- Rehman Sobhan
Published on: June 21, 2013
Source: Dhaka Tribune
An initial comment on the report of the commission on the future structure of the Grameen Bank
This comment is inspired by the recent publication of some of the recommendations of the second commission constituted by the Ministry of Finance to address the future structure of the Grameen Bank (GB), which is to be discussed at a special workshop convened on July 2 to which I have been invited. Since this report has come under discussion in the media I feel it may be useful to share my views on the issue with a wider audience.
A commission at variance with public policy
The commission has already incurred some notoriety through its suggestion that the Grameen Bank board members need to meet a certain standard of education. This assumption has now persuaded the commission to suggest that the government of Bangladesh (GoB) assert its ownership rights over Grameen Bank by bringing it closer to the legal format of Bangladesh Shilpa Bank (BSB). In this scenario the GoB would hold a majority share, not less than 51%.
This suggestion appears to be at variance with the long standing commitment of this and previous governments to reduce their share holdings in all state owned financial institutions. The present finance minister, a few years ago, threatened to take disciplinary action against state owned banks if they did not divest themselves of a part of their share portfolio, to the public.
To now resort to expanding government ownership over Grameen Bank, a well functioning institution where the government played no role at all in its management, seems perverse, to say the least. This suggestion, invoking the format of an ill fated and bankrupt public financial institution, the Bangladesh Shilpa Bank (BSB), as a role model for GB, appears particularly unfortunate.
The GB commission’s report moves beyond the issue of ownership to discuss how the GB’s borrower/members may exercise their franchise. This may be discussed at a later stage. At this point it may be stated that there are corporate bodies all over the world and even in Bangladesh with large numbers of shareholders, often running into millions. They do not need to assemble these millions of shareholders in one place to hold their AGM or to exercise their franchise and each has found a solution to deal with this problem, as has Grameen Bank.
These arrangements have neither been challenged by Grameen Bank’s women owners or have impacted adversely on the running of the bank. For a commission whose members have scant experience of running a large financial institution let alone a micro finance body to come up with a proposal to restructure a well run organisation is another example of perverse imitatives and priorities.
Educating board members
The suggestion that levels of education should be a criterion for bank membership indicates that the commission is inadequately educated about the background and nature of an organisation it is supposed to be reviewing. The very intent of the Grameen Bank, as conceived by its founder Nobel Laureate Muhammad Yunus, was to ensure that it was owned and overseen by the poor women it was intended to serve.
This arrangement has made Grameen Bank virtually unique among the thousands of micro-finance institutions established in Bangladesh and now proliferating all over the world. The concept of ownership by the women borrowers was intended to both empower them as well as invest them with the responsibility to oversee the affairs of an organisation designed to serve them.
If no educational criteria is established for being a member of parliament, a cabinet minister or the prime minister, who are required to formulate laws and address the highly complex challenges of running a country, why should we impose any educational criteria for the board members of the Grameen Bank?
How does one judge whether a board or any equivalent entity is effectively discharging the oversight functions assigned to it? In the absence of a comparative, in-depth enquiry, the only objective measure of the quality of oversight by a board is the actual performance of the concerned entity.
Here, there is no reason to believe that the less educated women board members of Grameen Bank have been deficient in the discharge of their responsibilities over the course of the last three decades. By any objective measure Grameen Bank has outperformed most such MFI organisations not just in Bangladesh but across the world, as indeed most commercial banks in Bangladesh. We present the following measures of corporate performance:
- Grameen Bank (GB) lending operations have grown from $4.2 million in 1983 to $1.045 billion (Tk. 8,257 crore) at the end of March 2013.
- GB default rates have remained in the region of 1-3% over this period which is superior to that of any commercial bank, public or private, presided over by so called “educated” directors. This high rate of recovery has enabled GB to continuously expand its lending operations so that GB borrowers have grown from 58,320 since its inception in 1983 to 8.4 million by the end of 2012. Such a level of customer growth has few parallels anywhere in the world.
- GB’s finances have been sufficiently well managed to sustain its economic viability and the growth in its lending operation without continuous dependence on state or donor funding.
Educated members and governance failures in public financial institutions.
This record of Grameen Bank may be compared with that of the four state owned commercial banks.
- These state owned banks presumably have only “educated” members on their boards. The plethora of scandals, scams, and malfeasant conduct associated with these banks suggests that education as a qualification for bank oversight is hardly a relevant factor in determining the affairs of such organisations. Unsurprisingly, the performance of these banks, over the years, has led to periodic losses requiring bail outs from the public exchequer from successive government which was needed to recapitalise the banks in order to save them from bankruptcy. As reported by the finance minister to parliament on February 26, the capital deficit of 8 state owned banks amounts to nearly Tk. 7,150 crores as of September 30, 2012. This is impacting on the lending operation of these banks and may require further support from the government in the days ahead to sustain their viability. In his latest budget the finance minister has allocated Tk. 5,000 crores of tax payer’s money to recapitalise the financially debilitated state owned banks.
- The latest and most egregious of these scams in relation to Sonali Bank, the largest of the state owned banks and possibly the largest commercial bank in the country has left the bank with a mounting volume of defaults and in need of further injections of capital. The finance minister would have done well to initiate a commission of enquiry, to not just investigate the performance of the bank but the oversight role of its board members. Such a commission may, inter alia, investigate whether the Sonali Bank board was asleep when Tk. 3,500 crores were disbursed as credit to a single borrower, through a single branch of the bank. I have heard of no move to question whether the educational, professional, political or moral qualifications of the board of Sonali Bank were appropriate to their responsibilities.
- Common sense would suggest that a government would prioritise setting up commissions of enquiry to investigate any organisations under its full ownership that are performing so poorly that they are imposing a heavy burden on the public exchequer. The government may begin by not just setting up a commission of enquiry on the state owned banks but also the Securities and Exchange Commission, the Railway Board, the Roads and Highways Directorate, the regulatory bodies relating to building construction as well as any number of ministries and government departments whose performance has been conspicuously and consistently poor.
Getting priorities right
In the light of the serious problems facing public sector and regulatory bodies under the direct responsibility of the government, its obsession with the management and affairs of a well functioning institution with a globally recognised performance record, where it owns only 3% of the equity, defies reason and merits some explanation.
The government has not only engaged itself in the removal and replacement of the chief executive of Grameen Bank but has set up not one but two commissions/committees of enquiry into its affairs. The latest of the enquiries, by seeking to change the composition of the board of Grameen Bank by diluting the majority representation of its borrowers/members on the board, will effectively disempower the millions of owners, mostly women, of GB.
Such a move is not only unjust and undemocratic but also politically unwise since these women also happen to be voters.
Furthermore, it may serve to compromise the global credibility of the prime minister’s commitment before the United Nations to empower the poor and women. Such a move to effectively disempower 8 million low income women would bring credit neither to the prime minister nor to Bangladesh.
Such obsessive conduct by the government in relation to one institution and possibly one person, who also happens to be one of our most globally recognised and respected citizens, reflects poorly on its sense of priorities during the final months in office of this government.
Today, there are many burning issues afflicting not just the financial sector but the regime at large. The most recent of these relates to the dysfunction of its regulatory responsibilities at Savar. The latest results from the mayorial elections across
Bangladesh may add to these concerns. A large number of public organisations and regulatory bodies under the government’s direct or indirect oversight have persistently malfunctioned at heavy cost, not just to the exchequer but to the political reputation of the regime.
In its final months in office the government would do well to demonstrate a sense of priority in its governance practices by initiating enquiries into the most politically damaging and financially draining of these malfunctioning entities. This would indicate that the government is aware of these pressing problems and that some corrective responses have been initiated within the remaining tenure of this regime.