Grameen Bank review report alleges large scale violation of rules

David Bergman

The committee which the government set up to review the activities of the Grameen Bank, run by Nobel laureate Muhammad Yunus, has accused the micro-credit agency of consistently ‘violating its own laws, rules and regulations.’

The committee’s report, handed over to the minister, Abul Maal Abdul Muhith on Monday, accuses the bank of violating ‘on a large scale’ rules involving ‘administrative decisions, procurement, role of the board director, creation of different companies and organisations, use of funds, and the intra-company diversion of funds.’

‘The Grameen Bank urgently needs an effective regulator,’ the report concludes.

The Grameen Bank said that it would be making a full statement but noted that media reports of alleged irregularities were ‘untrue and unfounded.’

The report has not yet been published but a leaked copy has been made available on a news agency web site.

A significant focus of the report is the relationship between the Grameen Bank and ‘associate companies’ on which Mohammad Yunus

and many senior staff members sit as company directors.

‘According to the Grameen Bank Ordinance 1983, the setting up of associate companies such as Grameen Fund and Grameen Kalyan is beyond its jurisdiction and, therefore, the board of the bank cannot even authorise the managing director and other executives to work as chairman/director of these organisations,’ the report states.

The report lists 28 associated companies that received funds from either the Grameen Fund or the Grameen Kalyan and 12 more associate organisations that received money from the Grameen Telecom, which the report says started off with Grameen Kalyan funds.

The committee report says that the ‘funding and the creation of these organisations are beyond the jurisdiction of the Grameen Bank.’

It points out that these organisations are not owned by the Grameen Bank and are not accountable to it. ‘This is a grave concern,’ the report says.

The committee, however, does not allege that Muhammad Yunus or other board members financially gained from these arrangements.

The report is also critical of the Grameen Bank’s arrangement made over 20 years ago where it became the managing agent of a packaging company owned by Muhammad Yunus’s family.

The report states, ‘The Grameen Bank waived Tk 13.7 million of the loan [it made] in 2006 and played the role of a managing agent of the firm from 1990 to 1997. There are conflicts of interest in buying products and services from the company without any competitive tender, financing the firm, waiving loan and acting as its managing agent.’

The report adds that the bank’s purchase policy was violated as computer accessories were bought from the packages firm as well as another company, Grameen Communications.

The committee also says that the bank faced losses when it rented out 11,000 square feet of office space to the Yunus Centre at a nominal rate.

The 90-page report proposes a number of reforms. It suggests that the government should frame a national policy on microcredit for the landless considering its role in reducing poverty, and should subsequently change the law after forming a ‘Grameen Bank reform commission.’

It also suggests that the Grameen Bank should be regulated by the Microcredit Regulatory Authority.

The report is critical of the lack of involvement of the nine borrower-shareholder directors in the affairs of the board and proposes that their number should be reduced to six along with the introduction of criteria to ensure that fit and proper directors were appointed.

The committee also recommended that the Grameen Fund and the Grameen Kalyan should be dissolved and made divisions within the Grameen Bank.

‘This will make the Grameen Bank the owner of these two organisation’s activities, assets and liabilities. It will ensure their accountability,’ the report says.

The report also proposes that the Grameen Bank should take over the Grameen Telecom which has 34 per cent stake in Grameenphone, equivalent to $1.25 billion.

The other members of the Grameen Bank review committee were the Bangladesh Bank’s deputy governor Nazrul Huda, former deputy comptroller and auditor general Syeda Rokeya Din, former chief of the Bangladesh Institute of Bank Management RM Debnath and Supreme Court lawyer Mohsin Rashid.