredit" did not exist before the seventies. Now it has become a buzz-wordamong the development practitioners. In the process, the word has been imputed to meaneverything to everybody. No one now gets shocked if somebody uses the term "microcredit" to

mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from thesavings and loan associations, or from credit unions, or from money lenders.

Much of the current interest in microcredit stems from the Microcredit Summit (2-4 February1997), and the activities that went into organizing the event. The definition of microcredit thatwas adopted there was:

Microcredit noun; programmes extend small loans to very poor people for self-employmentprojects that generate income, allowing them to care for themselves and their families.


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Definitions deffer, of course, from country to country. Some of the defining criteria used include-size - loans are micro, or very small in size target users - microenterpreneurs and low-incomehouseholds utilization - the use of funds - for income generation, and enterprise development, butalso for community use (health/education) etc. terms and conditions - most terms and conditionsfor microcredit loans are flexible and easy to understand, and suited to the local conditions of thecommunity.

Three C's of Credit:

Character: means how a person has handled past debt obligations: From credit history andpersonal background, honesty and reliability of the borrower to pay credit debts is determined.

Character: means how a person has handled past debt obligations: From credit history andpersonal background, honesty and reliability of the borrower to pay credit debts is determined.

Capacity: means how much debt a borrower can comfortably handle. Income streams areanalyzed and any legal obligations looked into, which could interfere in repayment.

Capital: means current available assets of the borrower, such as real estate, savings or investmentthat could be used to repay debt if income should be unavailable.

UN-General Assembly Resolution:

Taking note of the report of the Secretary-General on the observance of the International Year forthe Eradication of Poverty (1996) and recommendations for the rest of the First United Nations

Decade for the Eradication of Poverty (1997-2006).

UN Report: Role of MicrocreditThe present report has been prepared in response to a request contained in General Assemblyresolution 52/194 of 18 December 1997. This is the first time the Secretary-General has beenrequested to prepare a report on the question of microcredit and the eradication of poverty. Theprominence given to the matter reflects the recent success of small-scale lending programmessuch as the Grameen Bank of Bangladesh.

Credit Lending Models:

Microfinance institutions are using various Credit Lending Models throughout the world. Someof the models are listed below.


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Associations :--------------------------------------------------------------------------------This is where the target community forms an 'association' through which various microfinance(and other) activities are initiated. Such activities may include savings. Associations or groupscan be composed of youth, or women; they can form around political/religious/cultural issues;

can create support structures for microenterprises and other work-based issues.In some countries, an 'association' can be a legal body that has certain advantages such ascollection of fees, insurance, tax breaks and other protective measures. Distinction is madebetween associations, community groups, peoples organizations, etc. on one hand (which aremass, community based) and NGOs, etc. which are essentially external organizations.

Bank Guarantees :--------------------------------------------------------------------------------As the name suggests, a bank guarantee is used to obtain a loan from a commercial bank. Thisguarantee may be arranged externally (through a donor/donation, government agency etc.) orinternally (using member savings). Loans obtained may be given directly to an individual, or theymay be given to a self-formed group.Bank Guarantee is a form of capital guarantee scheme. Guaranteed funds may be used for variouspurposes, including loan recovery and insurance claims. Several international and UNorganizations have been creating international guarantee funds that banks and NGOs cansubscribe to, to onlend or start microcredit programmes.

Community Banking :--------------------------------------------------------------------------------The Community Banking model essentially treats the whole community as one unit, andestablishes semi-formal or formal institutions through which microfinance is dispensed. Suchinstitutions are usually formed by extensive help from NGOs and other organizations, who alsotrain the community members in various financial activities of the community bank. These

institutions may have savings components and other income-generating projects included in theirstructure. In many cases, community banks are also part of larger community developmentprogrammes which use finance as an inducement for action.

Cooperatives :--------------------------------------------------------------------------------A co-operative is an autonomous association of persons united voluntarily to meet their commoneconomic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Some cooperatives include member-financing and savings activities in theirmandate.

Credit Unions :--------------------------------------------------------------------------------A credit union is a unique member-driven, self-help financial institution. It is organized by andcomprised of members of a particular group or organization, who agree to save their moneytogether and to make loans to each other at reasonable rates of interest.The members are people of some common bond: working for the same employer; belonging tothe same church, labor union, social fraternity, etc.; or living/working in the same community. Acredit union's membership is open to all who belong to the group, regardless of race, religion,color or creed.


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A credit union is a democratic, not-for-profit financial cooperative. Each is owned and governedby its members, with members having a vote in the election of directors and committeerepresentatives.

Grameen :--------------------------------------------------------------------------------The Grameen model emerged from the poor-focussed grassroots institution, Grameen Bank,started by Prof. Mohammed Yunus in Bangladesh. It essentially adopts the followingmethodology:A bank unit is set up with a Field Manager and a number of bank workers, covering an area ofabout 15 to 22 villages. The manager and workers start by visiting villages to familiarisethemselves with the local milieu in which they will be operating and identify prospectiveclientele, as well as explain the purpose, functions, and mode of operation of the bank to the localpopulation. Groups of five prospective borrowers are formed; in the first stage, only two of them

are eligible for, and receive, a loan. The group is observed for a month to see if the members areconforming to rules of the bank. Only if the first two borrowers repay the principal plus interestover a period of fifty weeks do other members of the group become eligible themselves for aloan. Because of these restrictions, there is substantial group pressure to keep individual recordsclear. In this sense , collective responsibility of the group serves as collateral on the loan.

Group :--------------------------------------------------------------------------------The Group Model's basic philosophy lies in the fact that shortcomings and weaknesses at theindividual level are overcome by the collective responsibility and security afforded by theformation of a group of such individuals.The collective coming together of individual members is used for a number of purposes:

educating and awareness building, collective bargaining power, peer pressure etc.

Individual :--------------------------------------------------------------------------------This is a straight forward credit lending model where micro loans are given directly to theborrower. It does not include the formation of groups, or generating peer pressures to ensurerepayment. The individual model is, in many cases, a part of a larger 'credit plus' programme,where other socio-economic services such as skill development, education, and other outreachservices are provided.

Intermediatories :

--------------------------------------------------------------------------------Intermediary model of credit lending position is a 'go-between' organization between the lendersand borrowers. The intermediary plays a critical role of generating credit awareness andeducation among the borrowers (including, in some cases, starting savings programmes. Theseactivities are geared towards raising the 'credit worthiness' of the borrowers to a level sufficientenough to make them attractive to the lenders.The links developed by the intermediaries could cover funding, programme links, training andeducation, and research. Such activities can take place at various levels from international and


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national to regional, local and individual levels.

Intermediaries could be individual lenders, NGOs, microenterprise/microcredit programmes, andcommercial banks (for government financed programmes). Lenders could be governmentagencies, commercial banks, international donors, etc.

Non-Governmental Organizations :--------------------------------------------------------------------------------NGOs have emerged as a key player in the field of microcredit. They have played the role ofintermediary in various dimensions. NGOs have been active in starting and participating inmicrocredit programmes. This includes creating awareness of the importance of microcreditwithin the community, as well as various national and international donor agencies. They havedeveloped resources and tools for communities and microcredit organizations to monitor progressand identify good practices. They have also created opportunities to learn about the principles andpractice of microcredit. This includes publications, workshops and seminars, and trainingprogrammes.

Peer Pressure :--------------------------------------------------------------------------------Peer pressure uses moral and other linkages between borrowers and project participants to ensureparticipation and repayment in microcredit programmes. Peers could be other members in aborrowers group (where, unless the initial borrowers in a group repay, the other members do notreceive loans. Hence pressure is put on the initial members to repay); community leaders (usuallyidetified, nurtured and trained by external NGOs); NGOs themselves and their field officers;banks etc. The 'pressure' applied can be in the form of frequent visits to the defaulter, communitymeetings where they are identified and requested to comply etc.

Rotating Savings and Credit Associations :

--------------------------------------------------------------------------------Rotating Savings and Credit Associations (ROSCAs) are essentially a group of individuals whocome together and make regular cyclical contributions to a common fund, which is then given asa lump sum to one member in each cycle. For example, a group of 12 persons may contribute Rs.100 (US$33) per month for 12 months. The Rs. 1,200 collected each month is given to onemember. Thus, a member will 'lend' money to other members through his regular monthlycontributions. After having received the lump sum amount when it is his turn (i.e. 'borrow' fromthe group), he then pays back the amount in regular/further monthly contributions. Deciding whoreceives the lump sum is done by consensus, by lottery, by bidding or other agreed methods.

Small Business :--------------------------------------------------------------------------------The prevailing vision of the 'informal sector' is one of survival, low productivity and very littlevalue added. But this has been changing, as more and more importance is placed on small andmedium enterprises (SMEs) - for generating employment, for increasing income and providingservices which are lacking.Policies have generally focussed on direct interventions in the form of supporting systems such astraining, technical advice, management principles etc.; and indirect interventions in the form ofan enabling policy and market environment.


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A key component that is always incorporated as a sort of common denominator has been finance,specifically microcredit - in different forms and for different uses. Microcredit has been providedto SMEs directly, or as a part of a larger enterprise development programme, along with otherinputs.

Village Banking :--------------------------------------------------------------------------------Village banks are community-based credit and savings associations. They typically consist of 25to 50 low-income individuals who are seeking to improve their lives through self-employmentactivities. Initial loan capital for the village bank may come from an external source, but themembers themselves run the bank: they choose their members, elect their own officers, establishtheir own by-laws, distribute loans to individuals, collect payments and savings. Their loans arebacked, not by goods or property, but by moral collateral: the promise that the group standsbehind each individual loan.

Methods of Operation:

Credit Delivery System:

Grameen Bank Credit Delivary means taking credit to the very poor in their villages by means ofthe essential elements of the Grameen credit delivery system.

Grameen Bank credit delivery system has the following features:

1 There is an exclusive focus on the poorest of the poor.

Exclusivity is ensured by:

i) establishing clearly the eligibility criteria for selection of targeted clientele and adoptingpractical measures to screen out those who do not meet them

ii) in delivering credit, priority has been increasingly assigned to women

iii) the delivery system is geared to meet the diverse socio-economic development needs of thepoor

2 Borrowers are organized into small homogeneous groups.

Such characteristics facilitate group solidarity as well as participatory interaction. Organizingthe primary groups of five members and federating them into centres has been the foundation ofGrameen Bank's system. The emphasis from the very outset is to organisationally strengthenthe Grameen clientele, so that they can acquire the capacity for planning and implementingmicro level development decisions. The Centres are functionally linked to the Grameen Bank,whose field workers have to attend Centre meetings every week.

3 Special loan conditionalities which are particularly suitable for the poor.

These include:

i) very small loans given without any collateral

ii) loans repayable in weekly instalments spread over a year

iii) eligibility for a subsequent loan depends upon repayment of first loan

iv) individual, self chosen, quick income generating activities which employ the skills that

borrowers already posses


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v) close supervision of credit by the group as well as the bank staff

vi) stress on credit discipline and collective borrower responsibility or peer pressure

vii) special safegaurds through compulsory and voluntary savings to minimise the risks that the

poor confront

viii) transparency in all bank transactions most of which take place at centre meetings.

4 Simultaneous undertaking of a social development agenda addressing basic needs of theclientele.

This is reflected in the "sixteen decisions" adopted by Grameen borrowers. This helps to:

i) raise the social and political consciousness of the newly organized groups

ii) focus increasingly on women from the poorest households, whose urge for survival has a

far greater bearing on the development of the family

iii) encourage their monitoring of social and physical infrastructure projects - housing,sanitation, drinking water, education, family planning, etc.

5 Design and development of organization and management systems capable of deliveringprogramme resources to targeted clientele.

The system has evolved gradually through a structured learning process, that involves trials,errors and continuous adjustments. A major requirement to operationalize the system is thespecial training needed for development of a highly motivated staff, so that the decision makingand operational authority is gradually decentralized and administrative functions are delegatedat the zonal levels downwards.

6 Expansion of loan portfolio to meet diverse development needs of the poor.

As the general credit programme gathers momentum and the borrowers become familiar withcredit discipline, other loan programmes are introduced to meet growing social and economicdevelopment needs of the clientele. Besides housing, such programmes include:

i) credit for building sanitary laterines

ii) credit for installation of tubewells that supply drinking water and irrigation for kitchen

gardensiii) credit for seasonal cultivation to buy agricultural inputs

iv) loan for leasing equipment / machinery, ie., cell phones purchased by Grameen Bank

members

v) finance projects undertaken by the entire family of a seasoned borrower.

The underlying premise of Grameen is that, in order to emerge from poverty and remove

themselves from the clutches of usurers and middlemen, landless peasants need access to credit,

without which they cannot be expected to launch their own enterprises, however small these may

be. In defiance of the traditional rural banking postulate whereby "no collateral (in this case,

land) means no credit", the Grameen Bank experiment set out to prove - successfully - thatlending to the poor is not an impossible proposition; on the contrary, it gives landless peasants

the opportunity to purchase their own tools, equipment, or other necessary means of production

and embark on income-generating ventures which will allow them escape from the vicious cycle

of "low income, low savings, low investment, low income". In other words, the banker's

confidence rests upon the will and capacity of the borrowers to succeed in their undertakings.


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The mode of operation of Grameen Bank is as follows. A bank branch is set up with a branch

manager and a number of center managers and covers an area of about 15 to 22 villages. The

manager and the workers start by visiting villages to familiarise themeselves with the local

milieu in which they will be operating and identify the prospective clientele, as well as explain

the purpose, the functions, and the mode of operation of the bank to the local population. Groups

of five prospective borrowers are formed; in the first stage, only two of them are eligible for, andreceive, a loan. The group is observed for a month to see if the members are conforming to the

rules of the bank. Only if the first two borrowers begin to repay the principal plus interest over a

period of six weeks, do the other members of the group become eligible themselves for a loan.

Because of these restrictions, there is substantial group pressure to keep individual records clear.

In this sense, the collective responsibility of the group serves as the collateral on the loan.

Loans are small, but sufficient to finance the micro-enterprises undertaken by borrowers: rice-

husking, machine repairing, purchase of rickshaws, buying of milk cows, goats, cloth, pottery

etc. The interest rate on all loans is 16 percent. The repayment rate on loans is currently - 95 per

cent - due to group pressure and self-interest, as well as the motivation of borrowers.

Although mobilization of savings is also being pursued alongside the lending activities of the

Grameen Bank, most of the latter's loanable funds are increasingly obtained on commercial terms

from the central bank, other financial institutions, the money market, and from bilateral and

multilateral aid organizations.

Breaking the Cycle of Poverty:

The Grameen Bank is based on the voluntary formation of small groups of five people to providemutual, morally binding group guarantees in lieu of the collateral required by conventional banks.At first only two members of a group are allowed to apply for a loan. Depending on theirperformance in repayment the next two borrowers can then apply and, subsequently, the fifthmember as well.

The assumption is that if individual borrowers are given access to credit, they will be able toidentify and engage in viable income-generating activities - simple processing such as paddyhusking, lime-making, manufacturing such as pottery, weaving, and garment sewing, storage andmarketing and transport services. Women were initially given equal access to the schemes, and

proved not only reliable borrowers but astute enterpreneurs. As a result, they have raised theirstatus, lessened their dependency on their husbands and improved their homes and the nutritionalstandards of their children. Today over 90 percent of borrowers are women.

Intensive discipline, supervision, and servicing characterize the operations of the Grameen Bank,which are carried out by "Bicycle bankers" in branch units with considerable delegated authority.The rigorous selection of borrowers and their projects by these bank workers, the powerful peerpressure exerted on these individuals by the groups, and the repayment scheme based on 50


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weekly installments, contribute to operational viability to the rural banking system designed forthe poor. Savings have also been encouraged. Under the scheme, there is provision for 5 percentof loans to be credited to a group find and Tk 5 is credited every week to the fund.

The success of this approach shows that a number of objections to lending to the poor can beovercome if careful supervision and management are provided. For example, it had earlier beenthought that the poor would not be able to find renumerative occupations. In fact, Grameenborrowers have successfully done so. It was thought that the poor would not be able to repay; infact, repayment rates reached 97 percent. It was thought that poor rural women in particular werenot bankable; in fact, they accounted for 94 percent of borrowers in early 1992. It was alsothought that the poor cannot save; in fact, group savings have proven as successful as grouplending. It was thought that rural power structures would make sure that such a bank failed; butthe Grameen Bank has been able to expand rapidly. Indeed, from fewer than 15,000 borrowers in1980, the membership had grown to nearly 100,000 by mid-1984. By the end of 1998, thenumber of branches in operation was 1128, with 2.34 million members (2.24 million of themwomen) in 38,957 villages. There are 66,581 centres of groups, of which 33,126 are women.Group savings have reached 7,853 million taka (approximately USD 162 million), out of which

7300 million taka (approximately USD 152 million) are saved by women.

It is estimated that the average household income of Grameen Bank members is about 50 percenthigher than the target group in the control village, and 25 percent higher than the target groupnon-members in Grameen Bank villages. The landless have benefited most, followed by marginallandowners. This has resulted in a sharp reduction in the number of Grameen Bank membersliving below the poverty line, 20 percent compared to 56 percent for comparable non-GrameenBank members. There has also been a shift from agricultural wage labour (considered to besocially inferior) to self-employment in petty trading. Such a shift in occupational patterns has anindirect positive effect on the employment and wages of other agricultural waged labourers. Whatstarted as an innovative local initiative, "a small bubble of hope", has thus grown to the point

where it has made an impact on poverty alleviation at the national level ".

Method of Action

The Grameen Bank's Method of action can be illustrated by the following principles:

1. Start with the problem rather than the solution: a credit system must be based on a survey ofthe social background rather than on a pre-established banking technique.

2. Adopt a progressive attitude: development is a long-term process which depends on the


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aspirations and committment of the economic operators.

3. Make sure that the credit system serves the poor, and not vice-versa: credit officers visit thevillages, enabling them to get to know the borrowers.

4. Establish priorities for action vis-a-vis to the the target population: serve the most poverty-stricken people needing investment resources, who have no access to credit.

5. At the begining, restrict credit to income-generating production operations, freely selected bythe borrower. Make it possible for the borrower to be able to repay the loan.

6. Lean on solidarity groups: small informal groups consisting of co-opted members comingfrom the same background and trusting each other.

7. Associate savings with credit without it being necessarily a prerequisite.

8. Combine close monitoring of borrowers with procedures which are simple and standardisedas possible.

9. Do everything possible to ensure the system's financial balance.

10. Invest in human resources: training leaders will provide them with real development ethicsbased on rigour, creativity, understanding and respect for the rural environment.

Data and Reports:

Data Analysis of GB from 1976-2008


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Evaluation of Grameen Banket Project:

Is Grameen Bank different from Conventional Banks?Grameen Bank methodology is almost the reverse of the conventional banking methodology.Conventional banking is based on the principle that the more you have, the more you can get. Inother words, if you have little or nothing, you get nothing. As a result, more than half thepopulation of the world is deprived of the financial services of the conventional banks.Conventional banking is based on collateral, Grameen system is collateral- free.

Grameen Bank starts with the belief that credit should be accepted as a human right, and builds a

system where one who does not possess anything gets the highest priority in getting a loan.Grameen methodology is not based on assessing the material possession of a person, it is basedon the potential of a person. Grameen believes that all human beings, including the poorest, areendowed with endless potential.

Conventional banks look at what has already been acquired by a person. Grameen looks at thepotential that is waiting to be unleashed in a person.

Conventional banks are owned by the rich, generally men. Grameen Bank is owned by poorwomen.

Overarching objective of the conventional banks is to maximize profit. Grameen Bank's objectiveis to bring financial services to the poor, particularly women and the poorest to help them fightpoverty, stay profitable and financially sound. It is a composite objective, coming out of socialand economic visions.

Conventional banks focus on men, Grameen gives high priority to women. 97 per cent ofGrameen Bank's borrowers are women. Grameen Bank works to raise the status of poor womenin their families by giving them ownership of assets. It makes sure that the ownership of the


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houses built with Grameen Bank loans remain with the borrowers, i.e., the women.

Grameen Bank branches are located in the rural areas, unlike the branches of conventional bankswhich try to locate themselves as close as possible to the business districts and urban centers.First principle of Grameen banking is that the clients should not go to the bank, it is the bankwhich should go to the people instead. Grameen Bank's 22,277 staff meet 8.36 million borrowersat their door-step in 81,378 villages spread out all over Bangladesh, every week, and deliverbank's service. Repayment of Grameen loans is also made very easy by splitting the loan amountin tiny weekly installments. Doing business this way means a lot of work for the bank, but it is alot convenient for the borrowers.

There is no legal instrument between the lender and the borrower in the Grameen methodology.There is no stipulation that a client will be taken to the court of law to recover the loan, unlike inthe conventional system. There is no provision in the methodology to enforce a contract by anyexternal intervention.

Conventional banks go into 'punishment' mode when a borrower is taking more time in repaying

the loan than it was agreed upon. They call these borrowers "defaulters". Grameen methodologyallows such borrowers to reschedule their loans without making them feel that they have doneanything wrong (indeed, they have not done anything wrong.)

When a client gets into difficulty, conventional banks get worried about their money, and makeall efforts to recover the money, including taking over the collateral. Grameen system, in suchcases, works extra hard to assist the borrower in difficulty, and makes all efforts to help herregain her strength and overcome her difficulties.

In conventional banks charging interest does not stop unless specific exception is made to aparticular defaulted loan. Interest charged on a loan can be multiple of the principal, depending

on the length of the loan period. In Grameen Bank, under no circumstances total interest on a loancan exceed the amount of the loan, no matter how long the loan remains unrepaid. No interest ischarged after the interest amount equals the principal.

Conventional banks do not pay attention to what happens to the borrowers' families as results oftaking loans from the banks. Grameen system pays a lot of attention to monitoring the educationof the children (Grameen Bank routinely gives them scholarships and student loans), housing,sanitation, access to clean drinking water, and their coping capacity for meeting disasters andemergency situations. Grameen system helps the borrowers to build their own pension funds, andother types of savings.

Interest on conventional bank loans are generally compounded quarterly, while all interests are

simple interests in Grameen Bank.

In case of death of a borrower, Grameen system does not require the family of the deceased topay back the loan. There is a built-in insurance programme which pays off the entire outstandingamount with interest. No liability is transferred to the family.

In Grameen Bank even a beggar gets special attention. A beggar comes under a campaign fromGrameen Bank which is designed to persuade him/her to join Grameen programme. The bank


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explains to her how she can carry some merchandise with her when she goes out to beg from doorto door and earn money, or she can display some merchandise by her side when she is begging ina fixed place. Grameen's idea is to graduate her to a dignified livelihood rather than continue withbegging.

Such a programme would not be a part of a conventional bank's work.

Grameen system encourages the borrowers to adopt some goals in social, educational and healthareas. These are knows as "Sixteen Decisions" (no dowry, education for children, sanitary latrine,planting trees, eating vegetables to combat night-blindness among children, arranging cleandrinking water, etc.). Conventional banks do not see this as their business.

In Grameen, we see the poor people as human "bonsai". If a healthy seed of a giant tree is plantedin a flower-pot, the tree that will grow will be a miniature version of the giant tree. It is notbecause of any fault in the seed, because there is no fault in the seed. It is only because the seedhas been denied of the real base to grow on. People are poor because society has denied them thereal social and economic base to grow on. They are given only the "flower-pots" to grow on.

Grameen's effort is to move them from the "flower-pot" to the real soil of the society.

If we can succeed in doing that there will be no human "bonsai" in the world. We'll have apoverty-free world.

Grameen Banks Efficiency Evaluation:

Every year GB staff evaluates their work and check whether the socio-economic situation of GBmembers is improving. GB evaluates poverty level of the borrowers using ten indicators.

A member is considered to have moved out of poverty if her family fulfills the following criteria:

1.The family lives in a house worth at least Tk. 25,000 (twenty five thousand) or a housewith a tin roof, and each member of the family is able to sleep on bed instead of on thefloor.

2. Family members drink pure water of tube-wells, boiled water or water purified by usingalum, arsenic-free, purifying tablets or pitcher filters.

3. All children in the family over six years of age are all going to school or finished primaryschool.

4. Minimum weekly loan installment of the borrower is Tk. 200 or more.

5. Family uses sanitary latrine.

6.Family members have adequate clothing for every day use, warm clothing for winter, suchas shawls, sweaters, blankets, etc, and mosquito-nets to protect themselves frommosquitoes.

7. Family has sources of additional income, such as vegetable garden, fruit-bearing trees, etc,so that they are able to fall back on these sources of income when they need additionalmoney.

8. The borrower maintains an average annual balance of Tk. 5,000 in her savings accounts.

9.Family experiences no difficulty in having three square meals a day throughout the year, i.e. no member of the family goes hungry any time of the year.


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10. Family can take care of the health. If any member of the family falls ill, family can affordto take all necessary steps to seek adequate healthcare.

Microcredit: A Weapon In Fighting Extremism

Herald International Tribune Published with the New York Times and The Washington PostSingapore, Wednesday, February 19, 1997 PARIS - The success of microcredit in combatingfinally being recognized this month. Hillary Clinton opened the World Summit on Microcredit inWashington. The occasion highlighted the effectiveness of using tiny loans to help the mostdestitute people on earth pull themselves and their families out of poverty. But there is another,astonishing side of this story: the political consequences of putting capitalism to work for thehave-nots. Microcredit not only liberates the poorest of the poor from hunger, it liberates them,and us, from fanatical extremists.

Microcredit was invented 20 years ago in Bangladesh by Muhammad Yunus. Today, ProfessorYunus's Grameen Bank and copycat organizations have 3.5 million women borrowers; addingtheir dependents, that amounts to about 20 percent of Bangladesh's population. In the latestelections, held on June 12, 1996, these newly enfranchised flexed their muscle. The IslamicSociety, the fundamentalist party antagonistic to the West that wants to keep women at home, lost14 of its 17 seats in Parliament.

Immediately after the vote, Mr. Yunus began getting angry phone calls from people blaming himfor the results. But Mr. Yunus assured them that fundamentalists had only themselves to blame. Itwas their supporters who burned down microcredit banks, attacked borrowers and condemnedmicrocredit as un- Islamic because it helps women become self-employed.

Every woman borrower I interviewed in Dhaka, Chittagong and Cox's Bazaar had sufferedenormously at the hands of fundamentalists. Some were beaten; others were told they would bedenied proper Islamic burial; still others that Grameen would sell them into slavery, feed them totigers, take them out to sea and drown them, or tattoo their arms with a number and secretly turnthem into Christians.

Having braved physical and mental abuse and used microcredit to build decent housing,freshwater wells and sanitary toilets for their families - it's not surprising that these women wentto the polls and voted against the mullahs.

The exact number of women who voted is not known, but observers across Bangladesh estimatedthat for the first time, more women voted than men. At a meeting of the Council of the Americasin New York, geo-strategists astonished by how microcredit worked to combat fundamentalismpeppered Mr. Yunus with questions. He explained that microcredit was not at war with anyone,certainly not with Islam; it avoids all use of force and relies on future borrowers to convincevillage patriarchs to invite banks in.

Giving those whom society treats as less than human access to personal profit and self- esteemunlocks a static hierarchy. It allows social mobility. Suddenly, the old repressive, patriarchalways become less relevant.


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Microcredit does what billions of dollars worth of AWACS and Patriot missiles cannot. Fordecades, the West has tried to defeat fanatical extremists militarily; this has been bloody, costlyand highly unsuccessful. But quietly, every day, the attraction of militant Islam is being blunted,at the ballot box and in people's hearts and minds, thanks to the economic development of thepoor.

We have known that micro-credit helps solve a host of in-tractable, long-term social ills related topoverty: In Norway's arctic circle, it is helping repopulate the Lofoten Islands. In Oklahoma,thanks to Chief Wilma Mankiller of the Cherokee Nation, microcredit is helping reducealcoholism. In Chicago, it is helping get unwed mothers off welfare.

But we should not overlook microcredit's political dividends. If the West is truly concerned aboutpariah states exporting terrorism, it should get behind microcredit and support it with more thanjust lip service.

What is needed is patient start-up capital: 99 percent of the loans are repaid. After 20 years,

Grameen is a commercially profitable bank. But more important, it saves its borrowers' lives -and it can save ours, too.

Microcredit or Macrowelfare: The Myth of Grameen

For those who follow the zeitgeist and the Nobel Prize committee seems always in the

position of following rather than leading the 2007 Peace Prize was no surprise. It went to one

of the least-criticized men on the planet: Professor Muhammed Yunus and his Grameen Bank ofBangladesh.

Everyone left, right, and center appear to love him. His microcredit scheme seems to mix the

best socialist ideals with free market means, and then the rhetoric alone carries the day.


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The literature on Grameen is an echo chamber of hurrahs. Even the Nobel Committee didn't

bother looking more deeply. Its press release is 5 paragraphs ofpuff. Its linkto other resources

includes only one source: The Grameen Bank.

The uncritical attitude is especially strange given the extent to which pawn shops and paydaylending which, unlike Grameen, are genuine market institutions in poor areas of the United

States are hounded by the anticapitalist Left. Why is giving high-interest loans to the inner-city

poor considered exploitative in the United States but wonderful and compassion in Bangladesh?

The best fallout from the prize, then, will be a continued rethinking of the core assumptions

behind microcredit of the Grameen model.

Sudhirendar Sharma of New Delhi writes that the effect of the Grameen strategy has not been to

reduce poverty but only to create a debt trap for borrowers, who are being charged very high

rates of interest relative to conventional banks.

The oft-repeated stories of how microcredit has helped a rural woman buy a buffalo, or how a

poor woman now owns a telephone kiosk, cannot be replicated in meaningful numbers.

Conversely, at the cost of the poor, a large number of NGOs have benefited; banks have found a

convenient route to increased lendings; and corporations have got a growing consumer market to

target.

And actually, aside from my own piece in 1995, the Grameen public relations edifice has been

cracking for years. In 2001, the Wall Street Journal's Daniel Pearl and Michael Phillips revealed

that the repayment rate of their loans isn't anywhere near what the bank claims, that at least one

quarter of its loans were being used for consumption, that the bank delays defaults and hides

problem loans, that the bank isn't subject to any kind of serious supervision, public or private.

The government owns 6% of its assets, while the rest is only superficially owned by borrowers

who cannot sell or trade their stock.

But the real problem with Grameen is not found in the data but in market logic. Consider theabsurd claims that we are being asked to believe.

We are told that Yunus discovered a wonderful new way of making profitable loans to the poor

by doing something that all conventional bankers in Bangladesh had overlooked. Half the

population lives below the poverty line in Bangladesh. Are we really supposed to believe that

banks blithely overlooked millions of poor people out of bias or hatred or snobbery?
http://nobelprize.org/nobel_prizes/peace/laureates/2006/press.htmlhttp://nobelprize.org/nobel_prizes/peace/laureates/2006/grameen-or.htmlhttp://www.infochangeindia.org/microc_article5.jsphttp://mises.org/freemarket_detail.asp?control=215http://online.wsj.com/article_print/SB1006810274155982080.htmlhttp://nobelprize.org/nobel_prizes/peace/laureates/2006/press.htmlhttp://nobelprize.org/nobel_prizes/peace/laureates/2006/grameen-or.htmlhttp://www.infochangeindia.org/microc_article5.jsphttp://mises.org/freemarket_detail.asp?control=215http://online.wsj.com/article_print/SB1006810274155982080.html


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Even if we can accept that he had some sort of entrepreneurial insight that no one else had,

Grameen has been giving loans to poor women for thirty years. Are we really supposed to

believe that conventional bankers were so stupid as not to spot this opportunity after decades of

demonstration? He says that he discovered that the poor are "bankable" but if this were true in

the way that he says, others would have discovered the same profit opportunities and done it

without help from government.

Actually, Grameen is not an enterprise at all. Yunus's first pile of cash came from the United

Nations. Then he went to the Bangladesh government. Then he went to US foundations. In the

1980s and '90s, the bank received nearly $150 million in grants. At the same time, he started

borrowing at low interest rates from governments around the world, and lending out the same

money at higher rates. His institution keeps the difference.

As Connie Bruckexplains, the dominant issue that is being debated right now in microbanking

circles is how best to build institutions that are genuinely market viable as verses subsidy

dependent. Until very recently and with only few exceptions, microbanking has been commerce

in name only.

The Bank says it no longer accepts outright grants the grant money goes to a dozen or so spin-

off "enterprises" but it still borrows low and sells high, and since its books are under wraps

and its stockholders are that in name only, we'll never know for sure. But this much we do know.

The Grameen "foundation" received 1.5 million from Bill and Melinda Gates just a few monthsago. Meanwhile, George Soros has given some $12 million plus to all sorts of Grameen spin-

offs, including gifts to expand "banking" in other countries.

Since Yunus and Grameen won the prize, many institutions have rushed forward to take credit

for the success, by virtue of their vast giving. Here is a small sample of other grant

announcements: 1, 2, 3, 4, 5, 6, 7, 8.

The repayment tactics of Grameen are very disturbing. The bank assembles peer groups to lean

on delinquent borrowers, and makes political-mental reconstruction a condition of the loans,which are now being taken out to repay previous loans and so on. His "Sixteen Decisions" that

must be adopted by all borrowers read like a party platform for collectivist regimentation.

"We shall take part in all social activities collectively."

"We shall grow vegetables all the year round. We shall eat plenty of them and sell thesurplus."
http://www.newyorker.com/fact/content/articles/061030fa_fact1?page=3http://www.gatesfoundation.org/GlobalDevelopment/FinancialServices/Grants/Grant-42856.htmhttp://www.mosaicfound.org/news/030416_pr.htmhttp://www.mediatransparency.org/recipientgrants.php?recipientID=6166http://www.newyorker.com/fact/content/articles/061030fa_fact1http://www.grameenfoundation.org/pubdownload/~pubid=30http://www.rdc.com.au/grameen/IntSupp.htmlhttp://www.thedailystar.net/2006/10/23/d61023051764.htmhttp://www.fordfound.org/grants_db/view_grant_detail.cfm?grant_id=34110http://www.findarticles.com/p/articles/mi_m0EIN/is_1999_March_24/ai_54191683http://www.grameen.com/bank/the16.htmlhttp://www.newyorker.com/fact/content/articles/061030fa_fact1?page=3http://www.gatesfoundation.org/GlobalDevelopment/FinancialServices/Grants/Grant-42856.htmhttp://www.mosaicfound.org/news/030416_pr.htmhttp://www.mediatransparency.org/recipientgrants.php?recipientID=6166http://www.newyorker.com/fact/content/articles/061030fa_fact1http://www.grameenfoundation.org/pubdownload/~pubid=30http://www.rdc.com.au/grameen/IntSupp.htmlhttp://www.thedailystar.net/2006/10/23/d61023051764.htmhttp://www.fordfound.org/grants_db/view_grant_detail.cfm?grant_id=34110http://www.findarticles.com/p/articles/mi_m0EIN/is_1999_March_24/ai_54191683http://www.grameen.com/bank/the16.html


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"We shall build and use pit-latrines."

"If we come to know of any breach of discipline in any centre, we shall all go there and helprestore discipline."

A very strange bank indeed!

And why would economists and sophisticated free market economists, of all people fall for

the line that more debt can somehow save the world? Vijay Mahajan, the chief ofBasix, reports

to the Guardian that Grameen's tactics suffer from five fatal assumptions.

First is the idea that poor should be self-employed rather than work for wages. That iscontrary to the whole history of successful economic development.

Second is the idea that loans are the main financial service needed by the poor, whereas theyreally need savings and insurance.

Third is the idea that credit is what builds enterprise, whereas the truth is thatentrepreneurship and management are more important.

Fourth is the idea that the non-poor don't need credit, whereas the truth is revealed in market-based banking: higher incomes can handle higher debt.

Fifth is the idea that microcredit institutions can become self-sustaining, whereas allexperience shows that new enterprises in poor areas that are built on credit alone rarelyemerge from dependency.

For years, I've received notes from financial professionals in Bangladesh that have thanked me

for writing about this institution, which has made their lives very difficult.

But I thought it might be useful to share these recent additions to my pile of correspondence:

Your article on Grameen system is informative and thought provoking. I fully agree with you

that the Grameen success stories are nothing but over blown claims supported by tricky financial

arithmetic. As a Bangalee, I am delighted that Dr. Yunus won the Nobel peace prize. Any one

should feel proud when another person of his country gets a Nobel. But I also reflect that now

the whole Grameen operation will come under intense international scrutiny. I am sure that they

will come to the same conclusions as you did.

Dr. Yunus founded so far 17 companies. Except for Grameen Phones, all flopped. How did he

manage to fund these projects? Is it the Grameen Bank that funds his 'innovative ideas'. Perhaps

we will never know, for Grameen Bank never publishes its audited annual balance sheets. Every

other commercial banks in this country does that and it's mandatory. Grameen Bank does not pay

any corporate tax which is about 20%. Other commercial banks have to pay the taxes.
http://www.basixindia.com/http://society.guardian.co.uk/aid/comment/0,,1924510,00.htmlhttp://www.basixindia.com/http://society.guardian.co.uk/aid/comment/0,,1924510,00.html


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Last year Grameen Phone made US$450 million profit (that's what I read in the newspaper). Out

of these profit, TeleNor which owns 62% share took the profit and transferred it as US dollar.

Who provided the hard currency? The poor Bangalee labourers who toil in Middle east like

slaves. They send the dollars earned as their wage. These labourers, like the Grameen women are

from deep rural areas where there is no electricity. In fact there are more than 70% households

(mostly in the rural areas) where electricity is not available. How do these people use the mobile

phone? They don't. Because they can not re-charge their mobile phone battery. Yet, Dr. Yunus is

jetting around the world to tell that the Grameen phone has revolutionized the countryside. This

is a massive fraudulent act involving millions of truly poor people who are incapable of getting

beyond the razzle dazzle economic talk Dr. Yunus is making.

The western enthusiasm over Dr. Yunus verging on madness should now end. We should not be

taken in by a fast talking economist whose life-long objective has been to be a player in the

international arena. And he found out fast, that the all pervading poverty in this country could beused profitably to gain international attention and perhaps appreciation. Whenever, I see this

guy on the TV, I feel the presence of a very sleek salesman who target group is rich and powerful

in the west who are apparently on a guilt trip over the poverty in third world countries.

The poverty problem in Bangladesh and many other countries are truly frightening and it has

deep rooted causes. We should evaluate other models where a nation came out of poverty and

fulfilled their basic human needs.

And another concerning the Sixteen Decisions:

My daughter did an internship with Yunus/Grameen while she was doing her under graduate

studies in the late 90's, and came back with both admiring and critical position on their works.

She did have some concerns as you also mention mainly in the pushy privacy violation aspects.

As a gifted observer with US upbringing and heightened respect for the universally prevalent,

taken-for-granted individual rights, it was hard for her to not notice the harsh big brotherism. She

privately told me of some troubling aspects.

The real problem is Bangladesh is revealed in the account in the Index of Economic Freedom. Its

government's bad economic policies include huge barriers to trade, vast amounts of state-owned

enterprise, unionization, heavy taxes on foreign investment, a high tax burden, and some of the

world's worst political violence and official corruption.
http://www.heritage.org/index/country.cfm?id=Bangladeshhttp://www.heritage.org/index/country.cfm?id=Bangladesh


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The irony of it all is that Bangladesh is making economic progress in its export sector for fish

and clothing. There is no mention of Grameen's contribution to its 5% rate of economic growth

in any reliable source.

The best that Professor Yunus could do to help his country would be to use his now-considerablecredibility to push for a freer market through radical privatization and free trade. And it is true

that he has pushed a bit for halfway privatization in health care. But in general, he has a stake in

keeping the status quo just as it is.

Published on Sunday, October 15, 2006, by The NationMicrocredit, Macro Problemsby Walden Bello

The awarding of the Nobel Peace Prize to Muhammad Yunus, regarded as the father of

microcredit, comes at a time when microcredit has become something like a religion to many ofthe powerful, rich and famous. Hillary Clinton regularly speaks about going to Bangladesh,Yunus's homeland, and being "inspired by the power of these loans to enable even the poorest ofwomen to start businesses, lifting their families--and their communities--out of poverty."

Like the liberal Clinton, the neocon Paul Wolfowitz, now president of the World Bank, has alsogotten religion, after a recent trip to the Indian state of Andhra Pradesh. With the fervor of theconvert, he talks about the "transforming power" of microfinance: "I thought maybe this was justone successful project in one village, but then I went to the next village and it was the samestory. That evening, I met with more than a hundred women leaders from self-help groups, and Irealized this program was opening opportunities for poor women and their families in an entirestate of 75 million people."

There is no doubt that Yunus, a Bangladeshi economist, came up with a winning idea that hastransformed the lives of many millions of poor women, and perhaps for that alone, he deservesthe Nobel Prize. But Yunus--at least the young Yunus, who did not have the support of globalinstitutions when he started out--did not see his Grameen Bank as a panacea. Others, like theWorld Bank and the United Nations, elevated it to that status (and, some say, convinced Yunus itwas a panacea), and microcredit is now presented as a relatively painless approach todevelopment. Through its dynamics of collective responsibility for repayment by a group ofwomen borrowers, microcredit has indeed allowed many poor women to roll back pervasivepoverty. However, it is mainly the moderately poor rather than the very poor who benefit, andnot very many can claim they have permanently left the instability of poverty. Likewise, notmany would claim that the degree of self-sufficiency and the ability to send children to school

afforded by microcredit are indicators of their graduating to middle-class prosperity. Aseconomic journalist Gina Neffnotes, "after 8 years of borrowing, 55% of Grameen householdsstill aren't able to meet their basic nutritional needs--so many women are using their loans to buyfood rather than invest in business."

Indeed, one of those who have thoroughly studied the phenomenon, Thomas Dichter, says thatthe idea that microfinance allows its recipients to graduate from poverty to entrepreneurship isinflated. He sketches out the dynamics of microcredit: "It emerges that the clients with the mostexperience got started using their own resources, and though they have not progressed very far--
http://www.thenation.com/http://www.grameenfoundation.org/http://www.leftbusinessobserver.com/Micro.htmlhttp://www.microfinancegateway.org/content/article/detail/31747http://www.thenation.com/http://www.grameenfoundation.org/http://www.leftbusinessobserver.com/Micro.htmlhttp://www.microfinancegateway.org/content/article/detail/31747


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they cannot because the market is just too limited--they have enough turnover to keep buyingand selling, and probably would have with or without the microcredit. For them the loans areoften diverted to consumption since they can use the relatively large lump sum of the loan, aluxury they do not come by in their daily turnover." He concludes: "Definitely, microcredit hasnot done what the majority of microcredit enthusiasts claim it can do--function as capital aimed

at increasing the returns to a business activity."And so the great microcredit paradox that, as Dichter puts it, "the poorest people can do littleproductive with the credit, and the ones who can do the most with it are those who don't reallyneed microcredit, but larger amounts with different (often longer) credit terms."

In other words, microcredit is a great tool as a survival strategy, but it is not the key todevelopment, which involves not only massive capital-intensive, state-directed investments tobuild industries but also an assault on the structures of inequality such as concentrated landownership that systematically deprive the poor of resources to escape poverty. Microcreditschemes end up coexisting with these entrenched structures, serving as a safety net for peopleexcluded and marginalized by them, but not transforming them. No, Paul Wolfowitz, microcreditis not the key to ending poverty among the 75 million people in Andhra Pradesh. Dream on.

Perhaps one of the reasons there is such enthusiasm for microcredit in establishment circles thesedays is that it is a market-based mechanism that has enjoyed some success where other market-based programs have crashed. Structural-adjustment programs promoting trade liberalization,deregulation and privatization have brought greater poverty and inequality to most parts of thedeveloping world over the last quarter century, and have made economic stagnation a permanentcondition. Many of the same institutions that pushed and are continuing to push these failedmacro programs (sometimes under new labels like "Poverty Reduction Strategy Papers"), likethe World Bank, are often the same institutions pushing microcredit programs. Viewed broadly,microcredit can be seen as the safety net for millions of people destabilized by the large-scalemacro-failures engendered by structural adjustment.

There have been gains in poverty reduction in a few places--like China, where, contrary to themyth, state-directed macro policies, not microcredit, have been central to lifting an estimated 120million Chinese from poverty.

So probably the best way we can honor Muhammad Yunus is to say, Yes, he deserves the NobelPrize for helping so many women cope with poverty. His boosters discredit this great honor andengage in hyperbole when they claim he has invented a new compassionate form of capitalism--social capitalism, or "social entrepreneurship"--that will be the magic bullet to end poverty andpromote development.


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Microfinance, macro problems?Abheek Barman, ET Bureau, Oct 19, 2010,

Is it possible to make money while helping people out of poverty? In the last five years or so, onebusiness microfinance seemed to suggest that the answer was yes. Look at the numbers:

from merely $12 million in 2003, the market for lending tiny amounts of money mainly togroups of women has grown to more than $7 billion now. And analysts expect this to grow to astaggering $50 billion soon.

It's easy to understand why. Many people in rural India don't have access to loans from formalbanks. In any case, procedures are cumbersome, paperwork intimidating. That explains whypeople go to moneylenders, who charge them upwards of 50% for loans. Microfinance, based ona model borrowed from Bangladesh, was supposed to change all that.

Poverty Alleviation through the Rural Non-Farm SectorDevelopment: An Overview of Bangladesh ExperiencesBiswajit ChoudhuryAbstract

Bangladesh shows the important role that the rural non-farm sector has played an importantrole in limiting rural poverty, particularly where land ownership is skewed, labour forcegrowth remains high, and movement of other rural areas with higher earnings potentialremains difficult for sociological or economic reasons. The availability of non-farm wage orself-employment has also tended to tighten rural labour markets for landless labour andprovide a floor for their wage rate. Given the scale of poverty in Bangladesh, there is a needto ensure that the poor continue to have access to non-farm activities as productivityincreases. This will require that new distortions are not be introduced in rural labourmarkets; efforts continue to improve the access of the poor to education and health services

and to credit and skills for micro-enterprises; that public safety net programmes are welltargeted.)IntroductionFrom the very beginning of itsindependence, the issue of povertyalleviation has been pursued as the majordevelopment objective in Bangladesh likethe other developing countries of Asia,Africa and Latin America. Despite theconsiderable progress, the issue of poverty isstill widespread in both rural and urban areascalling for adoption of more effectiveapproaches in dealing with weaknesses in thepolicy framework and deficiencies in theimplementation mechanism and associatedinstitutional arrangements. Over the years,the anti-poverty policy framework inBangladesh has put emphasis on the pursuitof a two-pronged strategy of acceleratedlabour-intensive growth and human


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resources development of the poor. Theformulation and implementation of such astrategy require regular and comprehensiveinformation, particularly on the nature andprocesses of poverty, for meaningfulpoverty assessment and to help inidentifying the factors that contribute to andspread poverty.Poverty alleviation and social sectordevelopment have been the core issues indevelopment planning in Bangladesh since1971. Among the least developed countriesin Asia, Bangladesh is among the mostdensely populated (866 per square kilometre)countries in the world with a population of124.8 million squeezed into 144,000 squarekilometres (Rahman 2002). Urbanization is

low but infant mortality rate is high. Theshare of manufacturing is low but the rate ofgrowth of the manufacturing sector is high.Bangladesh is a delta, mostly plains throughwhich the Ganges and the Brahmaputra flowto reach the Bay of Bengal.In Bangladesh, development projectsof agriculture, rural development, primaryand mass education, health and familywelfare, women and children affairs andlabour and employment are considered underthe poverty alleviation programmes. Thesocial sector includes all poverty-relatedprogrammes minus agriculture pluseducation, youth and sports, masscommunication, cultural affairs and publicadministration.Mr Biswajit Choudhury, PhD Candidate, South Asian Studies, School of International Studies,Jawaharlal

Bangladesh | Crisis of the Grameen BankTuesday, 05 April 2011 08:13 -Nobel Laureate Muhammad Yunus's three-decades-long journey with microfinance waslaborious. But he most certainly did not encounter a crisis like the one he is facing now. It wasonly in December 2010 that the Bangladeshi who shared the Nobel Peace Prize with theGrameen Bank in 2006 first came across an utterly odd situation when a Norwegiantelevision documentary accused him of diverting huge aid funds to a business concern.The news was widely reported in the local media, particularly those sections which were not


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appreciative of his model of microfinance for poverty alleviation. Dr. Yunus denied this andotherallegations in the media that he developed many businesses using the Grameen brand name.The Norwegian government, too, came out in his defence.Following the controversy, the Bangladesh government in January formed a committee toreview the Grameen Bank's activities. As the issue deepened, Finance Minister A.M.A. Muhithargued that the 70-year-old Yunus should hand over the bank to others as, according to thecountry's banking rules, the retirement age for executives in private banks was 65. He is arespected man but you don't continue all the time in any institution, Mr. Muhith told media.MOUNTING DEBATEAmid a mounting debate for and against Dr. Yunus, Bangladesh's central bank on March 2ordered his removal from the post of Managing Director on the ground that he had crossed theretirement age. Dr. Yunus defied the order but the High Court rejected his writ petitionschallenging the legality of the central bank's action. Now his appeal is pending in the SupremeCourt.The local media were sharply divided. Some sections supported him accusing even thePrime Minister of disrespecting the highly respected Nobel laureate and others said he

flouted the laws and indulged in other malpractices.Meanwhile, Dhaka is facing a strong reaction from the West, particularly the United States. The1 / 4Bangladesh | Crisis of the Grameen BankTuesday, 05 April 2011 08:13 -U.S. has called for a dialogue and compromise between Dr. Yunus and the Hasina governmentfor an honourable solution. A compromise is possible and I am encouraging dialoguebetween the parties to find a mutually acceptable solution,'' Robert Blake, Assistant Secretary ofState for South and Central Asia, told a news conference. If there is no compromise, it will havean effect on bilateral relations, said the senior official, who was in Dhaka recently todemonstrate Washington's strong backing for the Nobel Laureate.The former World Bank president, James Wolfensohn, was also in Dhaka to back Dr. Yunus,who has strong admirers in the West. Friends of Grameen, another powerful internationalbacker, came out strongly against the Hasina government. Sa-dhan (the association ofCommunity Development Finance Institutions consisting of over a hundred microfinancepractitioners and experts of India) has also lent full support to Dr. Yunus.Secretary of State Hilary Clinton personally communicated her concern to the BangladeshPrime Minister and talked to the embattled microcredit pioneer, who is a close friend of theClinton family. Re-emphasising the U.S. concern, Mr. Blake said we in the United States havebeen deeply troubled by the difficulties he is currently facing.A DISTRACTION AND DEPARTURE'The official, while being appreciative of the Hasina government's achievements in manysectors, saw the removal of Dr. Yunus as a distraction and unnecessary departure from all the

great work being done. Mr. Blake's comments drew partial support as some governmentsympathisers claimed that the removal of Dr. Yunus should not have been the government's toppriority since it had other important issues to be resolved.To a pointed question whether the U.S. stand was not an interference in Bangladesh's internalaffairs, Mr. Blake did not give a straight reply. He merely said: Prof. Yunus and the GrameenBank have a positive reputation in the U.S. and among many Congressmen, members of theBangladesh congressional caucus, President Obama and Secretary Clinton. This is a matter ofgreat interest in USA.


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Whatever the criticism of the U.S. stand in Bangladesh's political and social circles, analystsbelieve that it is a clear disapproval of the government action against Dr. Yunus, although the2 / 4Bangladesh | Crisis of the Grameen BankTuesday, 05 April 2011 08:13 -Grameen Bank is neither an NGO nor private bank. It was founded in 1983 under an ordinanceand the government still holds a 25 per cent share in it. Dr. Yunus had been the ManagingDirector ever since the bank was founded.Dr. Yunus has mustered meaningful support at home too, making the ruling party moreapprehensive. The main opposition, BNP, led by Khaleda Zia, is siding with him. However, asection of the media and Left-leaning parties dubbed Mr. Blake's statement a nakedinterference in the country's internal affairs. A section of the ruling Awami League leaders, whohave long suspected that Dr. Yunus has a hidden political agenda and that he was extendingsecret support to past military rulers, has also criticised Mr. Blake.Foreign Minister Dipu Moni told Parliament recently that the Opposition wanted the governmentto satisfy the foreigners, compromising on the laws of the land. But this will not happen, sheasserted. However, Gawhar Rizvi, Prime Minister's adviser on foreign affairs, said the

government was trying to find an amicable solution.Despite the controversies, many analysts are of the opinion that the Hasina government maytake the U.S. stand seriously but it will, for sure, find it difficult to come to an amicable solutionsince the Supreme Court verdict is awaited. The government's attitude was amply reflected byMr. Muhith who, following Mr. Blake's strongly worded remarks, issued a statement assertingthat the government was seeking an amicable solution and still looking for a mutualunderstanding to resolve the issue. But he insisted that Dr. Yunus initiate the dialogue.However, the mainstream Bengali dailies have reported that a committee was formed to brokera compromise, an indication of a shift in the government stand.The fact is the present government is not very appreciative of Dr. Yunus' contribution to povertyalleviation through the microfinance model, although Sheikh Hasina in her first tenure attendedthe world microcredit summit at the United Nations where he got the world body's support. ThePrime Minister has accused him of treating the Grameen Bank as his personal property andclaimed that the group is sucking the blood of the poor.A host of studies have disagreed with the claim that microfinance is a panacea for poverty.Many have even called the model a villain. But Dr. Yunus has the support of many importantsections, particularly from the world's powerful lobbies. In any case, the present crisis is notover the microfinance model but with his becoming the life-long Managing Director of a bankthat is allegedly flouting the law.3 / 4Bangladesh | Crisis of the Grameen BankTuesday, 05 April 2011 08:13 -But the West's support to him is so loud that, it appears, even if the final court verdict goes

against him, a negotiated settlement may be found so that the Nobel Laureate's image and hiscontribution to the institution are well protected, and the independence and smooth functioningof the Grameen Bank remains undisturbed.But for an out-of-court compromise, Dr. Yunus will have to withdraw his case and start adialogue with the government. If the government decides to let him continue as ManagingDirector, the law will have to be amended.If, on the other hand, an amicable solution isbrokered for his honourable exit, many observers are of the opinion the Grameen Bank chiefmay not get back his previous position. With Dr. Yunus indicating that he is ready to sit with the


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Prime Minister to find a solution, some of his supporters have already suggested a way out making him chairman with necessary powers. It appears that Dr. Yunus has successfullychallenged the political authority by mobilising powerful lobbies in his favour. Only anopen-minded negotiation can bring a solution.(The Hindu)

an evaluation of the grameen bank project of bangladesh

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