Grameen's Yunus in cash scandal
By Syed Tashfin Chowdhury
DHAKA - Claims that Muhammad Yunus, who was awarded the Nobel Peace Prize for his efforts in Bangladesh to provide small loans to the poor, diverted as much as US$100 million in funds from international donors to his own companies are being investigated by the Norwegian government.
While the Norwegians insist that no criminal activity has taken place, International Development Minister Erik Solheim said it was "totally unacceptable that aid is used for other purposes than intended", according to a BBC report.
The transferred aid was to have been given to the poor as micro-loans by Grameen Bank, which was founded by Yunus in the early 1980s and won the Nobel prize alongside him in 2006. The money was transferred in 1996 to Grameen Kalyan, one of Yunus's other companies, which has nothing to do with micro-credit loans.
Fueling public concern and anger over Grameen Bank and the now large micro-loan business in Bangladesh, a claim was filed on Thursday against Yunus and 12 others by the manager of the Sirajganj district branch of Social Islami Bank, claiming payment of 40 million takas (US$567,000).
Grameen Bank has declined to make a detailed response to media inquiries since the scandal broke earlier this week with the airing of an investigative documentary Fanget i Mikrogjeld (Caught in Micro debt)", on NRK, the national Norwegian television channel.
A Bengali newspaper, Kaler Kantho, on December 2 quoted a bank executive, M Shahjahan, as saying the allegations were "false. The bank will release a detailed statement on the affairs soon."
Grameen Bank said Yunus is out of the country and is due back on December 10. An employee of the bank told Asia Times Online: "He is out of the country on an international tour and will definitely have answers once he returns."
An English-language newspaper, The Daily Star, reported on December 3: "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 scandal has renewed argument over whether micro-credit organizations in Bangladesh are really motivated toward alleviating poverty or are purely profit-making business ventures.
According to Bdnews24.com, a Bangladeshi online news agency, the claim by Social Islami Bank says various loans amounting to around 10 million takas were taken from the bank by Grameen Udyog, a concern of Grameen Bank, and Ganaswasthya Grameen Textile Mills, which jointly run a business named Textile Projects. The claim said the loans were taken to build up capital and thus production.
As the loans remained unpaid, additional charges worth 40 million takas had accumulated. The manager told Bdnews24.com that he filed the case at court on instructions from more senior executives.
The documentary that sparked the scandal quotes Professor Jonathan Morduch from New York University saying: "Grameen Bank received $175 million in subsidies to give tiny loans to poor people."
Never before published documents, currently available at bdnews24.com website, detail how Yunus transferred about 7 billion takas from a fund accumulated through foreign grants from Norway, Sweden and Germany, to the account of Grameen Kalyan, which was set up and controlled by Yunus, in 1996.
Bdnews24.com reported that when the Norwegian embassy, Norwegian aid agency Norad, and the Economic Relations Division in Bangladesh, part of the Ministry of Finance, found out about this in the late 1990s, they demanded that Yunus return the money to Grameen Bank. However, the Nobel laureate reportedly paid back less than $30 million of the $100 million. The remainder still remains with Grameen Kalyan.
The secret documents, consisting of correspondence between Yunus, the Norwegian ambassador to Bangladesh Hans Frederik Lehne in 1997 and Norad director general Tove Strand Gerhardesn, also suggest that Yunus breached an agreement on loans.
Debt under the carpet
Bdnews24 reported that, during a meeting at the Grameen Bank office on December 3, 1997, the Norwegian Embassy came to know about a deal between Grameen Bank and Grameen Kalyan. The deal, which became effective from December 31, 1996, involved the transfer of 3.9 billion takas.
Following this, the Norwegian Embassy in Dhaka wrote a letter, dated December 15, 1997, and signed by Ambassador Lehne, to Yunus, noted that in line with that deal, Grameen Bank transferred all funds, donated as "revolving funds" through foreign grants, up to December 31, 1996, to Grameen Kalyan, which at the same date transferred the amount to Grameen Bank as a loan.
While citing 1.927 billion takas, out of 3.914 billion takas, as part of a "revolving fund for housing loans" according to an agreement between the governments of Bangladesh and Norway to support the Grameen Bank Phase IV project, the letter stressed: "The agreement [between Grameen Bank and Grameen Kalyan] 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."
In the letter, the Norwegian Embassy expressed its concern about how it was "not informed" about the deal between the two organizations, while further adding that it "was contrary to the quoted clause of the agreement between the governments". The letter further noted that, as of December 31, 1996, Grameen Bank accounts did "not reflect that any revolving fund for housing loan is in operation in Grameen bank".
After stating that the government of Norway did not enter into an agreement with the Bangladesh government to provide funds to Grameen Kalyan which in turn would lend to Grameen Bank, the embassy through the letter expressed, "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."
Referring to the agreement between Grameen Bank and Grameen Kalyan "as a change which affects two agreements between the two governments to support Grameen Bank", the embassy asked Yunus for a written explanation about "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."
Lost in communication
Yunus replied to the letter on January 8, 1998, seeking to explain that the deal between Grameen Bank (GB) and Grameen Kalyan (GK) could help in managing financial resources and assets effectively in order to provide the maximum benefits to Grameen's customers, while also ensuring maximum transparency and responsibility of the revolving funds.
While comparing the earlier system with the changed one, he wrote: "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." He reasoned that GK could be the company that exclusively managed 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 [the] Government of Bangladesh, rather it strengthens professionally the financial operation of GB for eradication of poverty," Yunus said in his letter, while pointing out that the directors of the bank took the decision within the scope of its 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, Yunus said in his letter. "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."
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