Nomad Dragonfly
A glimpse of management style of Prof Dr Muhammad Yunus:
-He was far above accountability due to his fame and prestige
-A sign of personal interest, arbitrariness and nepotism
-He frequently traveled abroad for personal gain and publicity
-He acted capriciously even during the bank’s deep crisis
-He disabled Board members by destroying chain of command
-He was reluctant to hand over power and responsibilities
-He followed inhumane policies in promotions and transfers
-He ordered disbursement of loans abruptly in 1992 and 1993
In 1983, military ruler General HM Ershad, through an ordinance, established the Grameen Bank project of the then President of the Economics Department of Chittagong University, Professor Dr Muhammad Yunus, as a fully-fledged government-controlled bank. The institution gradually grew through domestic and foreign donations and by distributing microloans, and he also got some rules changed to reduce government share and influence in the bank.
Between 1991 and 2008, he created dozens of subsidiary enterprises using the label “Grameen” under his supervision and with his acquaintances, where various irregularities, nepotism and illegal transfer of funds occurred. In addition, various weaknesses were revealed in the management of the bank, including reluctance to maintain ethics and principles, and the promotion and transfer of employees. In 1998, Bangladesh Bank audited Grameen Bank for the first time and obtained many sensitive information, which Yunus hid from the Board members.
However, sensing potential danger, then General Manager Khandaker Mozammel Haque warned Yunus about various issues in personal letters on July 6, 1997, and January 1, 2000, and gave him guidance on how to overcome them. However, Yunus did not pay heed. He kept on earning various degrees, awards and honors abroad, and continued his PR campaigns.
Two more popular ventres of Yunus at that time were the Palli Phone scheme that mobile operator Grameenphone started providing to rural women borrowers in late 1990s and Grameen Check clothing under Grameen Samogree. In March 2000, when US President Bill Clinton came to Bangladesh in a state visit, he lauded microcredit schemes of Grameen Bank and BRAC, saying, the initiative was duplicated in over 60 countries and “ninety-four percent of the borrowers are women, and 98% of the loans are repaid.”
In 2006, Yunus won the Nobel Peace Prize jointly with the Grameen Bank for contribution to economic and social development through microcredit while becoming more vocal on domestic politics together with foreign diplomats and media regarding the elections slated for January 22, 2007.
After the army captured power on January 11, they offered Yunus the post of Chief Advisor, but he declined. However, a month later, Yunus expressed interest to enter politics and formed a party named Nagorik Shakti amid a ban on political activities as a state of emergency was in force. In May, Yunus announced that he was unable to move further due to lack of adequate support from the people with whom it would have been possible to form a party and put a strong and bright alternative before the people. “Instead of trying to create a new political arena with a weak party, let us wait for someone else to make the effort and succeed. The time has come to shift the nation’s economic and political gears. The nation’s spirit is ready to graduate to far higher levels. What is needed now is the creation of a new political party and leadership who can properly and skilfully do this,” he said in a letter to the nation.
On May 26, 2007, he faced reporters at the Dhaka airport who asked if he was taking the opportunity to form a team in an emergency or not. Dr Yunus said he did not want to form a party. “I said, let the election be done. But now in the new situation, I think that a party should be formed.”
The Crisis
In the letter dated January 1, 2000, Khandaker Mozammel first reminded Yunus about his 1997 letter (written in English) which said, “Your recent decision to formally allow debt consolidation at the borrower level will have an adverse impact on the financial stability of the bank. The repayment rate will look good for about 18 months but suddenly the repayment problems will come to the fore. If that happens, the bank will not be able to meet its mandatory financial obligations, such as staff salaries, pension benefits or the nearly $100 million installment of the government-guaranteed loan.”
In 2000, Khandaker Mozammel wrote, “I had hoped that you would discuss the issues mentioned in the memo with your senior colleagues and take steps to overcome the current crisis in Grameen Bank. It is a pity that you did not do so. The crises that I mentioned in the memo of July 1997 have intensified. Due to which the existence of Grameen Bank is currently facing danger.”
Mozammel said that at the end of December 1998, the bank’s income stood at Tk 227 crore and expenses at Tk 217 crore. A year later, the amounts stood at Tk 241 crore and Tk 242 crore.
The loan repayment rate in 1999 end was not higher than 65%. The amount of unpaid interest was Tk 170 crore, but Grameen Bank showed it as income he added that after December 31, the unpaid interest would cross Tk 210 crore. He explained that the provisions were shown lower (40% instead of 20% and in pension scheme 30% instead of 60%) to avoid loss.
“Our 20%-loan position is currently Tk 1,000 crore. Out of this, the amount of overdue loans is about Tk 270 crore and another Tk 30-40 crore is likely to be added in the next 3 months. The bank’s debt is Tk 1,100 crore. Out of this, the foreign debt is about Tk 500 crore, which has to be repaid at the rate of 2% in the next 10 years in dollar. About Tk 500 crore will have to be paid to various domestic companies in the next 1 to 5 years, with an interest rate of 8%,” said Mozammel.
Careless And Authoritarian
Mozammel lamented that despite all the crises in the bank, Yunus was away from the country for an average of 12 days a month, or about 130 days a year. In November 1999, he was at the bank for only 3 days. Yunus’s four-month foreign trips brought him personal gain and publicity, but the bank had not benefited, “rather, there is a huge loss.”
The then GM also said that Yunus’ “incompetence in transferring power and responsibility has pushed Grameen Bank towards destruction. Since in your absence, the acting managing director is supposed to take decisions on various issues, he practically does not have the power to make decisions. That is because you have already destroyed the balance of the chain of command of the bank management and made it ineffective.”
Mozammel said, “Your reputation and prestige have reached such a level that you are far above any kind of accountability.”
On the other hand, while the financial and administrative system of Grameen Bank had been in a state of extreme deterioration in 1995, it did not improve in 2000, “but in some cases, it spread and took on a complicated form. We are all aware that in 1993-94, loans were distributed without any regard for economic discipline and under your direct encouragement and instructions.”
In the letter, Mozammel mentioned that Yunus had not given any explanation for the unrealistic decision, adding that the loan amount distributed in 1992-93 was equal to all the loans disbursed from 1976 to 1992.
The Fund Transfer Controversy
Mozammel criticized the transfer of funds from Grameen Bank to Grameen Kalyan, saying that any new managing director would question the legal basis of the agreement because there was no legal basis for the transaction.
He said that Grameen Bank entered into an agreement with Grameen Kalyan in May ’97, which came into force retrospectively on December 31, 1996, and gave it Tk 360 crore as a gift. Later, Grameen Bank borrowed the money from Grameen Kalyan, but there was no mention of any repayment period or interest rate. Moreover, the board of directors of Grameen Kalyan did not have any representation of Grameen Bank members.
Mozammel also said, “The revolving fund was received as grants from various donor agencies for the purpose of continuously using the loan program of Grameen Bank members. In a sense, if this is shown as bank equity, the financial base of the bank looks much stronger.”
Criticizing the transfer, Mozammel said, “With this kind of decision, many will now question whether the nearly 2.2 million shareholders of Grameen Bank actually own the bank? When asked why the donor organization borrowed in this way and that it was against the agreement, as the CEO of Grameen Bank, you told the donor that Grameen Bank would not be able to manage such a large amount of money efficiently. Grameen Kalyan, an organization created by Grameen Bank, would be able to manage it efficiently. However, it was not explained what kind of additional expertise Grameen Kalyan that Grameen Bank does not have.”
The Norwegian Embassy in Dhaka came to know about the May 7 agreement during a meeting with the bank at its office on December 3, 1997.
On December 15, then the Norwegian Ambassador to Dhaka, Hans Fredrik Lehne, wrote a letter to Yunus, seeking a written explanation why Grameen Bank entered into the agreement with Grameen Kalyan, and of the consequences for the owners of Grameen Bank and the beneficiaries of the housing loans. He said the embassy considered it a change which affects two agreements between the two governments to support Grameen Bank.
The agreement between Grameen Bank and Grameen Kalyan “concerning these transactions had not made provisions for any interest rates to be charged for this part of the loan, nor any terms of repayment… The ownership of Grameen Kalyan is of another nature, and Norway has not entered into an agreement with Bangladesh to provide funds to Grameen Kalyan for onlending to Grameen Bank… The agreement has further left uncertainty about future repayment of the loan to Grameen Kalyan, since it is not regulated by the agreement… The agreement is also silent about Grameen Bank’s use of the loan from Grameen Kalyan…”
Yunus cited many reasons and added some documents to justify the transfer of funds in a letter to the embassy dated January 8, 1998. One of the key reasons for the transfer was to evade taxes in future.
To avoid public discussions and settle the issue behind the curtain, Yunus wrote another letter to Tove Strand Gerhardsen, then the Norad Director General, on April 1, saying, “If the people, within and outside government, who are not supportive of Grameen, get hold of this letter we’ll face real problems in Bangladesh.”
Mozammel mentioned in his letter that in an interview in July 1998, Yunus said, “Grameen Bank had grown old and become an inefficient institution. In the near future, new and strong institutions will emerge in Bangladesh, and they will surpass Grameen Bank.”
Associate Enterprises
Grameen Bank established a not-for-profit company limited by guarantee named Grameen Fund in 1994 by transferring Tk 49.10 crore from the Social Venture Capital Fund (SVCF) created by the donation given by donors’ consortium consisting foreign donor organizations like NORAD, CIDA, SIDA, USAID, and Ford Foundation.
On the other hand, Grameen Kalyan, another not-for-profit company limited by guarantee, was established in 1996 under the Company Act by transferring Tk 44.25 crore from Social Advancement Fund (SAF) which was created by imposing imputed interest on the donations/loans given by the donors. Later on, Grameen Fund and Grameen Kalyan established 34 institutions individually and jointly through providing equity and credit assistance.
Besides, under entrepreneurship of Dr Yunus and with Grameen Bank concept, 11 institutions were established at home and abroad where Dr Yunus and Grameen Bank officials are associated with their operation. Overall, there are 48 institutions in which Grameen Bank officials, including Dr Yunus, are associated as director or chairman of the Board of Directors.
Until 2011, Grameen Fund was financing 15 institutions, while 13 institutions were financed by Grameen Kalyan. On the other hand, Grameen Telecom, which was established with the finance of Grameen Kalyan, was also financing 12 institutions.
In the first audit report of Grameen Bank conducted in 1998, the Bangladesh Bank stated that Grameen Bank can only distribute microloans from funds collected from the landless and destitute. But under no circumstances can Grameen Bank provide loans to any institution. Therefore, providing loans to Grameen Bank’s affiliates was identified as a violation of Section 19 of the Grameen Bank Ordinance 1983.
In the letter, Mozammel said, “The Bangladesh Bank audit report has been kept secret from several senior management of Grameen Bank and it is very likely that the board of directors of Grameen Bank has not been informed about this audit report either.”
People linked to these institutions were Yunus’ close confidants like Nurjahan Begum, now the health adviser to the interim government.
Nurjhan and M Shahjahan held positions on boards of 19 entities, Sheikh Abdud Daian in 16, Md Ashraful Hasan in 14, Mohammad Khaled Shams in 10, Mohammad Imdadul Haque in nine, Mohammad Imamus Sultan and ASM Shamim Anowar in eight, Md Siddiqur Rahman in six and Nazneen Sultana in five institutions. Other board members of the associated enterprises include Dr Jafarullah Chowdhury, Lamia Morshed and SM Huzzatul Islam Latifee, each of whom were in two institutions, and some foreigners.
Packages Corporation
After completing his master’s degree in economics from Dhaka University, Yunus was engaged in teaching at Chittagong College from 1962-65. At that time, he took a bank loan and joined the printing and packaging business.
“I noted that all packaging materials had to be brought from western Pakistan, that we in the eastern half of the country had no capacity to make boxes or wrapping material. So I persuaded my father to give his consent to set up a packaging and printing plant. I prepared the project proposal and applied for a loan from the government-owned Industrial Bank. We were among the rare Bengali entrepreneurs who wanted to invest in order to set up an industrial unit. Our loan was immediately approved,” Yunus says in his book Banker to the Poor.
“This turned out to be a successful project, making a very attractive profit… My father was the chairman of the board, and I was the chief executive officer. My father was extremely reluctant to have us borrow from a bank. He comes from the old school that did not believe in commercial credit. Having a bank loan outstanding made him so nervous and so worried that he made me pay the loan back early. We were probably the only start-up business that ever repaid a loan before it became due. When I went to repay the bank, they offered us a 10 million taka loan for setting up a paper plant, but my father would not hear of it. This experience gave me a lot of self-confidence. It confirmed my belief as a young man that I had no need to worry about money. I was teaching half the time, and being a businessman the other half.”
From 1990 to 2005, amount of loan given to Packages Corporation and the amount repaid by the borrower were Tk 9.66 crore and Tk 8.69 crore, respectively. During this period, Tk 1.89 crore was charged as interest on the credit of which Tk 1.41 crore was repaid. As a result, in 2005, amounts payable by Packages Corporation were Tk 96.75 lakh and Tk 47.88 lakh (total Tk 1.44 crore) as principal and interest, respectively.
The interest was calculated by imposing 10% interest rate on the term loan and 16% up to 1996, and 12% from 1997 on working capital loan given to Packages Corporation.
However, documents show that the 76th board meeting held in 2006 refixed the interest rate at 5% up to December 2005 with retrospective effect. Following this decision, the Board fixed Tk 7.22 lakh as the debt of Packages Corporation although the real debt was total Tk 1.44 crore. That means, a total of Tk 1.37 crore was waived.
But at that time, since interest balance of Grameen Bank was Tk 47.88 lakh, excess interest amount (on the basis of 5% interest rate) paid by the clients was regarded as principal. There was no scope for waiving the sinterest already recovered from the borrower institution.
From 1990 to 1997, Grameen Bank was in the charge of managing Packages Corporation. All printing and packaging activities of Grameen Bank were accomplished by Packages Corporation. According to the procurement guidelines of Grameen Bank, an open tender was to be floated for procuring printing or stationery of more than Tk 2 lakh. But without going for any open tender, Grameen Bank procured printing or stationery from Packages Corporation.
In the final evaluation report by the donors submitted in January 1994, objection was raised against the continuation of Studies, Innovation, Development and Experimentation (SIDE) project by the Grameen Bank management and the management of Packages Corporation. In spite of this objection, credit facility was given to Packages Corporation from the SIDE fund.
Management of the family enterprise of the Managing Director, procuring goods and services from this institution without competitive tendering system and financing to it with allowing waiver of interest and principal amount of the credit create conflict of interest.
However, financial statements of the Packages Corporation of 2010 show that Packages Corporation was not given any credit facility by Grameen Bank or its associate institutions at that time.
Mozammel mentioned this matter in his letter to Yunus in 2000. He said, “The interest invested in your family institution Packages Corporation is about Tk 2 crore. It may not be possible for your family to repay it in the next 3 to 5 years.”
He stated that although most of the printing work of Grameen Bank had been printed by Yunus’ family institution without any tender and at about 40% above the market price. “In many cases, Grameen Bank has to accept it even though the quality of the printing is below acceptable levels. If Bangladesh Bank monitors your financial transactions with Packages Corporation at any time, it will be very uncomfortable and embarrassing for you and Grameen Bank.”
Employee Management
Regarding the management of the associate institutions, Mozammel said that people from a particular region/district of Bangladesh were gradually playing a special role in determining the policies and running Grameen Bank and its affiliated organizations. “Questions have been raised about the qualifications, impartiality and sincerity of many of them.”
He said, “Currently, we have moved away from our thinking and philosophy for various reasons. It is particularly noticeable that Grameen Bank has been managed by Grameen Bank employees in almost all its subsidiaries and at one point they were brought back to the bank. This is applicable to senior management.”
According to him, it is not possible to implement the objectives and ideals of the institutions created by Grameen Bank by retired bureaucrats. Moreover, as a result of Yunus serving as the executive chairman of all the institutions, “not to mention Grameen Bank, all other institutions are not being given the kind of time and attention that they need. As a result, a conflict of interest has arisen, a particular concern and discomfort that needs to be resolved.”
He said that former bureaucrats can be made the president of the board, but it would not be right to make them the chief executive. Rather, senior management at the Grameen level can go on deputation for 3 years or a fixed term in the establishment of the organization and a plan should be made so that one third returns every year and a new batch takes their place. This is how the different experiences of senior management will play a helpful role in the staff development program of the bank.
He said that in the last 10 years, the careers of many sons and daughters had been ruined due to various policies of Grameen Bank. “Most of them were sent on deputation to various organizations of Grameen Bank for an indefinite period without any opinion due to the executive power. After working in other organizations for a long time, it has been said again that they have become unfit to work in Grameen Bank due to their long absence from Grameen Bank. They cannot be brought back. This policy is very unfair and amounts to a violation of human rights.”
He further said, “We have not transferred many colleagues for a long 12/14 years in the interest and need of the bank. Now, a sudden decision has been made to transfer everyone, especially from the head office. Most of them are women. If a person is not transferred for a long time, 10/12/14 years, then his and his family life will revolve within a certain limit. If they are suddenly transferred with a six-month notice, most of them will leave their jobs and the bank will be deprived of their special skills. Such situations have arisen due to the lack of any long-term personnel management plan.
“I think it is the moral responsibility of Grameen Bank to arrange alternative employment for those who will be forced to leave Grameen Bank for the above reasons. I believe that instead of hiring people from outside indiscriminately for the affiliated organizations of Grameen Bank, I believe that they will perform their duties with relative honesty, dedication and sincerity. In most cases, we have developed our colleagues in that way.”
Frustrations Among Employees
Mozammel said that 90 percent of the officers who applied for jobs at Ansar VDP Bank in 1997 and Karmasangsthan Bank in 1998 were employees of Grameen Bank.
“The authorities are not worried about so many employees wanting to leave the institution at once and do not feel the need to investigate the reasons for this. Also, many people believe that if alternative employment opportunities arise, about 70 percent of Grameen Bank employees (those who have completed 10 years of service) will leave the institution. It is important to remember that until 1990-91, relatively many did not leave the institution despite getting good job offers, but many wanted to come. But in a short period of time, today the situation is completely the opposite, a different picture.”
Mozammel mentioned that Grameen Bank employees were suffering from extreme frustration and lack of confidence for various reasons. They were very anxious and worried about their future and security but were not aware of the current financial situation of the bank.
“They only know that the main reason for the bank’s crisis is the uncontrolled distribution of loans, to make the bank’s recovery rate look good at any cost. All colleagues know that the consequences of increasing the loan repayment rate through irregularities are very dire, and that is exactly what happened in the case of Grameen Bank. No reasonable explanation can be found anywhere as to why the loan repayment rate should be increased in disregard of economic discipline.”
According to him, the management structure of the bank should be analyzed in advance, so that it can be determined how many people will be needed in each position after a few years. “Everyone will know how many opportunities there are for getting higher positions and responsibilities and on that basis, everyone will make mental preparations. In the current management, no one has the time or opportunity to make any kind of mental preparation, whether for promotion or transfer, which creates unnecessary disappointment.”
In addition, Mozammel criticized Yunus’s promotion policy. “If an employee cannot successfully perform the duties of a branch manager for at least 3 years, he or she will not be promoted from officer to senior officer. This is not realistic. Promoted officers will actually have no opportunity to take on the responsibility of managing branches in the future.”
Tough Solutions
Mozammel observed that Grameen Bank had been plugned into crisis because of Yunus’ mismanagement and that many difficult decisions had to be taken to overcome the situation.
“That is, the structure of the bank and its subsidiaries will have to be restructured as a whole, and decisions will have to be taken after discussions and exchange of views at all levels of the bank for such restructuring. For the next one and a half years, you will have to give special attention and time to the activities of Grameen Bank. It is necessary to deeply analyze how the constituent organizations created by Grameen Bank will play a helpful role in alleviating poverty among the members of Grameen Bank, including the poor.
“In this context, it is also necessary to make it clear that you will play the role of chairman not by virtue of your position, but by virtue of your position, on which the solution to the problems created depends.”
Mozammel said, “It will not be possible for you to retire from Grameen Bank in the next 3 to 5 years.” He said the reason was that “there is no magic formula for overcoming the administrative and financial crisis that Grameen Bank is currently facing. If we take a firm hand from now, we can overcome 50 to 60% of the problems within 3 to 5 years.”
Calling Grameen Bank the flagship in the global microcredit context, Mozammel said, “We have to make special efforts by realizing this importance. Otherwise, if the concept of microcredit is endangered and abandoned, Grameen Bank will be a shining example, which is not desirable for anyone.”
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