Grameen Bank Founder Dr. Yunus Investigated for Impropriety in Misallocating Development Funds

There’s a new brew simmering in Bangladesh.  It’s made of allegations, recriminations and excuses.  This brew has to do with acts committed by the venerable founder Dr. Mohammad Yunus some fifteen years ago. This brew threatens to irreparably mar microcredit institutions, the poverty alleviation regime that over the last several years has gone private, virally, without pause. This brew, that Dr. Yunus acted in bad faith in using funds targeted for his non-profit Grameen Bank for his for profit social development enterprises, seems not to matter to the very individual being investigated, the founder of Grameen Bank, judging by his response to the initial allegation.

A documentary filmaker has found evidence that about fifteen years ago, Dr. Yunus took $100 million in non-profit grant money and funneled it into his for-profit businesses, partly in order to keep the non-profit Grameen Bank afloat. The allegation mounts to the charge that the donors were not made aware of the fact that Grameen was using a large share of the disbursed aid money as revolving funds for enterprises internal to Dr. Yunus’s Grameen brand.  That revolving fund was not stipulated in the original contract.

The aid funds came from the international aid agencies of Norway, Sweden and Germany. A large portion of the original payout was later returned to the appropriate donors.

Now the Norwegian development authority are not charging corruption; nor are they accusing Dr. Yunus of fraud or illegal conduct.  That the allegation smacks of impropriety is castigation enough.  Indeed, all parties agree that Grameen does (and has done) fine work, that the firm that received a share of the international development aid also does fine work.  But that is not the worrisome charge here.  Grameen’s good works do not defeat the allegation of impropriety.

In very brusque terms then, the charge is that of duplicity, one that could have voided the original contract.  Neither Grameen, nor its founder has been charged with conduct of illegal activity.

Now the leading English language daily, the Daily Star has mounted something of a defense for Dr. Yunus.  It seems his international reputation offers cause for the newspaper to ride to his rescue.  (The lawyers Dr. Yunus must have employed, then and now,  did not offer sufficient succor.)

The newspapers defense: that Grameen Bank and its leadership are taking their time to fish out the documents that were written and signed going on fifteen years ago. And that at any rate, whatever Dr. Yunus did, he did for the greater good.

Here’s the Daily Star’s take on Grameen’s excuses and moves, some detail:

The documentary, titled “Fanget i Mikrogjeld” or “Caught in Micro debt”, was aired on Tuesday on the National Norwegian Television, NRK. The whole episode took place about one and a half decades ago. And then it was presumably ironed out, as the documentary showed a compromise had been reached concerning transfer of the funds Norway granted to Grameen Bank.

Contacted, Grameen Bank said the allegations of fund misuse are false. It will release a detailed statement on the affairs soon. The Bank is already working on the issue, but since it was a matter happening about 14 years ago, it is taking some time to get all the facts together.

Grameen Kalyan is in fact a spin-off created in 1996 by Grameen Bank, which set up an internal fund called Social Advancement Fund (SAF) by imputing interest on all the grant money it received from various donors. SAF has been converted into a separate company to carry out social advance activities such as education, health and technology among Grameen borrowers. It has 30 health clinics across the country. Most of these clinics are attached to Grameen Bank branches.

So the newspaper’s defense is that the misallocation was for a good cause, that it was eventually ironed out and that  it all happened a long time ago.  None of that excuses the original infraction.  And that is what this particular brew simmering over is about.

Grameen Bank is considered the international brand  representative of “microcredit loans”.  Its name and reputation are at stake here and along with it the domestic and international reputation, of microcredit itself.  No amount of hedging can withstand a stain on that stratospherically highly regarded reputation.  However that, apparently, is not something that worries Dr. Yunus.

The Daily Star has his defense, in his words:

We believe that the new arrangement does not in any way violate any of the clauses of the agreement between Norway and GOB, rather it strengthens professionally the financial operation of GB for eradication of poverty,” Dr Yunus said.

He further said that the GB board of directors took the decision within the scope of the agreement with the donors. “It in no way threatened to interfere with the successful utilisation of the grant [and] that is why we did not think of informing the donors.”

This defense, this posturing, misses the point of the allegation, the meat of which should worry Dr. Yunus and his supporters: it is not degenerate consequences that led to the charges; rather the overly silent move to transfer funds from a non-profit organization, the institution that bears the imprimatur of the contract, to a private organization.  That there was no incidence of public or private corruption is quite beside the point.  That there should have been anything untoward in the transfer of the aid money from one government to an market making element of another is the turn that bears consideration.

It seems that neither Dr. Yunus, nor the reporters and editors at  the Daily Star are ready to so consider the charges laid out against the illustrious founder of the Grameen Bank.