The transaction was NOT NEUTRAL as Grameen have portrayed it but
rather very significant.  We  have to consider the following important issues:

Grameen Bank shareholders had a hugely reduced stake suddenly WITHOUT
COMPENSATION. Indeed MORE THAN THAT they were burdened with debt by a
massive amount.


The Embassy were very concerned about the lack of safeguards:

“There is nothing in Grameen Kalyan statutes or the agreement between
the Grameen Bank and Grameen Kalyan, ensuring a certain level of the
funds in the future are available for the Grameen Bank or the members
of the Grameen Bank for home loan. The Grameen Bank’s letter dated
01/08/1998 stated however that the money be lent back to the Grameen
Bank will be used for the same purpose as when the assets were in a
rolling fund. However, Grameen Kalyan may require repayment of the
loan, and there is nothing in the agreement that such refunds should
be temporary. There is also no provision in the agreement that ensures
that the Grameen Bank are entitled to be reimbursed funds from Grameen
Kalyan under the original loan amount, if and when the Grameen Bank
has a need for this. This would, even though the provision was
included, it might be impossible to meet if Grameen Kalyan funds
invest long term, as it is intended for multiple purposes of
paragraphs.” ( Document date 10 Feb 1998. Royal Norwegian Embassy Dhaka)


In a letter dated 08.01.1998, Grameen Bank states that is working to
incorporate the date for the repayment of the loan into the contract
with Grameen Kalyan. So first the equity is transferred. Then loaned
back. Then interest paid on it and then it is paid back? And surely
that constitutes a double whammy?


A reason given was and is that the deal could reduce Grameen’s tax
liability. But according to an Norwegian embassy official, Yunus first
emphasized this rationale, then deemphasized it months later. And the
Bank disowned the rationale in a letter to Tom Heinemann in  August

Whatever the tax implications, this is a significant matter. NORAD’s
aid remit is to create economic development or  economic surpluses, if
you like, which can be taxed so that the state can use it for social
welfare etc. The agreement with Kalyan was a tool to regulate away ALL
THE SUPRLUS in the accounts of Grameen Bank.


The transaction which took place without any consultation basically
meant that management of the Grameen Bank has considered the funds had
been released from the conditions of the donors, and could be freely
managed by the Board.

This is moving money around as if it is in your own pockets.


Grameen’s response to the Ambassador’s concern amounted to what the
ambassador termed “untrustworthy.” Grameen Bank wrote to the
ambassador saying that by transferring the money Grameen would be
|”more responsible in handling it” ( page 2 of response to
Ambassador). And as the officials at the time speculated - were
the board members even informed of the details surrounding the
transaction? And if the Grameen Board included three government
representatives, as the Grameen Bank response says it did,  is it not
curious that the ERD originally indicated they found a breach of
agreement? They demanded that the money be returned to its original
status ( a grant and not a loan). Were the government representatives
on the board kept in the dark?

This is what David Roodman writes:

This Bank, entrusted with the serious responsibility of using foreign
funds to help the poor, would not entrust itself with the basic
function of a bank: holding money safely.  Or—more likely—the Bank was
and is lying.

This is moving money around as if it is in your own pockets.


It is worth bearing in mind that the report was not an independent
study. We know from Arne Disch, the Chairman of the 1999 report, that
there was concern about the composition of the team.

Norway never followed up with any further reports despite donating
such large sums of money. There seems to have been no responsibility
towards the Norwegian tax payer or indeed the poor people they were
claiming to help.


It is fully understood that poor people need financial services. Who
doesn’t? The documentary program only shows that such credit programs do not
necessarily solve poverty. They are not a panacea as some people want you
to believe.

In fact for many people it can push them in to further poverty. Giving
someone some money does not automatically mean they become successful
entrepreneurs. A lot of this money is not used productively. But most
importantly Tom Heinemann’s program shows that poor people also need consumer
rights. Rights to avoid becoming over-indebted. Rights of legal redress.
Rights against harrassment. And what the financial scandal shows is
their rights at the institutional level were infringed. The
microcredit market needs diligent regulation.