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Questions by critics on Grameen Bank and the facts by Yunus Centre
A debate is now ongoing on the performance and legal standing of Grameen Bank, and the role played by its founder, Prof Muhammad Yunus. Yunus Centre has compiled a set offrequently asked questions and provided answers to them. The Daily Star reproduces, in installments, the full document for the sake of informed public opinion on this vital issue that has attracted tremendous national and international interest.
[First Installment]
Q1: Why is there such resistance and criticism of the government's move to investigate Grameen Bank? Is Professor Yunus above the law for being a Nobel Laureate?
Answer: Generally, when serious allegations of corruption are widely raised against an organisation only then is the organisation investigated. There have been no such cases against Grameen Bank. Grameen Bank is well known in the country as being a corruption-free institution. Every year Bangladesh Bank has closely audited the Grameen Bank. Two internationally recognised audit firms have also been auditing Grameen Bank. No audit team has ever brought forth any issues of irregularity. On the other hand, the head of the government has been directly and indirectly making various hateful comments against Grameen Bank and Professor Muhammad Yunus in the parliament, outside the parliament and in the international media. Keeping in view these comments, isn't it only normal to doubt the intentions behind the investigation? Wouldn't such comments affect the investigation? Only because of these have distinguished personalities of the civil society expressed their concerns and not for any other reason.
Professor Yunus is not above and beyond investigations by being a Nobel Laureate. Those who have objected to the investigation have only done so because of the hateful comments and the motivated intentions behind them.
At the time of taking oath the Honourable Prime Minister and the Ministers vow: "I will preserve, support and secure the constitution, and will lawfully and properly behave with all, without fear or favour, and without love or hatred." It is the behaviour that is worrisome not the investigation. Is it not a duty of all citizens to protest the exception that is taking place in the case of Grameen Bank?
Q2: Grameen Bank is a government bank. As the managing director of a government bank, Professor Yunus is a government employee. Why didn't he abide by the rules and regulations of the government?
Answer: The issue of Grameen Bank being considered as a "government bank" has only been raised by the current government. No previous government, even when the current regime was previously in power, had ever claimed such a thing. Grameen Bank has been operating as a private bank since 1990. Now these previous notions have been turned around using verdicts from the higher courts. The reasoning that is being mentioned for the current claim is that Grameen Bank was established through a government ordinance and that makes it a government institution.
In 1990, through amendment to
the Grameen Bank Ordinance, the government, Bangladesh Bank, and Grameen Bank considered that Grameen Bank had become a nongovernmental organisation and it started operating accordingly. No one objected to this. Ministry of Finance, Bangladesh Bank, external auditors — no one raised any questions regarding this.
Not only was the ownership of the bank transferred to the majority private shareholders (currentiy owning 97%), the entire responsibility of managing the bank was also given to the Board of Directors. One characteristic of any government entity is that it must take approval from the government for making its rules and regulations. This provision was eliminated in the 1990 amendment of the Grameen Bank Ordinance.
On public interest the government may give various directives to any government entity from time to time. This was revoked from the Grameen Bank Ordinance.
As a result, Grameen Bank has been operating under private ownership and governed by the rules and regulations approved by its Board of Directors. The employees of the Grameen Bank work under the service rule of the Bank (as outlined and approved by the board). The Board of Directors sets the salary scale and benefits for the employees. In most cases these are completely different from the government institutions. For example, any employee can retire with pension and gratuity after ten years of service. Neither the Ministry of Finance nor the Bangladesh Bank has ever raised any question regarding this. All powers of this organisation have always been with the Board of Directors. The government has relinquished all powers by itself. This is the reason why Grameen Bank has been able to continue on its course of success.
The Board appoints the Managing Director (MD). The power has been vested upon it by law. The rules and regulations outlining the appointment and duties of the MD are there in the Grameen Bank Ordinance. By law, the MD is appointed under a contract with conditions set by the Board. There is no age-limit for the appointment.
We can give an example of another organisation that was created under a special ordinance like Grameen Bank, and that is the Asian University of Women (AUW). AUW, located in Chittagong, was created under a special law passed in the Parliament. Similarly, Grameen Bank was created under a special ordinance. AUW is not a government organisation. Its employees are not government employees. Its vice chancellor is not a government employee. The VC does not have to follow the rules and regulations of the government universities. There can be academic discussions about whether Grameen Bank is a government bank or not. The main point is it has run as a private bank till 2011. Grameen Bank could
achieve success in its work because there was no doubt about its being private on the part of the government, Bangladesh Bank and Grameen Bank. If it is asked to take the identity of a government bank and thus change its character, then it will be destroyed. If the legal experts think that according to the existing law there is no way that Grameen Bank can run as a private bank, to run this as a private bank till now was a mistake, then the law should be amended to fully make it a private bank. It cannot run in any other way.
If such law amendment is made then Grameen Bank can continue as a strong sustainable bank. This is needed for the national interest. If it is made a government bank, it will fail.
Q3: Grameen Bank operates with funding from the government. Besides this, it also receives millions in foreign funding. Is it not the responsibility of the government to review how these funds have been used?
Answer: Grameen Bank does not operate with funding from the government. Even before the Bank was established every attempt was made to establish it with full ownership of its members. The then government did not agree with this. At the time of its establishment in 1983, the government claimed 60% ownership of the Bank. Professor Yunus did not agree with establishing Grameen Bank with 60% ownership of the government. It was reasoned to him that once the Grameen Bank was operational it would be left to the private sector. It was done so in 1986. The government divested its majority ownership by amending the Grameen Bank Ordinance and transferring 75% ownership to the members. Professor Yunus continued with his effort of bringing down the government's stake to a token 5%. As a result of which, in 2008, the government holding was reduced from 25% to 15% by amending the ordinance. Since the current government hadn't placed this as a bill and then passed it as a law, its share went back to being 25%.
When Grameen Bank was established, the government of Bangladesh bought GB shares worth Tk. 1.20 crore. Sonali Bank and Krishi (Agricultural) Bank each bought shares worth Tk. 30 lac, totaling Tk. 60 lac. So the government's investment went up to Tk. 1.8 crore. Since its inception the government hasn't invested beyond thisTk. 1.8 crore. Since the government did not increase its paid up capital its share got reduced to 3%.
At the request of the government of Bangladesh, at times Grameen Bank had to take loans and receive grants from various foreign sources. Grameen Bank was pressured to take loans and grants from foreign sources at various times. This has been widely documented in various publications. The foreign loans have been repaid as per the agreed schedule. Grameen Bank
has never defaulted even for a day in repaying its loans.
In 1995 Grameen Bank decided that it will no longer accept any new foreign loans or grants. The ongoing loans and grants continued until 1998. Since then, Grameen Bank has not taken any foreign loans or grants. Grameen Bank has never taken any grants from the Bangladesh government.
The source of paid-up capital of Grameen Bank is the funds received from the members who have purchased a share in the Bank. The price of each share is Tk. 100. As the government had set the ceiling of paid-up capital in 2008, Grameen Bank could not offer any member more than one single share. Since Grameen Bank pays a dividend of 20% to 30% on each share, the members want to purchase more shares.
Q4: Are all eight million members of Grameen Bank genuine shareholders? Or is it all made-up?
Answer: Majority of Grameen Bank members are shareholders of Grameen Bank. The number of members who have bought shares stands at 5.5 million. There are currently 8.4 million members in Grameen Bank. Those who have not yet purchased a share will eventually buy one. There is no rush or pressure to do this. Collectively, the members own 97% of the shares of Grameen Bank. If more members buy shares, the ownership stake of the members will surpass 97%. The price of each share of Grameen Bank is Tk. 100. If a member saves Tk. 100 then a share worth Tk. 100 is purchased. In the member's Pass Book this transaction is written down as a deposit of Tk. 100 recorded under the share account. After this, the member's name is listed on the Share Holders' Registry. The voter list for the election for membership in the Board of Directors is compiled from the Share Holders' Registry.
Q5: If there are shareholders why have they never been paid any dividends? Has the money from the profits been embezzled by Professor Yunus and his accomplices?
Answer: The Grameen Bank has always been paying dividends to its shareholders.
The members of Grameen Bank may buy a Grameen Bank share worth Tk. 100 any time. 5.5 of the 8.4 million members have already bought shares. By purchasing shares worth Tk. 55 crore they have become owners of 97% of the paid up capital. The government and government banks have become owners of 3% by buying shares worth Tk. 1.8 crore.
So far, the Grameen Bank has provided the government Tk. 2.52 crore in dividends for their investment of Tk. 1.2 crore, they have also given Sonali Bank and Krishi BankTk. 63 lac in dividends for their investments of Tk. 30 lac each.
The members have been paid Tk. 77 crore in dividend against
the Tk. 55 crore worth of shares they bought (the members have received comparatively less because those who have purchased shares after 2006 have received dividends for a shorter period of time). Delivery of dividend to each member is ensured every year.
At the time of approving the Annual Budget at the Annual General Meeting (AGM), the Board of Directors decides how the annual profits will be distributed. The Board decides what percentage of the annual profits can be distributed among the shareholders as dividends. From its inception till 1996 the fund was not big enough to give dividend to shareholders. From 1997 till 2005, in order to comply with government orders dividends could not be provided. Grameen Bank had to fulfill the government's condition of making deposits to the Emergency Mitigation Fund in order to qualify for tax exemption and therefore dividends could not be provided in this period. Since this condition was revoked in 2006, dividends of 100% in 2006,20% in 2007 and 30% in 2008, 2009 and 2010 were paid accordingly. If the profit is less, then funds are taken from the Dividend Equalization Fund to increase the per-share profits. In cases when profits fall, in order to maintain a constant rate of dividend distribution a Dividend Equalization Fund was formed. Till 2010 an amount of Tk. 69.46 crore has been deposited in this fund.
Since Professor Yunus or his colleagues do not own any shares of Grameen Bank they did not receive any dividends. They only got paid their salaries as Grameen Bank employees. This is all they received.
Q6: Professor Yunus served as Managing Director of Grameen Bank despite government's rule for retirement age limit of 60 years. Is it not illegal? Receiving salary and allowances for this additional period, is it not illegal too?
Answer: The government's ownership in Grameen Bank was reduced to 25% from 60%, and the ownership of Bank members was raised to 75% from 40% after an amendment in Grameen Bank ordinance in 1990. Under the new ordinance, the authority of appointing the MD was vested to the Board of Directors with prior approval from Bangladesh Bank as the government's ownership was reduced.
According to the provision in the amended ordinance, a request letter was sent to Bangladesh Bank on 14-08-1990 for their prior approval to appoint the chairman of the Grameen Bank Board of Directors and Professor Muhammad Yunus as the MD. In a letter of 25-08-1990, Bangladesh Bank provided their prior approval to appoint Professor Muhammad Yunus as the MD of Grameen Bank. In the approval letter, Bangladesh Bank did not mention any age limit to appoint Professor Muhammad Yunus as the MD. Accordingly, he was appointed as the MD
without mentioning any age limit as Bangladesh Bank never mentioned age limit in any of their letters or prior approval. In the 52nd Board of Directors meeting of Grameen Bank that was held on 20-07-1999, Professor Yunus, as the functioning MD, voluntarily informed the Board regarding his retirement age. The Board of Directors decided that he will continue as MD until the Board takes any other decision. In the same Board meeting it was decided to develop a regulation for appointing the MD. In the regulation, no age limit was imposed for the position of MD. In an auditbased detailed inspection report of 31-12-1999, Bangladesh Bank raised an objection that approval was not obtained from the Bank to appoint Professor Muhammad Yunus as MD. A joint meeting was held on 15-01-2001 in presence of 3 officers each from Bangladesh Bank and Grameen Bank to discuss a few unresolved issues those were revealed in an Audit and Inspection report of Bangladesh Bank in 1999. The issues were discussed and some of them were resolved. It was also decided in the meeting that the remaining issues would be considered as resolved after Grameen Bank submitted a few particular documents.
Accordingly, Grameen Bank submitted a supplementary report 16-01-2002 along with all the documents to Bangladesh Bank as decided in the joint meeting. Bangladesh Bank considered the issue of MD's appointment resolved after reviewing the documents received from Grameen Bank. Professor Muhammad Yunus was 61 years and 6 months at that time. During the time his age exceeded 60 but Bangladesh Bank never asked for post-facto approval. Later on Bangladesh Bank never raised this issue in any of their detailed inspection reports.
It is to be noted that Professor Yunus exceeded 60 years of age during the last tenure of Awami League government in 2001. But the government never raised the issue of Professor Yunus's age Bangladesh Bank never raised the issue in the next 11 years.
But the issue was raised in 2011. At this point Dr. Yunus submitted a Writ Petition to the High Court. The Court refused to accept the petition for hearing on the ground that he does not have Locus Standi, which means he is not eligible for submitting the petition. He appealed to the Appellate Division but his appeal was refused on the same ground.
At this point Professor Muhammad Yunus resigned from the position of Managing Director of Grameen Bank.
Was it a crime for him to perform his duties properly for the next 11 years, or was it a crime committed by those who appointed him or was it a crime of Bangladesh Bank who approved his appointment as MD? This needs to be resolved.
(To be continued.)