New Age, 12 December 2010
Validity of charges against Grameen under question
Grameen Bank probably never had a worse week. A Norwegian documentary claimed that its noble peace prize winning founder had ‘quietly tapped the Grameen Bank’ for Tk 3474 million of aid money, that Norwegian assistance had ‘disappeared’ from the bank and, some aid money was diverted to fund Grameen Phone.
The allegations were then taken up by bdnews24.com – with a headline, ‘Yunus “siphoned Tk 7bn aid for poor”’ which was widely published in Bangladesh. Soon it was a truly international story with the Times in the UK saying that Yunus’s ‘reputation was under threat.’
A four page rejoinder by the bank did little to stem the allegations – with senior Awami League politicians accusing Professor Muhammad Yunus, the managing director of the bank of ‘corruption’ and even the prime minister arguing that the allegation was ‘nothing but sucking out money from the people after giving them loans.’
Yet, the tide now seems to be turning in Grameen Bank’s favour. The Norwegian government last week said that the inquiry report by Norad showed no evidence that any of this money was used for ‘unintended purposes.’ The minister stated that there was no evidence that Grameen Bank has ‘engaged in corrupt practices or embezzled funds.’
Since the controversy first started, New Age has been looking closely at these allegations.
It read all the documents released by the documentary makers (including those originally written in Norwegian), looked though Grameen Banks’ annual reports going back to 1995, and have conducted lengthy conversations with senior financial figures within the Bank.
Now, with Professor Mohammed Yunus making his first public statement on the allegations later today, New Age can reveal that our investigation shows that those suggesting that aid money was misused have failed to understand the financial transactions at the heart of the controversy.
The first misunderstanding was that the transactions not only involved donor money but also a separate fund made up of money internally generated by the Bank. As a result, the documentary claimed that money that Grameen phone had invested in Grameen Telecom had come from donor money, when it had in fact came from a separate fund within the Bank – the Social Advancement Fund.
Secondly they did not appreciate that the ‘transfer’ of donor money from Grameen Bank to another company was only a paper exercise – and the money never actually left the account of Grameen Bank. As a result, all the allegations suggesting that the transactions resulted in the ‘siphoning’ of money were completely misconstrued.
The story starts in December 1996. Amongst the 26 different funds and other money in Grameen Bank’s bank accounts that year were two particular pots of money.
One pot of money was the Tk 3474 million (NOK 608) which was given to the bank by a consortium of donors as revolving funds to be used for house and other kinds of loans.
Norad states that its contribution to this pot was Tk 754 million (NOK 170 million) - about a quarter of the total. The other donors included Swedish International Development Corporation Agency (SIDA), the Ford Foundation, and the German government aid agency, GTZ.
The second pot of money was called the Social Advancement Fund (SAF), which amounted to Tk 442 million. This had been internally generated by the Bank over a period of years by setting aside 2 per cent of the interest payments received on revenue received from borrowers paying back their loans and was to be used for the welfare and benefit of the Bank’s members and employees. The Social Advancement Fund was set up at the request of the donors themselves – and was not considered by them to be part of their money.
In December 1996, Grameen Bank set up a new company, Grameen Kalyan. In correspondence to Norad, Dr Yunus gave two main reasons for its establishment.
The first was to provide an organisation that could more efficiency distribute the Social Advancement Fund for the welfare of Grameen’s bank staff and members.
This was achieved by Grameen Bank giving Tk 198 million of this money to Grameen Kalyan - the money being physically put into Grameen Kalyan’s account in a number of separate installments completed by the end of May 1997. The remaining Tk 243 million in the Social Advancement, comprising an investment in Grameen Telecom, was also given to Grameen Kalyan.
The second reason for setting up the new company was to provide a way to protect from taxation the money that was paid into the Social Advancement Fund (the 2 per cent from the revenue received on the bank’s loans to its members). This was considered an issue, as the Bank feared it might soon lose its tax exemption status resulting in this money being treated as ‘profit’ and therefore taxed.
This second purpose was achieved by Grameen Bank giving Grameen Kalyan the Tk 3474 million (NOK 608) donor money and then immediately borrowing the money back from Grameen Kalyan on the basis that it would pay it 2 per cent interest. Since the ‘2 per cent’ was now interest on a loan – it would not be taxed if the Bank’s tax exemption was removed.
Although the May 1997 agreement between Grameen Bank and Grameen Kalyan (as well as subsequent NORAD documents) use the word ‘transfer’ to describe what happened to the donor money, this money was not – unlike the Tk 198 million SAF money - actually physically transferred to Grameen Kalyan. The change of ownership and the loan was, as the Norwegians themselves state in their documents, a ‘bookkeeping’ exercise, a notional transfer. The donor money remained in Grameen’s bank account at all times.
In February 1998, completely by chance, the Norwegian government came to know about this set of transactions when it was glancing through Grameen’s bank annual report. And it raised a number of warning lights for them.
First, the government thought that it represented a breach of their agreement to give the money since the Tk 754 million it had given Grameen Bank was now legally owned by another company. Secondly, since the money was not owned by Grameen Bank, there was a potential risk that it could be diverted for other purposes. Thirdly, it thought that even if the Bank’s tax exemption was removed, Grameen Bank should pay.
Following discussions involving the Grameen Bank and the Norwegian and Bangladesh governments, it was agreed that Grameen Kalyan would transfer back all of NORAD’s money (then sitting along with all the other donor money in Grameen’s account) into the name of Grameen Bank. This was another paper exercise, which did not involve the movement of money, and which did not effect how the money was used.
It is known from the papers obtained by the film maker that NORAD had wanted all the donors in the consortium to act together. It is therefore notable that none of the other donors – who had given three quarters of the pot of donor money - decided to join NORAD in asking for a change in the ownership of its money. This would suggest that they did not consider Norad’s concerns to be sufficiently serious.
Their foresight proved accurate. Even though Tk 2720 of the non-NORAD donor money in the Grameen Bank account continued to remain in the ownership of Grameen Kalyan – there was never any suggestion that this money was used by Grameen Bank in any way other than providing loans.
Six years later, in 2003, Grameen Bank decided, possibly on the prompting of Bangladesh Bank, to return the non-Norad donor money back to the ownership of Grameen Bank. The annual report of that year, which New Age has seen, attests to the fact that this money was returned.
Whilst people may still have questions about why Grameen Bank did not seek the consent of donors before making these transactions, and wonder why the Bank went to such great efforts to avoid paying any possible tax, the evidence does not support allegations that the aid money at the heart of the allegations was misused.
The money did not move out of Grameen Bank’s account. The money used to invest in Grameen Telecom and the money physically in the Grameen Kalyan account all came from a different source of money, the Social Advancement fund.
We asked Tom Heinemann, the maker of the documentary, to comment on these findings. ‘I never suggested that money had been misused in my documentary,’ he said. ‘We were only asking what had happened to the money. Why did Norad keep these documents secret.’
He said that those Bangladesh news media who alleged corruption had occurred were in trouble. ‘There will be a boomerang against them. I never said there was corruption’
Heinemann focused on the point that ‘Grameen Bank had broken agreements. …Donors had not intended the money to be transferred [to another company]. There were massive implications of that transfer which is why [the] money was demanded back. The compromise meant that Grameen Kalyan kept [the money]. This was not how the donors had planned it.’
He also questioned the accuracy of the Norad investigation report – stating that he still thought that there was Norwegian money accounted for. ‘I am still not clear where the money has gone,’ he said