Assessing Micro credit in Bangladesh with special reference to Grameen Bank :An Analysis

Muhammad Mahboob Ali * and Kaniz Marium Akter **

Executive Summary:
Micro credit means credit for small amount which is mostly used for getting out of vicious circle of poverty. After the independence of Bangladesh, Bangabandhu Shiekh Mujibur Rahman started working for the development of the poor people through opening of branches of commercial banks and Bangladesh Krishi Bank countrywide. He also stared rural development programmes through formal institutions. The Bangladesh Rural Development Board, one of those institutions, is charging a flat rate of 12 per cent interest rate on loans. At that time BRAC also started functioning, and the Comilla model became famous for rural development. Bangabandhu was always very careful so that no hidden charges were levied and the interest rate kept to the minimal. He showed the path of rural development of this country. Prof Muhammad Yunus tried to formalise a definition of micro credit with a zeal, which has become popular in countries enjoying free market economy. NGOs claim that the rural poor especially, the women have been benefited by micro credit. The main research question is whether Micro credit is really a myth in reducing poverty in Bangladesh. The study will also do SWOT analysis as well as Porters five forces model and Value chain model. The study period is January 2011 to October 2011.The study will use both primary and secondary sources.

________________ *Professor and Head, M.H. School of Business, Presidency University.e-mail:pipulbd@gmal.com **Lecturer, M.H. School of Business, Presidency University. e-mail: <kanizm@mail.presidency.edu.bd>, <kanizm@presidency.edu.bd>,

After the fall of the socialistic economic system in the world, the worst enemy now facing the free market economy is poverty. Most countries are looking for a new idea to reduce poverty, as it cannot be removed. After the scandalous report against Prof Yunus aired on foreign TV channels in last year, A review committee has been set up to see whether Grameen Bank does work to remove poverty, or creates a vicious circle of poverty. Rural women are really the victims of micro credit, she pointed out. I want to thank her for stressing on an investigation into the matter. Though the incident occurred long ago and the Norwegian government later on clarified that the matter has been settled. But this does not mean that transfer of fund from one source to another for tax exemption is acceptable. Not only Grameen Bank some other NGOs may also be involved in such unethical handling of funds, due to poor regulatory measures in this sector. Since inception of the micro credit regulatory agency, it had failed to inspect activities of different NGOs, including Grameen Bank, which transferred fund from one sector to another in the name of poverty alleviation. Mahmud (2011) argued that the majority of women clients are underprivileged, under-nourished, illiterate and poor. In their lifetime they experience two realities, one determined by tradition and the other shaped by increased poverty that forces them to take up wage employment for sheer survival. As there are not enough employment opportunities, microcredit offers them a way out, but if social conditions are not right, these loans can push them deeper into poverty. Many women therefore resort to the business of re-lending to get them out of debt. Dr Yunus is the lone Nobel Laureate of this country, and is considered a great source of inspiration. But what has he shown us? He transferred fund from Grameen Bank to another sector. We had to wait for a decade to know about the fund transfer from the foreign media. This also calls for measures against the chartered accountancy company, which audited the financial statement of Grameen Bank unfortunately, utilising window dressing. The present government believes in transparency, accountability and fairness. But those in the upper echelon of authority, who misuse power and try their level best to suppress the truth, think what Dr Yunus did was for the benefit of the poor people, but it does not ring true, as it was done to evade taxation. When one does not pay tax he/she brings shame not only on himself /herself, but on the country as a whole. What Prof Yunus did can be equated to one sort of money laundering. And if we take proper account of other NGOs, national and international agencies such practices may come to light. Hopefully, the Prime Minister's decision to investigate Grameen Bank will lead to overseeing the financial transactions and utilisation of the funds by other NGOs for the sake of the rural and urban poor, especially the underprivileged section of society. Grameen Bank and some other big NGOs have created a 'Mafia Nexus'. They use several systems of repressions to raise repayment of loans. For having failed 2

to repay loan of Tk 1800, two borrowers of Grameen Bank were even lodged in jail three or four years back, according to media report. After the present government was sworn in, the finance minister tried to curtail interest rates of micro credit lenders, but the NGOs are so powerful that they did not comply. Is there any utility of the micro credit regulatory agency, if it fails to perform duty? One may have visions and also missions, but it would not be successful unless it is properly implemented. Finance Minister AMA Muhith on 2 November ,2011 said people should not forget the positive sides of micro credit operations, although the financial tool has some negatives. "Micro credit helps alleviate poverty in three ways: First, it helps people below the poverty line graduate above the line. Second, it empowers rural, weak institutions, especially strengthening empowerment of women. Third, it plays a vital role in social evolution," he said." It helps create a strong position in society on issues such as education, health and dowry. It is time to broaden the success of micro credit," said the minister (Source: The Daily Star,3rd November ,2011). Dr Yunus, helped by his international connections, created himself as a role model of a monopolist. Now he is advising for social business. But among fifteen elements of business, three elements are very important: Profit maximisation, social obligations and legality. As such social business is nothing new, rather a company, which follows ethical procedure, corporate governance and corporate social obligations, automatically follows social business. We should learn from the good impact of free marketeconomy where perfect competition prevails and free flow of information is available . According to http://news.outlookindia.com/items.aspx?artid=720084 A Bangladeshi probe has accused Nobel laureate Muhammad Yunus of turning his pioneering microfinance bank into a "massive conglomerate" in violation of its own rules. "It needs a new legal framework" to regulate the bank and its many sister firms, known as social businesses, which include a number of profitable foreign joint ventures, probe committee chief A.K. Monowar Uddin Ahmed said. Grameen Bank has huge influence in Bangladesh, and its sister companies have moved into solar panels, mobile phones and other consumer goods, but this expansion did not adhere to the original Grameen Bank law, the probe said. "Grameen Bank has become a person-oriented organization, not a rules or system-based organization," the report said, calling for an overhaul of the board structure and the restructuring of some sister companies. "Together, Grameen Bank and its sister organizations have emerged as a big conglomerate, which needs to be redefined and restructured," the report said.
"Grameen Bank is now the kind of massive conglomerate we see in South Korea or Japan,"

As the micro credit regulatory agency failed to perform its duty few heads must roll. We must think about the dignity of the country as well as the poor people. Really it is a shame that micro credit is a myth, as it creates vicious circle of 3

poverty. Some NGOs, capitalising on poverty in the country, are even establishing banks, universities, hospitals for making profit. They are however, claiming that these organisations are non-profitable. We need alternative measures so that poor people can improve their financial condition. Commercial banks should come forward voluntarily with micro credit schemes charging interest rate of a maximum of eight to 10 per cent per annum. Strong measures should be adopted so that the finance ministry and under its leadership, Bangladesh Bank and micro credit regulatory agency can use microfinance, as an alternative source of banking channel to alleviate poverty. Micro credit must be properly utilised for the benefits of the poorer section of society with gender balance as well as rural and urban equality. For the sake of justice, the present micro credit regulatory agency should be properly restructured and proper staff put in place. Grameen Bank is not a scheduled bank but established by statutory order and should therefore, may bring under rules of the regulatory agency. We should also be cautious so that middlemen, brokers, mahajans and fariah's cannot take the advantage. Under free market economy, we must follow the rule of Pareto Optimality, which implies that through transactions one would be benefited and at the same time the other party not disadvantaged. Field of Research :Micro credit, Poverty alleviation ,Bangladesh

References:
Mahmud, Anu (2011),Poverty reduction and micro credit activities .Daily Sun ,Bangladesh,3 and 4 June Daily Star, Bangladesh(2011),3rd November,2011 http://news.outlookindia.com/items.aspx?artid=720084