The 'nationalisation' of the Grameen Bank

Grameen Bank Head Office at Mirpur in Dhaka

Munir Quddus

The government of Bangladesh under Prime Minister (PM) Sheikh Hasina seems to have embarked on a strategy of wholesale expropriation of the country's most famous bank - the Grameen Bank (GB) - taking the iconic institution from its rightful owners - the poor women member owners - to use it for its own narrow political gains. The cabinet division has recently approved a proposal to change the 1983 Grameen Bank Ordinance, giving the government appointed Chairman of the Board the de facto power to unilaterally appoint a new managing director. Since his own appointment, the current Chairman's mission has been to undermine the GB founder, Dr Muhammad Yunus and the duly elected GB Board members. Needless to say, once implemented, the new law would effectively end the power of the GB board which represents its 8.5 million members, to appoint the next leader of Bangladesh's most successful organisation. Many fear this will be the beginning of the end of the path-breaking financial institution that has brought great honour and glory to the country with the 2006 Nobel Prize in Peace awarded for its work in poverty alleviation.

The unspoken agenda behind the government's move, which is part of a pattern, is to take away forcibly under the cover of a flawed and unjust law, the supervision the GB from the rightful ownership of its members and the board they have elected. Who are these owners, and why is the government so afraid of them? They are the millions of poor women, who through their hard work, blood and sweat gave the nation with the unique and historic gift of a Nobel Prize-winning institution. These poor and uneducated women of rural Bangladesh dared to break free of stifling traditions and culture in order to participate in a group lending programme to escape the oppression of the middlemen and moneylenders and to better their lives. They dared to take small loans (micro-credit) to invest in small businesses or trades in the hope to increase their household income, and to escape the clutches of debilitating poverty. In doing so they have proved that conventional wisdom is often flawed, that once empowered a mother or a wife can financially empower a family, especially the children. Over three decades, these women have demonstrated that every person is born with some entrepreneurial skills, and once trained and part of a team, possess an ability to use business to bring about change; just because one is poor does not make one unworthy of credit or unable to create one's own employment and the future one wishes to have. These women entrepreneurs - many of whom came to be known as the phone ladies - have changed perceptions worldwide on what even a poor, landless, women can achieve. Of course not everyone succeeds with a micro-credit loan (just as many who borrow from a commercial bank fail), but many of those who showed the courage to join the GB have succeeded beyond their dreams.

The numbers speak for themselves. Since the inception of GB, more than US $10 billion has been cycled through poor households in rural Bangladesh, not as charity or giveaways, but as credit that has been paid back in an unprecedented demonstration of fiscal discipline by millions of poor women. The borrower-owners of the GB have put their nation on the global map as an example of how to overcome great odds toward economic development. When a few of their board members travelled to Oslo to accept the Nobel Prize, the eye of the world was on them. Their success has spawned books, movies and much more. Forever, the image of Bangladesh has changed from a nation once called " a bottomless pit" to a place where exciting ideas are being nurtured and tested, and where the hope of economic emancipation for even the poor is within reach. From the 27 borrowers in Jobra, Chittagong, in 1974, the modest experiment in banking has become a global movement lifting millions out of extreme poverty worldwide. The United Nations and the World Bank as well as other international development organisations and donor nations have integrated micro-credit and micro-finance in their programmes to alleviate poverty. Despite setbacks, political opposition and natural disaster, the work of the GB and the micro-credit model has stood the test of time, culture, and geography. In Bangladesh, many agree that there has been a silent revolution lifting out of abject poverty millions of poor women; the status quo has been upended for the better.

Given all of these achievements, why go after Dr Yunus and the venerable Grameen Bank? Why undermine an institution that is globally respected for its success in helping poor women gain greater economic freedom? Why try to bring down a man recognised worldwide as a champion of the poor? Some observers say that this is out of pure political self-interest. Dr Yunus is considered a political threat by some who advise the PM. But that does not make much sense. The PM seems to be on the top of her game. The GB is dedicated to serving the poor to improve their lives, and is not a political organisation. Dr Yunus has never held elected office, and has largely kept out of partisan politics. Others say, this is motivated by old-fashioned jealousy - the good professor received the Nobel Prize, when the PM expected the honor for her work in bringing peace in the Hill Tracts. But the Nobel Prize is not the only prestigious award, and the PM has received many accolades at home and abroad, and is expected to get even more. Finally, there is the view that the PM is ill-advised by some close advisors. Why should we accept this view? Anyone who has the smarts to win multiple elections and run a country of 150 million knows what is good for the country, especially what is good for its global image.

There is little doubt that this witch-hunting has caused the nation much in international prestige. As intended it is painful for Prof Yunus, but these moves have also damaged the PM's image as a woman leader of the Third World. It makes Bangladesh the laughing stock of the world. What kind of patriotic leadership would disrespect and dishonour one of its most celebrated and accomplished citizens? How can the civil society and the citizens put up with this? I believe it is not just Hillary Clinton and officials of the American government that have spoken publicly and diplomatically in support of the Grameen Bank. It would not come as a surprise to anyone, if in fact, many other allies have done the same privately, including European nations, India, Russia and China, even Saudi Arabia - the nations with which Bangladesh maintains close ties, and the PM cares about these relationships.

Certainly, a number of world leaders have publicly conveyed their support for Dr Yunus and the GB. Clearly, the nation has already paid a high price for this misguided strategy, and one fears the cost will continue to rise. If the PM and the Finance Minister are serious about increasing the nation's gross domestic product (GDP) growth rate by attracting substantially higher levels of foreign direct investments, the image of Bangladesh as a place that honours legal and commercial contracts is priceless. What explains the pathetically low levels of foreign direct investments? The Finance Minister and the Governor of the Bangladesh Bank ought to be doing some soul-searching and having these discussions with the PM and her cabinet.

It seems the PM is interested in leaving a legacy as a leader who has been especially good for women citizens of Bangladesh. However, with the passage of this unjust law, she has become a cause for expropriating the rights of 8.5 million women business owners and entrepreneurs? Her cabinet is determined to snatch away from its rightful owners a great institution built brick by brick over three decades, and effectively "nationalise" it. They are handing the power to supervise and manage the GB to bureaucrats and politicians, neither group respected for their honesty or competency. Could it be that the billions of taka in deposits, the millions of members who are voters, and assets the GB has accumulated is what has attracted the politicians? One day history may conclude that this was a folly on a grand scale.

There are unconfirmed reports in the press that the government plans to substantially reduce interest rates on GB loans and expand loans. Some suggest this is a political move to curry favour and win votes of rural voters in the coming elections. If this is true, it will be a sad commentary on the politicians in power. They may damage the institution's core competency and fiscal health. The reason the GB and BRAC (Bangladesh Rural Advancement Committee) and other micro-finance (MF) organisations, all regulated by the government-appointed Palli Karma Shahayak Foundation (PKSF) set interest rates at these relatively high levels is because pro-poor banking is costly. This explains why none of the commercial banks are interested in lending to the poor. Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven in their 2009 book Portfolios of the Poor: How the World's Poor Live on $2 a Day discuss this to be true. Based on their research in three countries (Bangladesh, India and South Africa) across two continents, they reach this conclusion. The rates charged by micro-credit financial institutions may be relatively high, but they are substantially lower than the rates charged by the traditional money lenders. They find that poor households in their sample are generally pleased with the increased availability of dependable credit from microfinance organisations. Indeed, these organisations have largely displaced the traditional money lenders, an indication by itself that far from being exploitative, these organisations often provide a valuable "lifeline" for survival and increased welfare for the families of the poor members.

Why does the GB (or BRAC, and other mission-driven MF agencies such as ASA) not lower its interest rate? Perhaps even give away credit free of cost as in charity or disaster relief? The short answer is that the GB does offer loans for beggars at 0.0 per cent and other loans (home building, education) at much lower rates. The correct answer is: Mission and Sustainability. Unlike the Krishi Bank and other nationalised banks, these non-governmental organisations (NGOs) cannot depend on the tax payer to bail them out time and again. They cannot afford to have a large number of loan defaults as is the case with Krishi (agriculture) bank loans. They cannot afford to stagnate as organisations. They are mission-driven to continue growing and expand their services to the poor, but in a sustainable manner. Their mission is to continue to serve the needs of the increasing number of poor in the future. Many of them, including the GB, are self-financed, giving the depositors a high return on their savings. If the government takes over the GB, reduces the rates to reach many more borrowers, the likely outcome will be the opposite. The default rates will increase, the bank's revenues will suffer, and in the worst case scenario, the bank will become dependent on the state. Does anyone want the GB (and BRAC) to become a burden on the taxpayer and exchequer?

Let us not forget the lessons of history. The age of nationalisation is over. It is easy to make grandiose promises before elections - such as a guaranteed job for everyone - but the reality soon takes over. Finally, when interest rates are artificially kept low, both savings and borrowing suffer. Economists call it financial repression. In the long run it does not help the borrowers, as the supply of credit dries up.

The change in the GB Ordinance makes little sense to most neutral observers and well-wishers of Bangladesh, except perhaps to the advisers to the PM. As expected, the civil society has spoken up in a united voice. Many prominent women leaders of the civil society, a virtual who's who of women leaders of the country, signed an open letter to the PM. They expressed their disappointment and anger with the government.

I hope the PM is listening and will be moved. She will be well-advised to listen to her inner voice that may be telling her that this is a wrong move. The move to take over the GB is undemocratic and against the best interests of the poor women who have built this institution, and against the best interests of Bangladesh. When out of power, she painfully experienced first-hand the abuse of power by others. I am sure she understands why it is important that such abuse, often under the guise of law, is avoided and the due process followed. If Bangladesh must secure its place on the global stage of democracies where the rule of law prevails in all spheres, including commerce, this type of tampering with private property must end. It is true that what goes around has a habit of coming around. When a political party undermines the nation's most precious institutions - judiciary and democracy - it would one day come to regret the decision, since one day it would need the protection and benefits of these same institutions. Of all the people, as one of the few women to lead a government anywhere, should be the first to defend the rights of Grameen Bank's 8.5 million borrowers to elect a board that is empowered to select the next Managing Director (MD). For this, history and the nation's poor will remember her kindly, something that is arguably more important than winning a Nobel Prize.

The writer is a professor of economics and dean of a business school in Texas, USA.

munirquddus@gmail.com..