Grameen Bank Breakup Runs Into Heavy Going

The Bangladesh government, apparently quailing in the face of national and international outrage, has postponed until July 20 a workshop scheduled to hear a plan to break up the celebrated Grameen Bank, which provides aid for 8.4 million of the country's poor, almost all of them women, and to bring 51 percent of its functions under the government.

The impetus to radically alter the bank's structure, breaking it into 19 separate entities, appears to lie with the 66-year-old Prime Minister, Sheikh Hasina Wazed, who has been hostile to the bank's founder, Muhammad Yunus, since 2006, when Yunus and Grameen Bank won the Nobel Prize for Peace that Hasina thought should have gone to her for her efforts to bring peace between warring southern Bangladesh hill tribes.

The relationship deteriorated further after a 2007 coup in which Hasina and her bitter political rival, Begum Khaleda Zia, were jailed on corruption charges. At that point Yunus led an abortive political reform movement which he quickly abandoned for good. After the two women were freed, Hasina's Awami League won fresh elections and she was reinstalled as prime minister in 2009.

The Bangladesh Nationalist Party, headed by Hasina's arch-rival, Begum Khaleda Zia, has announced its opposition to the plan to break up the bank, as have two lesser parties, Bikalpa Dhara and Jatiya. With national elections looming next year, attempts to break up the bank, one of the most popular institutions in the country, could well cost Hasina's Awami League dearly. Parliament must be dissolved on or before Dec. 29.

Undeterred, the government, which had just a 3 percent stake in the bank based on its contribution to authorized share capital, has already injected 132 million Bangladesh takas into the bank to bring its state up to 25 percent and plans to add another Tk156 million to bring its stake up to 51 percent, an anonymous bureaucrat told local media in Dhaka.

"It is hard to think of a more glaring example of politicization gone haywire in the history of independent Bangladesh," wrote AKM Moinuddin & Shayan S. Khan in the Dhaka Courier. "What started, for all intents and purposes, as a personal vendetta against one man has now seemingly snowballed into a systematic dismantling of his legacy, and discrediting his life's work."

Yunus, then a Fullbright scholar and professor, founded the bank in 1983 in an effort to provide small loans, known as microcredit, to poor people with no access to financing. More than Bangladeshi 8.4 consumers, mostly extremely poor women, have taken advantage of the bank's loans, made on the theory that the poor have skills but need financing to put them to use.

The bank has been phenomenally successful, loaning more than US$11 billion to poor women, with a recovery rate of more than 95 percent. It has since expanded into a wide range of other successful businesses such as fabrics, telephony and energy. The microcredit phenomenon has since been expanded into many other countries. For example, the Asian Development Bank in 2005 expanded micro-lending to the Philippines via a loan to the government that, according to the ADB, has provided loans to 5.5 million people.

Yunus was forced to resign as founding managing director in 2011 by the Hasina government on the pretext of his age – over 60 years – despite the fact that private banks have no upper age limit to force retirement. He challenged the move in court but lost when the court ruled that the bank was a government institution and not a private bank owned by its lenders, as Yunus and his lawyers maintained. Although the government was successful in removing him from the bank, he continues to lead a number of sister organizations with the Grameen tag.

The recent controversy started when the government formed an inquiry commission last year to scrutinize the bank's legal status and financial transactions, with few probable changes envisioned in the functioning of the institution. Today, the clear implication is that that government representatives will take over policymaking, as in any other state-controlled industrial bank.

Under fire from the opposition, Finance Minister AMA Muhith told Parliament that the government has no intention to change Grameen Bank's structure.

Critics have had a field day pointing out that Bangladesh's government-managed banks are largely badly run and subject to high-level corruption.

"I cannot understand why the government has not formed a commission for nationalized banks, which are in terrible state, and is going after a bank that has won the Nobel Prize," wrote Kamrul Hassan, a Dhaka University professor. "This government had problems with Prof. Yunus, according to people's perceptions. Now that he is no more in the bank, the government should leave the Bank alone and let it function the way it was. If Grameen Bank is fragmented into 19 pieces, as suggested by the commission, what message would it send to the rest of the world? It will ultimately be the people of Bangladesh who will have to pay the price."

"The Central Bank of Bangladesh has never questioned the quality of the bank's management, rather it has praised it each year, Yunus told Asia Sentinel. "The borrowers have been pleased about the way the bank is run. Why has the inquiry commission all of a sudden come up with a bizarre proposal for replacing the bank's legal structure? Will the inquiry commission explain to the people of Bangladesh why a bank that operates with its citizens' own money surrender 51 percent or more of its shares to the government, knowing fully well that will be extremely risky, to say the least?"