Finance Minister: Bangladesh Government Will Not Take Ownership Control of Grameen Bank

This weekend, the dignitaries of public finance gathered in Washington for the annual meetings of the World Bank and IMF. On Monday morning, the U.S. Bangladesh Advisory Council and the Trade, Aid, and Security Coalition, and the Asia Society took advantage of the presence of Bangladesh's finance minister, A.M.A. Muhith, and central bank governor, Atiur Rahman, hosting them for a public discussion. The event took place in an old mansion around the corner from my office that is now the Women's National Democratic Club. That's a social club for female Democrats with a capital D, founded in 1922, just after women got the vote in this country. From the many portraits and photos on display, Eleanor Roosevelt appears to be the institution's matron saint.For Muhith and Rahman, the purpose of the event was to, as the phrase goes, woo investors. They spoke at length, with pride, about the progress their nation has made since its founding on everything from GDP per capita to infant mortality. They voiced their ambition that Bangladesh would soon graduate to middle income status. I know this sounds dumb, but it was helpful for me to be reminded that my own interest, microcredit, is only a small part of the Bangladeshi story.Entirely unmentioned was Bangladesh's political stagnation. While I listened to them I pulled up on my phone the recent Economist article about the downward arc of democracy in the country, just to confirm that I had not remembered wrong:

Nor do Orwellian touches inspire confidence. The constitution, or at least most of it, shall not be amended in future. Anyone who dares criticise it may be prosecuted for sedition. Mrs Zia has already been warned for having complained about it. Merely to back such a complaint is now illegal. Thought-crime may be next.

Human Rights Watch reports that death squads are operating apparently unhindered by the government. A leader of the Grameen Bank employees' union was abducted and tortured. A Wikileaked cable reveals that shortly after the landslide election victory that brought his party to power, minister Muhith worried aloud that a lopsided power balance would once again bring out the vindictive side of Bangladeshi governance. It seems he was right to do so.Of course lousy politics is nothing new in Bangladesh. And lots investors have made money in countries with lousy politics, including Bangladesh. I assume those in the audience were sophisticated about these matters. So maybe they did not need to be mentioned.Also unmentioned in the prepared remarks was a little story noted with interest outside Bangladesh: the forcible separation of a man from the institution with which he had shared a Nobel prize. Fortunately, the first questioner, Alex Counts of the Grameen Foundation, asked a strong question about the future of the Grameen Bank. It elicited a remarkably heartfelt 13-minute monologue from Muhith.The Grameen Bank is a personal matter for Muhith. In an earlier stint as finance minister, in 1983, he collaborated with Yunus to create the bank, which involved writing a law and working out the politics to get it passed. His parentage of the institution is little recognized. Back in the job now, he appears to have served as the government’s emissary to Yunus, whom Muhith repeatedly called a good friend. He emphatically asserted his belief that for the sake of the bank, Yunus needed to leave. Muhith exercised his power to that end.My audio recording and transcript (compiled with some assistance from Julia Clark and Todd Bernhardt) are below. The recording, made with my phone, is not great, so don’t take the transcript as authoritative. We did our best.To my understanding, there were two bits of news in Muhith’s words. The first is some of what Alex was after; he had invited Muhith to state for the record that the government would preserve the Grameen Bank in its current form rather than amend the founding ordinance to, say, give the government complete control of it. Muhith did not rule out amendment, but he did state that the government’s ownership of the institution would remain at 25%. If that translates into a continuing 25% share of the 12 board seats, that should guarantee substantial independence for Grameen---a lot more than if the share went to 50% or 65%.Of course there are caveats. Section 14(1) of the law gives Bangladesh central Bank a veto over the choice of Yunus's successor. Meanwhile, as I foresaw last year, Grameen is now officially short of capital (see note 13.03) even as the government has paid in far, far less capital than its 25% share would call for. One can imagine the government filling the whole---on conditions of its choosing. That prospect is presumably why Grameen never harassed the government to pay up. Finally, the government has such a commanding majority in parliament that it can do whatever it (or Prime Minister Sheikh Hasina) wants. Muhith clearly desires to help his baby stand on its own feet, but his boss might not. As Muhith put it in his closest allusion to politics, "I am not the government; I am part of the government."Muhith's parental commitment may win out because of the government's realization that savings institutions are political booby traps. Undermine public confidence in their integrity, and you can start a bank run. Come the next election, you'll have millions of angry savers on your hands. CGAP's Greg Chen offered this protective mechanism as a conjecture. But he lives in Dhaka and must know more than he says.The second piece of news, at least for me, is that early in 2010, apparently in March, Muhith approached Yunus about stepping down. He said, "Now it is necessary to have a change of leadership." I surmise that Muhith's move was linked to Yunus's recent firing of his deputy and heir apparent Dipal Barua. Muhith did not say how he sought to persuade Yunus of the "necessity." He may have argued that the institution needed to grow beyond its founder. This would have been consonant with my invocation of "founder's syndrome" in blogging the firing. Perhaps he argued that Yunus was disqualified by his age. Muhith cited both points in defending his actions to us. Or he may have let the "necessary" hang in the air, implying the will of prime minister Hasina. Her antipathy toward Yunus was no secret.While I give credence to Muhith's words, his full motives remain a cipher. They may have been some combination of:

• Genuine concern for the sustainability of the institution he helped create. One common course of founder's syndrome is that the founder forces out so many good people that the institution corrodes from within.
• Rivalry. Muhith, like Yunus, is an ambitious, intelligent, foreign-educated man. When they created Grameen, his ~7-year seniority over Yunus must have seemed greater than it does now. The junior man soon ascended far higher, taking almost all public credit for the achievements of the organization, and in fact exaggerating its impacts.
• The necessity of carrying out Hasina's will.

The mystery of Muhith's motives is a microcosm for the whole episode of Yunus's removal. Was the ouster a classic example of ugly Bangladeshi politics? A needed step for the good of the institution? A counter-reaction against the aggrandizement of one person, which had exaggerated his impact and slighted the work of others? Probably some of each.Overall, the reply to Alex Counts's question made me more optimistic for the Grameen Bank. Yunus continues to travel and speak and promote his ideas: Yunus can still be Yunus. And now the Grameen Bank may not only survive, but also, as it eventually had to, mature beyond its founder.My audio recording is here.TranscriptAlex Counts: My name is Alex Counts and I’m the President of Grameen Foundation. My question is, as someone who’s been travelling to Bangladesh since the late ‘80s, I’ve also seen this incredible progress, economic and social, that you spoke about. In my view, and in many people’s views, there’s been a dynamic partnership between civil society, government, and the private sector. In fact, the two of you [A.M.A. Muhith and Atiur Rahman] have taken many decisions over the course of your careers that have contributed to that.In that context, many people, including I’m sure many investors, have been worried about the forced retirement of Professor Yunus. And in that context, without looking back, but looking forward, are you willing to say publicly and without qualification that the board of Grameen Bank’s decision of who to appoint to succeed him will be respected, and whether the Grameen Bank Ordinance, that your government will refrain from changing it to dilute the ownership and role of the 8 million women who own most of Grameen Bank?Moderator: Mr. Minister, Mr. Governor, if you didn’t expect that question, I must say…I’d be surprised.A.M.A. Muhith: It’s a very interesting question raised, because I have faced it many times. But I have refrained from public debate on the subject because that would not be very palatable. Professor Yunus was not forced out of Grameen Bank. Grameen Bank is a chartered bank established by the government and there is no better authority to confirm it than me, because I chartered it in 1983. Grameen Bank was chartered as an institution 60% owned by government, 40% by the borrowers. At that time of course no one was a director or a partner so the government nominated for them seven directors.Grameen Bank was set up for one reason. Microcredit had been in vogue in Bangladesh for about 200 years. But it had always failed with the exit of one person who is central to the entire program. Grameen offered an experiment which, where it could be institutionalized.My advice, you should say, to Professor Yunus was, in 1983, that you grow, but don’t grow too big, like a government. And two, institute a system which is totally apolitical, because otherwise it is very difficult to survive in Bangladesh. And three, make provisions so that you can leave the bank as quickly as possible. He did succeed in instruction one—or advice one—advice two, but not in advice three.He prepared the service rules for Grameen in 1999. Nobody touched it. Government had authority to confirm it, but the Government respected him so much, and said, well it’s Professor Yunus---it’s fine. He laid down the retirement age of 60 for all employees. The next year he was 60---or next to next to next year he was 60---then the board changed the rules and said that they can appoint Professor Yunus for unlimited time. This was objected to by the Bangladesh Bank in the audit report of 2001 or 02, but again Professor Yunus is a very honorable man, and all us wanted very hard to see that he gets the Nobel Prize. In fact, the first written original document on his Nobel Prize, that he should get it, was by me in 1997, suggesting that two Bengalis, Amartya Sen and Yunus, richly deserved the Nobel Prize. And it’s a matter of great pleasure, both of them happen to be my friends, and both of them have become Nobel laureates. Although the audit report mentioned it, the government didn’t take any action, nor did Bangladesh Bank take any action, except to note every year that the appointment is ultra vires.In 2010, early 2010, Professor Yunus saw me. As I said, we are very good friends even now. And [I] said, well, it’s very interesting that you were there at the beginning, and now it is necessary to have a change of leadership. March 1979, March 2010. [The Grameen Project began in 1976.] He made some suggestions. I then kind of considered them, consulted – I am not the government; I am part of the government – so consulted and tried to find some solution; made some personal proposals, which I never disclosed to anybody, but he disclosed them to the press.Now, in November, I don’t know how, an issue which was setttled in ‘99 or ‘98 between Norway and him [Yunus] just surfaced. This was Norwegian television making a program on microcredit, looking at other aspects of microcredit, because as microcredit became popular, it also found some critics. The main objection is something that I raised, that when---the graduation from microcredit into outside microcredit---so that doesn’t happen too easily. Another complaint against microcredit---but that doesn’t apply in the case of Grameen---is that microcredit is usurious. There are microcredit institutions in Bangladesh who charge 60% – yes, roughly 60%, higher than 27%. Grameen is 27% total cost---it’s not the interest rate, but insurance and precaution [loan loss provisioning?] etc., all of it is 27%. And it’s a good rate, because now we have a regulatory agency, set up not by us but for that, and all the microcredit industry wanted it. I formulated its rules, with the advice of Professor Yunus and [inaudible], because both of them demanded that they should be given a hearing and their proposals should be listened to.  So I had it done in 2010, with the advice of these two gentlemen. That’s the year of the regulations of microcredit, Microcredit Regulatory Authority.Microcredit Regulatory Authority has now defined that all the microcredit institutions should adhere to a maximum charge—not interest rate—charge of 27%, which is Grameen’s charge. And of course they’re given a little bit of time to adjust to it. ASA, one of the largest microcredit organizations has a difficult task. They will have to really decide how they’re going to achieve it.Now, this came out in the press and our local press also raised a lot of hue and cry, and we thought that an investigation was necessary, which Dr. Yunus welcomed. In drawing up the sort of tasks for the investigation, and how to work on it, I discussed with Professor Yunus, privately. And I made a suggestion that, technically, you are not the managing director, because now the audit report of Bangladesh forced to be taken into account. The best solution is that you come to an understanding to withdraw from the post of managing director for the duration of the investigation. And later on, he had already agreed that the usual search committee should be set up and they should appoint a managing director. And I suggested that, well, if that position is taken by you, there’ll be no need for the chairman who is appointed by the government, to read that – think that, well, managing director doesn’t have a legal status.At the last minute, on the day of the meeting I spoke to the chairman and instructed him that way – that he will not read this document at all, because I expect that Professor Yunus would make the move. He [the chairman] wanted to be sure what was going on, so I called Mr. Yunus, and he told me, “You know, I will not do it.” I said, “In that case, the chairman will read the document.” The chairman read the document, no action was taken that day. Then Professor Yunus went to the press, and decided to go to the court. We had nothing to do with that. He went to the court, he fought the case, and of course he abused the court also – at least his lawyers abused the court, saying that the court system in Bangladesh is pointless. I’m sorry about such comments, but that’s what happened. So, Professor Yunus is no longer the chairman – no, no, I mean, the managing director.Personally I thought that, when he got the Nobel Laureate, I saw him a few days later because I was sick in bed, and I suggested that it does not become a Nobel Laureate to continue to be managing director, who is a government employee of the status of joint secretaries to government. I don’t have any joint secretaries here [looking across the audience]. We have the status of secretary, additional secretary, joint secretary [reciting as a descending sequence]. And many joint secretaries require government permission for any business abroad. In the case of professor Yunus, government never exercised that right, because we thought he was a national asset and we thought that he should be promoted as much as we can do.Unfortunately, it has not happened, and I’m very sorry about it. I have never spoken like this on the subject. Today I thought because you raised this question, that I should [speak to it]. Thank you.Moderator [to Counts]: Do you want to follow up?Muhith: Oh, one thing I should add. Grameen Bank this year is going to have a larger program of lending than in any other year. This is its usual style – it moves from year to year, in this fashion. Grameen Bank – that’s to Professor Yunus’s credit. He organized the Grameen Bank in a highly decentralized fashion. Grameen Bank is what you get in the districts. In the headquarters it’s not Grameen Bank. It is other subsidiary institutions, where also something very difficult has happened. There are 54 subsidiary at the moment; there have been much more. A good number of them have been bankrupted. All the cost has been borne by Grameen---Grameen Bank, because Grameen Bank’s investment is Grameenphone, and Grameenphone’s money goes to [inaudible] Trust and there are some contributions from donors, but largely it is Grameen Bank fund which has met the bankruptcy costs. And right now it’s a serious problem because these 54 companies. What kind of relationship they have with Grameen nobody knows. The only relationship that they have is with Professor Yunus, managing director of Grameen Bank. The directors were all appointed by him. No one has any knowledge of who the directors are---yes, of course you can get the list---but how they’re appointed, that’s not known to anybody in Bangladesh.Counts: Hopefully the two questions I asked will be addressed at some point.Moderator: Sorry, Mr. Counts you said…Counts: I just asked two questions neither of which were addressed, hopefully at some point…Muhith: Oh, the other point is what will be happening. We have set up a search committee, as provided in the law, and the search committee will give deliberation and the law will follow its usual course.Moderator: I think there was a question about the future, as to whether the Bank will remain in its present, more or less present, condition, isn’t that correct?Counts: Whether the Grameen Bank ordinance will be…Muhith: Yes, capital share has been reduced over the years to 25%, and that will remain as it is.