The removal of Yunus, and Grameen Bank’s takeover, is heavily politicised, and justifications citing Yunus’ retirement age are little more than a pretext. After all, Grameen’s board raised the issue of compliance with statutory retirement rules with Bangladesh Bank (the central bank) in the past and the matter had been ‘nodded through’ without demur.
It seems clear that the intention of Prime Minister Sheikh Hasina’s government is nothing less than a seizure of Grameen and its associated ‘social enterprise’ companies, whose activities include mobile telephony, solar energy, textiles and yoghurt. This has been assisted by carefully nurtured public doubt over Yunus’ integrity, including damaging allegations (later disproved) about Grameen’s management of foreign aid funds in a hostile Norwegian TV documentary. Senior members of the Awami League (the governing party) have also accused Yunus of corruption, while Prime Minister Sheik Hasina has described the bank as ‘sucking out money from the people after giving them loans’, though Grameen’s relatively high deposit rates were not subject to similar invective.
Official sources now label Grameen a ‘government bank’ by virtue of its creation under an official ordinance. From this flows a tendentious definition of Yunus and his fellow directors as ‘public servants’, used to support the government’s takeover as the proper course of action. The stakes are high; the telecommunications interests alone are valued at more than US$1 billion, while the bank holds assets of some US$1.5 billion.
The activities of Grameen Bank have been a standing rebuke to successive Bangladeshi governments over many years. Grameen, and many other voluntary entities, emerged in the early days of Bangladeshi independence from a governmental vacuum, created by the weakness and incapacity of the state in meeting the poor’s needs. The growing achievements of Yunus and Grameen attracted the attention of donors and, at least partly in deference to their requirements, the Grameen Bank Ordinance 1983 was enacted (although Grameen itself was not constituted as a regulated bank). This ordinance has been the legal battleground for the present struggle.
Sheik Hasina’s motives appear to include a degree of resentment for Yunus’ and Grameen’s joint achievement of the Nobel Peace Prize (for which Hasina herself appears to have harboured a shy hope). The formation of a rival political party by Yunus in 2007 (politically ill-judged as it was) may also have continued to rankle in government circles. Though the attempt was soon abandoned, it drew attention to the potential for Grameen Bank — with more than 8 million members/shareholders — to serve as a platform for mass mobilisation, if under the control of a more adept political operator than Yunus.
An extraordinary series of external interventions on behalf of Yunus has also raised the stakes. These included visits by former World Bank President James Wolfensohn and by the US Assistant Secretary of State for South Asia, the World Bank’s and IMF’s reprogramming of loan tranches in an apparent rebuke to the Bangladeshi government, and the communication by US Secretary of State Hillary Clinton to Sheik Hasina of Washington’s concern.
These external reactions may have been counter-productive, hardening the Hasina government’s position. Further, the government is not without support. Jagdish Bhagwati recently claimed that ‘Yunus is suspected of covering up losses at Grameen with huge sums of money from abroad’. Yunus’ defence — that Grameen has not accepted foreign grants since 1995 and that lending is financed more than adequately by deposits (which amount to about 150 per cent of loan portfolio) — carried little weight.
The government’s plans could have serious implications internationally and domestically.
First, moves to assert control over Grameen ‘family’ firms with foreign capital stakes could negatively affect foreign investor perceptions of political risk.
Second, the viability of Grameen Bank as a financial institution is at risk. There is abundant evidence from Bangladesh’s political history that governments will interfere in the operations of state banks for political ends. The real possibility exists that Grameen could become a vehicle for politicised lending, or that it might suffer from government-imposed ‘loan forgiveness’ related to the electoral cycle. Under Yunus, Grameen resisted such politicisation and established an enviable credit culture among its members, as well as earning their trust (evidenced by Grameen’s outstanding performance in deposit-mobilisation). But the balance sheet equilibrium is fragile — hostage to any changes in the political environment causing loss of confidence among Grameen’s constituency. This would be a tragedy for the bank, for Bangladesh and for other non-state microfinance service providers which might be caught up in the turmoil.
Finally, there is another international dimension to all this. Yunus’ voice has stood in lonely protest against the current pernicious trend towards the financialisation of microcredit. This trend, so far as it has contributed to reckless lending in Andhra Pradesh and elsewhere, has led to the current international crisis of legitimacy in microfinance. The fallout from Yunus’ removal could include a loss of his considerable moral authority. This in turn could diminish his capacity to resist the ‘barbarians at the gate’ of microfinance, whose resort to financial engineering and the single bottom-line threaten this significant social movement.
John D. Conroy is Visiting Fellow at the Crawford School of Economics and Government, Australian National University, a Special Consultant at the Foundation for Development Cooperation, and a participant in the Advisory Group on APEC Financial Sector Capacity-Building.