Vol. 5 Num 850 Sun. October 15, 2006  
Front Page

Grameen Bank wings clipped

The government has not approved in the last three years an amendment proposal of Grameen Bank--whose poverty-alleviation schemes through microcredit in rural areas have been successful--to start similar activities in urban areas where around 30 per cent people live below the poverty line.

The international community had recognised the relentless efforts of Dr Muhammad Yunus and his Grameen Bank in poverty alleviation in rural areas through microcredit decades before his Nobel Peace Prize win on Friday.

Based on the success of Grameen Bank's poverty-alleviation schemes in rural areas, Dr Yunus submitted in 2003 a proposal for amendment to the Grameen Bank Ordinance, 1983, allowing the bank to expand operations in urban areas.

The ordinance restricts Grameen Bank's work only in rural areas.

The proposal was followed by a series of fruitless meetings of the finance ministry and the cabinet divisions. This prompted Grameen Bank to write a letter to the prime minister in early 2004. The PM in October 2004 instructed the finance ministry to take necessary steps regarding the matter.

The finance ministry then sought opinion of the Bangladesh Bank, which favoured the proposed amendment, but the process advanced in snail's pace.

The government modified the proposed amendment and finally placed it before the cabinet on July 17 this year for approval.

But the cabinet did not approve the amendment.

Sources said some ministers and bureaucrats opposed the amendment, saying it will reduce the government's control over Grameen Bank.

The amendment bill proposed cutting the government's involvement in appointing the bank's chairman, who will be either selected or elected by the members of the Grameen Bank board of directors for one year.

Presently three of the 12 directors and the chairman of Grameen Bank are nominated by the government.

According to the proposed amendment, Grameen Bank will also work for the poor in urban areas.

Under the proposed amendment, instead of the government, the bank's board of directors will have decision-making authority in certain areas. To sell bonds and debentures, the bank will require approval of the Securities and Exchange Commission, not the government.

When Grameen Bank began its operation in 1983, it had a paid-up capital of Tk 3 crore and the government had 60 per cent share. The capital now stands at Tk 29.15 crore, but the government share has decreased to 25 per cent.


The role of Grameen Bank in improving the lives of the poor in rural areas is now a well-established fact. According to the latest survey of Bangladesh Bureau of Statistics (BBS) on household income and expenditure, poverty in rural areas is decreasing faster than in urban areas.

The BBS figures show that poverty in rural areas reduced in 2005 by 8.5 per cent points (to 43.8 per cent) from 52.3 per cent of 2000 whereas in urban areas it reduced by 6.8 per cent points (to 28.4 per cent) from 35.2 of 2000.

Side by side, poverty among the extreme poor in rural areas reduced by 8.1 per cent points (to 29.3 per cent) in 2005 from 37.4 per cent of 2000, while in urban areas the figure reduced by 5.7 per cent points (to 13.7 per cent) from 19.4 per cent of 2000.

On the impact of Grameen Bank's micro-credit, one of its former managers, who is currently working at a private bank in Dhaka, said, "I have witnessed myself how micro-credit had changed the lives of many poor people in Baufal [in Patuakhali].

"During my service in Grameen Bank in Baufal, about 75 per cent of the bank's borrowers had improved their financial status," he said.

"Many people, because of their misunderstanding of the banking system, think that Grameen Bank charges high interest rate and brings misery to the poor. This is absolutely wrong," he added.

"Grameen Bank charges simple interest rates while many other financial institutions charge compound interest rates. If you compare the two kinds of interest rates upon completion of repayment, you will find that Grameen Bank's interest rate is about 7 per cent points lower than the compound interest rates. Besides, Grameen Bank's loans are supervisory. Therefore, it has extra-overhead costs compared to a commercial bank's loans," he noted.