Norwegian TV reports the bank breached agreement of $100m microcredit
14 years back
Prof Yunus says it was done to ensure responsible use of the revolving fund
The Daily Staris publishing this story a day late. For that, we owe an
explanation to our readers. The news was extremely important in that
it dealt with an institution and a person who brought the highest
honour and accolade for Bangladesh. We seriously read the story that
was released by a news agency. This newspaper wanted to verify the
allegations and get an explanation from the organisation that stands
accused. Moreover, this newspaper wanted to read the documents
available and be sure about what has been levelled against the person
and the organisation. What we have found is interesting. The
allegations have been made and reported, not the answers.(The Daily
Star )
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Norway says it is examining allegations that Grameen Bank has diverted
millions of dollars of aid money to one of its sister concerns,
reports BBC online.
International Development Minister Erik Solheim said that it was
"totally unacceptable that aid is used for other purposes than
intended".
A documentary maker has alleged that cash was diverted from Grameen
Bank to other parts of Grameen.
In a statement, the Bank said that the allegations were false. It said
that a full explanation with more details would be provided at the
"earliest convenient time".
Our staff correspondent adds: The documentary has alleged that Grameen
Bank (GB) had transferred about $100 million it received from donors
to Grameen Kalyan in 1996 and then got back the money as loan in
breach of agreement. This led to a spat between the Norwegian
government and Grameen Bank.
But Dr Muhammad Yunus, founder of the Bank, has defended himself
saying this had been done to ensure maximum transparency and
responsible use of the Bank's revolving fund.
The documentary, titled "Fanget i Mikrogjeld" or "Caught in Micro
debt", was aired on Tuesday on the National Norwegian Television, NRK.
The whole episode took place about one and a half decades ago. And
then it was presumably ironed out, as the documentary showed a
compromise had been reached concerning transfer of the funds Norway
granted to Grameen Bank. Under the agreed compromise, 170 million
Norwegian kroners was transferred back to GB.
Contacted, Grameen Bank said the allegations of fund misuse are false.
It will release a detailed statement on the affairs soon. The Bank is
already working on the issue, but since it was a matter happening
about 14 years ago, it is taking some time to get all the facts
together.
The documentary claimed the Norwegian embassy in Dhaka at a meeting
with the Bank at its office on December 3, 1997 came to know about the
May 7, 1997 agreement between Grameen Bank and Grameen Kalyan, which
became effective on December 31, 1996 for transfer of funds of Tk
3.914 billion.
In a letter to Yunus on December 15, 1997, the embassy said: "In line
with the agreement, Grameen Bank transferred all funds accumulated up
to December 31, 1996 received from donors for revolving funds, to
Grameen Kalyan, which at the same date transferred the amount to
Grameen Bank as a loan.
Tk 1.927 billion of the amount was related to the revolving fund for
housing loans.
Grameen Kalyan is in fact a spin-off created in 1996 by Grameen Bank,
which set up an internal fund called Social Advancement Fund (SAF) by
imputing interest on all the grant money it received from various
donors. SAF has been converted into a separate company to carry out
social advance activities such as education, health and technology
among Grameen borrowers. It has 30 health clinics across the country.
Most of these clinics are attached to Grameen Bank branches.
The letter, signed by Ambassador Hans Fredrik Lehne, said: "The
agreement concerning these transactions has not made provisions for
any interest rates to be charged for this part of the loan, nor any
terms of repayment."
The agreement was signed between the governments of Norway and
Bangladesh on November 30, 1994 to support Grameen Bank's Phase IV
project.
Annex 1, clause 4 of the agreement said: "The amount of the Grant used
for housing loans will be used as a revolving fund."
The Norwegian embassy was concerned that it had not been informed
about the agreement between the two organisations. It said "the
agreement was contrary to the quoted clause of the agreement between
the governments."
It also observed that the accounts of Grameen Bank as of December 31,
1996 did not reflect any revolving fund for housing loan in operation
under the Bank.
The embassy said "the ownership of Grameen Kalyan is of another
nature, and Norway has not entered into an agreement with Bangladesh
to provide funds to Grameen Kalyan for lending to Grameen Bank".
"The agreement has further left uncertainty about future repayment of
the loan to Grameen Kalyan, since it is not regulated by the
agreement.
"The agreement is also silent about Grameen Bank's use of the loan
from Grameen Kalyan."
The embassy in that consequence considered the agreement between
Grameen Bank and Grameen Kalyan "as a change which affects two
agreements between the two governments to support Grameen Bank".
It also requested Yunus to explain in writing "why Grameen Bank
entered into the agreement with Grameen Kalyan, and of the
consequences for the owners of Grameen Bank and the beneficiaries of
the housing loans".
In a letter to the head of Norad in 1998, Yunus wrote: "Some
misunderstanding has crept up between us and Norad/Dhaka. Norwegian
embassy/ Dhaka has written a letter to the government of Bangladesh
making an allegation that Grameen is transferring donor money
(including that of Norad) to various enterprises outside of Grameen
Bank. This allegation will create a lot of misunderstanding within the
government of Bangladesh."
Interestingly, the news about this spat between Norway and Grameen
Bank was publicised as if Nobel Peace Prize winner Yunus had himself
pocketed the donor money, which is totally removed from the fact. The
fact remains that he never had gained from this transfer. The money
was transferred just as a matter of organisational accounting to
another sister company to carry out the same task--fighting poverty.
Grameen Bank's response as written by Yunus to the allegations was
also not carried by newspapers.
In his reply to the Norwegian ambassador , Yunus said the agreement
between Grameen Bank and Grameen Kalyan was made so that Grameen's
financial resources and assets could be managed more professionally
and effectively to get the maximum benefits for Grameen's customers.
Grameen Kalyan was established as a separate legal entity to
accelerate the pace of social and economic development of Grameen's
targeted clientele and also to ensure continued access to loans and
other financial services they have been getting from Grameen Bank, he
explained.
Yunus said the agreement to transfer funds from the Bank to Kalyan was
to ensure maximum transparency and responsible use of the revolving
fund.
He argued that in earlier system, the money would have been owned by
the Grameen Bank which would use it on a revolving basis. Under the
changed situation, he argued, the money will be used for the same
purpose but GB will now receive it as a loan from separate legal
entity.
The idea of revolving fund was to ensure its continuous reuse for the
same purpose and to harness maximum benefit in terms of servicing more
clients, Muhammad Yunus said, adding: "But since in the earlier
approach the fund was available within the same management structure,
in spite of the policy compulsion to revolve it, there remained the
possibility that the required financial discipline to recover the
money and exercise appropriate caution to effectively monitor the loan
operation, may not be enforced."
This led them to find an alternative method though GK to implement the
intention and the spirit of the revolving fund concept. The revolving
fund has got an institutional structure so that it can never be
absorbed by multifarious other demands of the Bank, he said, adding
further that the GK can be viewed as a company set up exclusively to
manage the revolving fund.
"We believe that the new arrangement does not in any way violate any
of the clauses of the agreement between Norway and GOB, rather it
strengthens professionally the financial operation of GB for
eradication of poverty," Dr Yunus said.
He further said that the GB board of directors took the decision
within the scope of the agreement with the donors. "It in no way
threatened to interfere with the successful utilisation of the grant
[and] that is why we did not think of informing the donors."
On charging interest for the housing portion of the loan given to GB,
Dr Yunus said, the GK management consciously decided to avoid charging
the interest to keep the interest burden low on the ultimate
borrowers. "Adding interest on this loan would have made the fund
costly for the GB to transfer it to the borrowers at the existing rate
of eight percent."
He, however, added: the issue of adding interest can be reviewed if
deemed appropriate by the lending and borrowing organisation.
Prof Yunus said the decision to transfer the money, instead of
adversely affecting the owners, has enhanced their interests "by
ensuring more efficient and prudent fund management and accountability
on the part of GB".
"This process of mutual obligation and accountability on the part of
two organisations has enhanced the immunity of the fund from being
eroded due to lack of accountability if handed by a single
organisation as was done prior to its transfer to Grameen Kalyan."
The grant money received from different donors reckoned has increased
the liquidity of the loanable funds for Grameen Bank, he added.
Dr Yunus also wrote the ambassador that establishment of GK with
endowment fund from GB has broadened the scope for them to address the
issue of eradication of poverty and hunger by undertaking different
projects and activities.
The profits and income earned by Kalyan, he said, offer the scope for
such initiatives to be undertaken for the poor, he said, adding that
it was the initial purpose of creating the Social Advancement Fund.
http://www.thedailystar.net/newDesign/news-details.php?nid=164574
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