Takeover Plan for Microlending Pioneer Grameen Spurs Anger

By SYED ZAIN AL-MAHMOOD
Source: THE WALL STREET JOURNAL
Published on: 5 Aug, 2013

Bangladesh Plans to Take Control of Bank Founded by Nobel Winner Yunus

The government is set to announce a plan to take control of globally praised microlender Grameen Bank, drawing criticism from the supporters of its Nobel Prize-winning founder and raising questions about the motivation behind the move.

Muhammad Yunus founded Grameen Bank. The government plans to take control of the lender and split it up.

Founded by Nobel laureate Muhammad Yunus, Grameen has garnered accolades for bringing credit to millions of rural people and showing that microcredit programs—which offer small loans to poor borrowers—can work on a large scale. Its success helped spawn a big international expansion of microcredit in emerging markets and inspired giants such as Citigroup Inc. and HSBC Holdings HSBA.LN -1.02% PLC to dive into the sector.

Under the plan, which could be announced by a government-appointed commission as early as this week, the government is expected to increase its stake in the bank to 51% from 25%, diluting existing shareholders and giving it control of the lender, which is now controlled by 8.4 million rural women who are borrowers and shareholders in the bank.
"This is a suicidal decision," said Tahsina Khatun, a member of the board of directors. "How can the government, which is a minority shareholder, impose its will on us who own the majority? The Grameen model is based on trust. There will be no trust after this."

The move comes as Bangladesh faces criticism for corruption and lax oversight in the collapse of the Rana Plaza garment factory in April that killed 1,100 people. Supporters of the bank say it is relatively well run and has been scandal-free in a corruption-riddled country.

The dispute is driven in part by the rapid growth of Grameen Bank, which is at the center of a sprawling empire that includes 48 companies including the nation's biggest mobile-phone operator and a yogurt maker.

Government ministers say the restructuring is needed to rein in Grameen, boost oversight, and bring the bank in line with the law that underpinned the creation of Grameen in 1983. They say the bank has strayed from its mandate of giving credit to the rural poor by forming multiple companies that have nothing to do with micro-lending. They have also accused Mr. Yunus of enriching himself and his family through the nonlending businesses.

A woman in Savar, Bangladesh, tends to cows bought with a Grameen Bank microloan.

"Yunus holds the position of the chairman of the social businesses set up by him," Finance Minister Abul Maal Abdul Muhith told parliament last month. "These businesses were set up by borrowing capital from Grameen Bank, but the shareholders were paid no dividends. We want to address this."

Mr. Yunus said in an interview that he didn't own shares in any of the companies bearing the Grameen name and didn't borrow from the bank to fund them. "I did not set up these companies using money from Grameen Bank since that would be a violation of its mandate," he said.

"These companies are either nonprofits or are owned by nonprofits and were set up with the aim of poverty alleviation through social business," he added.

Mobile operator Grameenphone, for example, was started with a loan from the Soros Foundation. The company, a joint venture with Norwegian telecom company Telenor, TEL.OS +0.76% is now the country's biggest mobile operator, a listed company with a market capitalization of $2.6 billion and a 40% market share.

Telenor holds 56% of Grameenphone. Grameen Telecom, a not-for-profit set up by Mr. Yunus, holds 34%, while the remaining 10% trades on the Dhaka Stock Exchange.

A Bangladeshi man stands in front of a poultry farm established with a Grameen Bank microloan.

Finance Ministry officials say the final plan to restructure Grameen is likely to hew closely to an earlier plan calling for the bank to be split into 19 parts serving 19 zones in the country. The government would inject money into the bank to raise its stake to 51%, diluting existing shareholders.

The battle over Grameen is part of a long-running tussle between the government and Mr. Yunus. In 2011, the government engineered the removal of Mr. Yunus, now 73 years old, from Grameen Bank, saying he had passed retirement age.
Prime Minister Sheikh Hasina famously called Mr. Yunus a "blood sucker" two years ago and has accused him of lobbying against her government abroad.

Critics say the government wants to control all the Grameen companies so it can profit from them and use the bank's millions of clients as a possible vote bank.

Women apply for a loan at a Grameen bank branch in Savar, Bangladesh.

"The government clearly has ulterior motives in trying to take control of Grameen Bank," said Mirza Fakhrul Islam Alamgir, a leader of the opposition Bangladesh Nationalist Party. "If voted to power, we will restore Grameen's independence."

The government denies it is trying to bleed Grameen of profits, tap its clients for votes or embarrass Mr. Yunus.
Mr. Yunus has drawn support from overseas, including from former U.S. secretaries of state Hillary Clinton and Madeleine Albright. During an official visit to Bangladesh last year, Ms. Clinton said she wanted to see Mr. Yunus's work "continue without being in any way undermined or affected by any government action."

The breakup plan is based on a recommendation from a commission started by the prime minister in May of last year.
The commission also recommended that the original license for Grameenphone be suspended, although it hasn't provided details on what was wrong with the license. The commission's head, Mamun ur Rashid, has called for Telenor to relinquish 16% of Grameenphone—a stake valued at about $415 million—to Grameen Bank, which the government would control if its proposed changes are enacted.

Sigve Brekke, chairman of Grameenphone, who is also head of Telenor Asia, said the company hadn't been officially notified of any government decision and couldn't comment further.

Whatever happens, Bangladesh's "battle of the bank" is likely to keep bruising the country's reputation.
"The Grameen Bank is not broken, so why fix it?" asks Akbar Ali Khan, an economist and former bureaucrat. "Grameen's management model is being replicated [in other countries]. The government must allow Grameen Bank to run without interference."

A version of this article appeared August 6, 2013, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: Microlending Pioneer Faces Takeover.

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