Grameen Bank's Muhammad Yunus Summoned to Court by Bangladesh Government Why Is Bangladesh Going After Grameen Bank and Founder Muhammad Yunus?

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The government of Bangladesh appears to be mounting a concerted campaign to hinder and possibly take over the Grameen Bank. Nobel laureate, and Grameen founder, Muhammad Yunus has been summoned appear in court on January 18 on charges of defamation. This comes just a month after the prime minister—a former supporter of microfinance—declared microlenders were "sucking blood from the poor in the name of poverty alleviation" and announced a "high-level" investigation into a decade old—and previously resolved—claim of financial impropriety. Yunus was even forced to issue a statement denying claims by some in the government that he had resigned.

Corruption? Defamation?

The investigation announced by Prime Minister Sheikh Hasina Wazed last month, follows questions raised in the Norwegian television documentary program Brennpunkt about a $100 million transfer of Norwegian aid money from one Grameen entity to another back in 1996. Norad, the Norwegian development agency, felt that move a violation of a clause in the aid contract and said as much.

In 1998, Norad asked Grameen to move the funds back. Grameen did so, and all was settled amicably. Grameen:

The concerns brought up by Norad and the Norwegian government were treated with the utmost seriousness by Grameen Bank and Professor Yunus, and both sides worked to resolve the differing interpretation of a clause in their initial Agreement and arrive at a solution in a satisfactory manner. By restoring the status quo the matter was amicably resolved. It never came back since then. None of the parties involved felt aggrieved.

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In a 1998 letter, Yunus explained that his organization made the transfer because the Grameen Bank was unsure if it would lose its tax-exempt status at the end of that year, so it set up Grameen Kalyan, a separate nonprofit organization, to receive the money and lend it back to Grameen Bank. The tax would have been 40 percent, Grameen says, and could have reduced the anti-poverty work the organization would be able to out with the Norwegian money.

Bangladesh's Finance Minister Abul Maal Abdul Muhith told bdnews24 "I see no fault in the transfer of funds if [Grameen's] claim is true." That appears to be the case. And it appeared to be the case a dozen years ago as well.

The Norwegian government investigated and issued a report exonerating Grameen Bank and Yunus after their funds were transferred back. Norwegian Finance Minister Erik Solheim declared: "According to the report, there is no indication that Norwegian funds have been used for unintended purposes, or that Grameen Bank has engaged in corrupt practices or embezzled funds ..."

It's not as if the government itself was kept in the dark about the transfer. In the lengthy rejoinder posted on Grameen's website, the bank points out that board of directors was fully informed and approved the transfer. That's relevant because three of the 12 board members, including the chair, are appointed by the government. That partly explains why the general tone of the Grameen response to this set of accusations has been shock and outright denial of all charges. The corruption investigation is likely to proceed nonetheless—just one prong of a series of recent anti-Yunus sentiment.

The defamation charges are separate. They stem from allegations that, in 200,7 Yunus essentially said politicians in Bangladesh pursue only money. The charges were filed that year and are just now being dredged up. The penalty could be prison time. As Philanthrocapitalist points out, Bangladesh ranks terribly on corruption scales; a fair trial is not guaranteed.

What's the Government Plan?

Several microfinance industry experts around the world, including Nicholas Kristof of The New York Times, are saying these actions amount to a move by Prime Minister Sheikh Hasina Wazed to wrest control of the bank from Yunus. Kristof put it bluntly: "given the timing, it sure looks as if this is an orchestrated campaign to take him out, and seize the bank for the government." He speculated on possible motivations:

"...the present campaign against Yunus doesn’t ring true to me, or to some others who are watching. (I’ve spoken to people on three continents, on all sides of this issue, but people are afraid to speak openly). I just don’t know what is going on. It may be that the government worries that Yunus will enter politics, or criticize politicians—and they may also be salivating at the prospect of gaining control over Grameen, which touches one person in three in Bangladesh."

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Yunus did make a short foray into politics a few years ago, a move The Economist says earned him "powerful enemies among Bangladesh's politicians." During a period governed by a military-backed caretaker government, Yunus began forming a political party, then quickly dropped the plan. That was enough to put current Prime Minister Sheikh Hosina on guard. Analysts say the two have never made amends.

Owning Grameen Bank

Currently, borrowers own the majority of the Grameen Bank, with Yunus acting as managing director. The government already has 25 percent of the board, and can legally control up to 25 percent of the bank, though, as Kristof notes, borrowers have paid in more capital and, as of 2009, the government stake was down to 3.4 percent. At one point the government did control a majority share of the bank, and miraculously it was still permitted to function as an independent entity for the most part. That does not appear to be the intent of Hosina this time.

If The Economist, Kristof, and others are right and the government wants to increase their stake to a controlling share with a majority on the board, Yunus would almost certainly be voted out. That's huge. Grameen Bank shared the 2006 Nobel prize with Yunus. It is the industry standard bearer to the public. Without its founder and without independence it most certainly wouldn't be the face of microfinance anymore, let alone how the actual practices and lending might change. Additionally, the move would have a chilling effect on other Bangladeshi organizations like BRAC.

There have been numerous criticisms of microfinance in recent years ranging from the lofty—not delivering on the promise to end poverty—to the fatal—high debt drives borrowers to suicide. Across the border in India, the government of Andhra Pradesh is encouraging borrowers not to pay back their loans. We explained that crisis in an earlier post. Many of these claims are valid, and there's much improvement to be had across the industry, especially at the goal of alleviating poverty. But a politically motivated, shaky legal attack on Yunus is no way to foster any kind of improvement in microfinance.

Microfinance is growing, but it is also at a crossroads, and Muhammad Yunus is still the flag-bearer for the industry. Every microlender will suffer if Bangladesh nationalizes (again) the Grameen Bank in a hostile takeover. Expect supporters to rally around Yunus in the coming month.

Image: (CC) Muhammad Yunus by Tanveer Islam.