First Day at the Office

After arriving last night, today was my first day at the Grameen Headquarters in Dhaka.

Without much chance to get used to living in Dhaka, and believe me it takes getting used to, myself and three other interns were launched into an induction about the bank. Much of the information given, I already knew through reading Banker to the Poor and researching the bank online.

A couple of things caught my attention, however. The most recent figures claim that the bank has 8.4million borrowers throughout Bangladesh. These borrowers are organised into groups of between 5-10 members, with the criteria being that whilst everyone in the group must know eachother well, they cannot be immediate family. If we multiply the number of borrowers then by a (plucked from the air) average family size of 5, the Grameen Bank is helping 42million people in a country of roughly 150million. Amazing. It is no wonder that in recent years the Bank has slowed its growth, with our co-ordinator claiming its infrastructure effectively covers the whole country, and is instead focusing on improving the products it offers. 

After learning about the structural organisation of the bank (groups are organised into centres, centres into a branch office, branch offices into an area office and area offices into a zonal office with the head office at the top), we looked at the types of loan offered by the Grameen Bank. The most common is the Basic Loan: a small amount of money, that can increase when the first is repaid, that can be used on any legal profit-making venture. For those wanting to invest in more expensive capital, the Micro-enterprise Loan exists. Both of these can be converted into Flexible Loans, with kinder repayment rates, should natural or personal disaster strike. The Bank also offers Housing Loans, for the improvement of one's home, which has led to the building of 500,000 houses since its establishment. Lastly, the Higher Education Loan (an amazing thing) exists to pay the child of a borrower through university, with repayment only upon graduation. In this way, and a million others, the Bank is instituting real development and social change. 

More recently, the Grameen Bank has offered savings accounts. These encouraged good habits amongst borrowers, to save what money is earned, and also provide important capital to the Bank so that it can serve more borrowers. Again, there are a number of different savings accounts here, from a basic current account, to a 'double your money in 7 years', and all forms of terms/interest rates in between. Such savings accounts have not just made the Bank sustainable, but it is even now in profit, meaning it can lend money to other banks in order to generate yet more profit and better serve the poor in the future. 

We went into a lot more depth as to how the accounts worked than is shown above. What struck me is the sheer weight of administration. With borrowers depositing maybe 50 taka (not even 50p) each week, it must take a lot of staff/effort to keep on top of everything. Perhaps if the Grameen-style of microcredit was to be replicated in other countries, higher wages and thus a more efficient form of administration may have to be taken into account. 

Normally interns have a week in the office before visiting a village served by the Bank, but as it is Eid next week, our visit is tomorrow! Supposedly it's the best bit of the trip, I'm just excited to get out of Dhaka!

Is everything okay at the Grameen Bank?

I recently attended a talk, held in Oxford by the Oxford Microfinance Initiative, given by Mr Mosleh Uddin Ahmed entitled ‘Is everything okay at the Grameen Bank?’. Mosleh was a member of the recent Grameen Bank Inquiry Commission, which is about to publish its interim report. Mosleh has also himself worked in microfinance in Bangladesh, India, Pakistan, Nepal and Sri Lanka, working with the Gono-Grameen Bima of Delta Life Insurance in Bangladesh. 

As many will know, in May 2011 Muhammad Yunus was forced to relinquish his role as Managing Director of the Grameen Bank, ceding power to his Deputy Managing Director Mrs Nurjahan Begum. This came as a shock to the international community, given the recent Nobel Peace Prize Yunus had won, and the symbolic and real importance he served at the Bank. As such it was the international community that demanded an independent inquiry, driving the creation of the Grameen Bank Inquiry Commission. 

Mosleh pulled no punches in his analysis of the Bank, with most in the room shocked having only known the idyllic stories of the Bank. In short, he pointed to the creation of the Bank under a Government Ordinance, and not the Companies Act as the fundamental failing. Further down the line, it was a total inability to provide any effective, government or other, regulation of the Bank that led it into trouble. He also pointed his finger at inefficient and even unfair internal elections, and government corruption leading to Yunus’ eventual exit. 

Mosleh opened his talk by stating that the recent removal of Professor Muhammad Yunus may have been valid, but the manner in which it was carried out was shameful. He also stressed that the Grameen Bank Inquiry, did not seek to ask why he was removed, merely to investigate the current health of the Bank. It was stressed, however, that Yunus was let down by not being an administrator and the failure of governance, regulation and directorship at the Bangladesh Bank. Molseh pointed, in part, to the nine landless, poor women on the Grameen board, who simply didn’t know enough, had no constructive input, and shouldn’t have been at the top. 

Mosleh stressed that the creation of the Grameen Bank was the fundamental instability of its existence. The Bank was set up under a Government Ordinance, with the government as ultimate owners, a defective statute which made it the only non-private microfinance in the world. All problems stemmed from the fact that it should have been set up as a private institution. 

The government, in the Bank’s creation, gave 100% of the capital to set it up, with 40% of this as a loan. When the Bank’s capital increased, and the pattern of shareholding changed as a result, the government failed to change the Ordinance. This, argued Mosleh, was a failure on the part of the government, as this was their duty. Further, in 1994 they still hadn’t even paid for their shares. 

Thus, the dispute of the legal status of the Grameen Bank underpinned much of its recent turbulence. Where Yunus claimed that it was a private institution, the government asserted their ownership. In a technical sense, the government’s position was correct: the Grameen Bank had not been created under the Companies Act. It was, Mosleh believes, a mistake to not make it part of the 1961 Banking Act, which would exclude it from such government regulation. At this point, Mosleh even suggested this could have been intentional, with potential bribery behind the decision. 

Mosleh also pointed his finger at the courts. When Yunus took this issue of ownership to court, the Bank’s status was not changed and it remained government owned. Here, Mosleh argued, the Chief Justice should have seen the mistake in the Bank’s creation, and allowed the Bank to change its status to that of a private institution. 

Thus, when the Grameen Bank began making multimillion pound investments, with the poor women of Bangladesh as the long-term, indirect beneficiaries, as the Bank was created to do, it was technically prohibited from doing this by its government status. The government, however, did not behave as if its duty was to regulate the Bank: when the Bank was slow in receiving dividends back from its $6.6million dollar investment in Grameen Telecom, the government failed to step in. 

This failure of regulation was systemic. Between 1995 and 2012, the Bangladesh Bank investigated the Grameen Bank twelve times, and every year the auditors failed to indicate that anything was going wrong.

Further, upon the establishment of the Grameen Bank, the status of the borrower-shareholder was not defined enough within the Ordinance, a seemingly glaring and fatal mistake given that they could not simply lean upon definitions within the Companies Act. The Ordinance, then, allowed for the distribution of profit as the directors saw fit, when it should have gone to the poor women. Though, there is no evidence of misspending. 

Mosleh also highlighted the structure of governance and system of democracy within the Bank as an undermining factor. To become a shareholder of the Grameen Bank, an individual first needed to be approved as a borrower, and then as a saver. Elections, however, went awry as all borrowers were allowed to vote, not just the savers as set out in the Ordinance. Mosleh described this as ‘ultra virus’. Further, the women on the board were not elected, but appointed.

In conclusion, Mosleh stated that the government must appoint a new Managing Director with immediate effect. The new MD’s first priority must then be to change the rules for the election to the board of directors, with the current nine directors replaced with better educated and qualified individuals. The three directors from the government should also be removed and replaced by nominated individuals from NGOs and civil society.

In relation to the failure of regulation, Mosleh suggested that the regulators and supervisors should pay more attention to the affairs of the Grameen Bank, instead of letting it float in a  quasi-private, quasi-government sphere. 

It is a crying shame that the future of the Grameen Bank seems to lie so heavily in the current government’s hands. With elections set for December of this year, there is a strong chance that the current government will be thrown out. Should a new government come into replace it, there is a strong likelihood that Yunus will be allowed to return to the Bank.

This political squabbling, Mosleh claimed, traces itself back to 2001, when a caretaker government (traditionally in power for three months to oversee elections) remained, illegally, in power for two years. In this time, it tried to bring in a third party, which Yunus volunteered to lead. In a tremendous fall out with the two principal parties, Yunus was called a ‘loan shark’ and retorted that the government were corrupt. The grudge, it appears, was upheld when the current government sought to oust Yunus on the basis that he was legally too old to be a public Managing Director. 

On one level, Mosleh seemed to suggest that there was a basic miscommunication between the Bank and the Government: that Yunus simply believed the Bank was private and ran it as such. It was somewhat saddening, however, to listen to Mosleh’s personal attacks on Yunus, for his debilitating cult of personality, leaving the Bank with no succession plans, and his ability to influence government to overlook certain factors and trust him on others, in an empire-building manner. 

Such issues must not be allowed to undermine the fantastic work the Bank has done over the last few decades, but of course they must be addressed to improve efficiency and thus the benefit the poor women of Bangladesh are attaining from the Bank. My visit comes at an incredibly important time for the future of the Bank, and I hope I can learn more about the changes that are ongoing and the path the Bank is set to take in the future. 

The full report by the Grameen Bank Inquiry Commission has been delayed, but is set to be published in early August. 

Introductions

On Saturday 27th July, I will fly to Dhaka, Bangladesh, to begin a month-long internship with the Grameen Bank. 

The Grameen Bank is a Noble-Peace Prize winning, microfinance initiative established by Professor Muhammad Yunus in 1976. The Bank established itself to lend small amounts of money to the poorest women in Bangaldesh, without requiring collateral, in order to enable them to invest in their farms or small enterprises, and raise themselves out of poverty. Lending works on a collective repayment method, whereby a group of women is lent the money collectively, and should one woman default the ability of the group to borrow in the future is inhibited. This method has proved incredibly successful, with a 98% repayment rate compared to a more traditional 60% figure. In his book, Banker to the Poor, Yunus states that the poor women that are being lent the money know that their only collateral is their life, that if they fail to repay the loan, their income and thus very existence is called into question. As such, the determination to work to repay the loan and gradually drag themselves out of poverty is amazing. 

The Bank has developed rapidly since its creation, with it now accepting deposits, running a Low Cost Housing Program as well as telephone and energy companies. The Bank currently employs over 20,000 people, with operating revenues of $176million. For anyone who has read Banker to the Poor, and knows how Yunus' idea began with the $27 he lent to 42 women in Jobra, this growth is truly phenomenal and inspirational. 

I am incredibly drawn to this idea of social enterprise. Instead of operating as a charity, the Grameen Bank gives its borrowers the pride and satisfaction of working their way out of poverty in a sustainable manner. I hope this month will give me an idea of how such social entrepreneurship projects can be established and grown successfully in the future. 

I would like to thank the Old Members' Trust at University College, Oxford for their kind support of my trip to Bangladesh.