Response
to the Wall Street Journal Article
Grameen
Bank, Micro-Credit and
the
Wall Street Journal
Muhammad
Yunus
For the past several months I was being forewarned by my friends
in the USA that the Wall Street Journal (WSJ) is "going to
get you" -- they are coming up with a damaging report on Grameen
Bank. WSJ's Asian bureau chief Daniel Pearl came to see me briefly
at my office in August, on the day he was leaving Bangladesh. Later
he sent me questions by e-mail. I answered. (Please visit our web-site:
www.grameen.com/wallstreetjournal/
to see the Q & A.) Finally, on November 27, the report appeared,
and, as forewarned , it was damaging to Grameen.
A Story Which WSJ Missed
The WSJ missed an opportunity to deliver some good news to the world
at a time when we are so hungry for it. Appropriate story and the
headline could have been : "Grameen Bank Overcoming Repayment
Snag : Proves Credit for the Poor Sustainable Under Difficult Conditions".
That's what it really is. Grameen's problem loans have declined
over the past sixteen months by 50 per cent. Trend shows that the
repayment rate will reach 95 per cent within the next six months.
We expect that by December, 2002 repayment rate will reach 98 per
cent. Instead, the WSJ chose to present a snap shot to the world,
ignoring the positive trend, to show that the repayment rate at
the time of writing the report was 90 per cent, instead of 95 per
cent, and built the major thrust of the story around it.
I felt very happy that the WSJ endorsed micro-credit as a "great
idea". It indeed is. It is a very effective instrument to empower
the poor, particularly the poor women, in all cultures and economies
of the world. It is cost-effective, sustainable and works in a business-way.
It gives a poor person a chance to take destiny in his/her own hands
and get out of poverty with his/her own efforts. The world, which
has committed itself to reduce the number of poor people by half
by 2015, will find micro-credit a powerful tool in its tool box.
The WSJ article points out that Grameen Bank (a) is not as good
as it claims. It conceals its repayment rate to make it look good,
(b) Grameen's accounting system, the procedure for determining the
overdues, and making provisions for them does not follow industry
standard, (c) And predicts that Grameen's future will be worse because
of it is "delaying inevitable defaults and hiding problem loans".
Whatever accounting system, procedures and definitions we have today,
we had them with us for the last twenty-five years. Grameen is probably
the most researched institution in the world. Books have been written
on those research findings, students got their Ph.D.'s around the
world doing their research on Grameen, the World Bank conducted
a multi-year multi-million dollar research project on Grameen, thousands
of experts visited Grameen poring over our books --- nobody headed
for the alarm on Grameen's system, procedures and definitions. Many
expressed their discomfort, dissatisfaction, unhappiness that we
do not follow the "industry standard" --- but did not
think our system and procedure had any fault. We always argued that
as long as we are generating all the information to produce every
single table, index or ratio familiar in the conventional banking
world anybody can translate our information into their information.
We do what we need to do. It works fine with us.
Conventional banks do not lend money to the poor because they do
not consider them creditworthy. We demonstrated that there is nothing
wrong with the poor. Bank rules procedures and concepts are at fault.
We created a bank based on completely new set of premises and procedures.
Unlike conventional banks, this bank is based on trust. We have
no legal instruments between lender and the borrower. Grameen is
owned by the borrowers. Nine elected representatives of the borrowers
make up the board of Grameen, besides three top government officials
(usually from the finance ministry) and the CEO. The board was chaired
by the finance secretary to the Government of Bangladesh from 1991
to 1996, and succeeded by Professor Rehman Sobhan, an internationally
reputed economist, who is still the chairman.
A Counter-Culture
Grameen had to create a banking counter-culture of its own. Grameen's
central focus is to help poor borrower move out of poverty, not
making money. Making profit is always recognised as a necessary
condition of success to show that we are covering costs. Volume
of profit is not important in Grameen in money-making sense, but
important as an indicator of efficiency. We would like to make more
profit so that we can reduce interest rate --- and pass on the benefits
to the borrowers. In Grameen system when a borrower cannot pay back
we try to activate our system to help her overcome her problems,
rather than go in a punishing mode.
We consider credit as a human right. We built our system on the
faith that the poor always pay back. Some times they take longer
than the originally scheduled time period, sometimes natural disasters
like flood, drought, cyclone, etc and political unrest, rules and
procedures of the bank, make it difficult or impossible to pay back;
but given the opportunity they pay back. Non-repayment is not a
problem created by the borrowers, it is created by factors external
to them.
We have always carefully avoided the practices of the conventional
banks to make sure we do not fall into the same logical loop which
kept the poor out from financial institutions. Grameen had to create
new systems to balance financial and human considerations. For example,
it presents loan information separately for women and men, lists
meticulously every single business of the borrowers in its annual
report, and recognizes that a house is not just a house, but a workplace
for the poor women, something that is categorised as a 'consumption'
loan by the conventional banks is actually a 'production' loan for
the poor. Grameen is a system based on human-relationships, not
on threats of penalty imposed by legal system or any other agency.
Grameen required new style of business, new banking culture of its
own.
Sometimes people who are used to conventional banking become suspicious
of Grameen because it is different. It is a conflict of two different
banking cultures. Just because they do not understand us, they think
we are wrong. When they spend some time with us with patience they
start enjoying the exciting world of Grameen banking.
Grameen is owned by 2.4 million borrower, 95 per cent of them women.
It is almost like a co-op. It is a closed club. Borrowers save,
they borrow. Over the last 25 years they took cumulative total loans
of Tk 151.88 billion ($ 3.5 billion) and repaid Tk 139.17 billion
($ 3.2 billion). The present outstanding amount is Tk 12.71 billion.
When we "worry" about repayment problems, we are "worrying"
about the borrowers who already paid back collectively $ 3.2 billion
! The WSJ looks at the dollar figures and gets worried. We look
at our hardworking struggling poor women who already demonstrated
their capability to repay their loans many times over. We have good
reasons to feel confident. Today 85 per cent of the 2.4 million
borrowers are paying back their loans with clockwork precision.
Only 15 per cent of them are having difficulties in paying back
--- that situation was created by our standardised procedures. Borrowers
are also depositors. they have a total of Tk 6.5 billion as balance
in their savings account. Fifteen per cent of the borrowers who
are having temporary difficulties in paying back their loans also
have their balance in their savings accounts.
Grameen has stopped accepting new donor money for its operation
since 1995. It has borrowed Tk 3.0 billion ($ 60 million) locally
to give fresh loans during the devastating flood of 1998. This amount
will be fully repaid in May, 2002, without requiring Grameen to
borrow again to replace it. Now Grameen generates enough savings,
mostly from its borrowers, to repay its loans and finance its future
growth. Because of steady flow of deposits, Grameen does not see
any need to borrow in future. It has always paid back its domestic
and international loans exactly on the dot. It will continue to
do so in future.
Repayment
Problem
Repayment problem was born because of our standard methodology applied
in a national disaster situation, not because of the borrowers reluctance
to pay back. It always amazes me how sincere the poor are in paying
back their loans. If a bank staff meets a defaulting borrower, who
has discontinued her contact with the bank for a period of several
years, and reminds her about the outstanding loan, she never says
"Forget it", or "Who Cares". She always says:
"I am sorry I could not pay back. I'll like to do that as soon
as I can". Given an opportunity she always does that.
We created the repayment problem in two ways. First immediately
after devastating flood of 1998 (half of the country was under flood
water for ten weeks, water flowed over the roof-tops) we disbursed
fresh loans without requiring the borrowers to pay back the existing
loans. We explained to them that they do not have to worry about
the existing loans, this will be converted into a long-term loan.
New loans will be their current loan. But we did not change the
status of the previous loans in our books. Our internal reasoning
was that this will make monitoring more easy, even though repayment
rate will show a decline. We'll always understand why the decline
took place. But in reality repayment problem did not remain as an
accounting phenomenon, it became a real phenomenon --- some borrowers
found the loan burden too heavy and discontinued paying their installments.
The WSJ says we forgave the previous loans during the flood. This
is not correct. Grameen never forgives loans. Bulk of the amount
we are now describing as overdue loans are these previous loans.
New Generalised Grameen System
Gradually we started noticing that our rules were not appropriate
for the borrowers in this situation. We took a long preparation
to develop a new flexible system and field-tested it over months.
We finally introduced the new system in September of 2000. It is
a simplified and generalised Grameen system. This can work equally
well both in normal and disaster situations. It allows the enterprising
borrowers to move ahead faster. Everybody fell in love with it.
Borrowers loved it, staff loved it --- because it is so simple,
it can offer tailor-made loans rather than previous single-size-fits-all
type of all loans. Good news for the WSJ, the questions they raised
about provisioning, defining overdue, repayment rate etc have become
irrelevant in the context of Grameen's new generalised system.
New system, basically has two types of loans --- (a) Basic loan,
and (b) Flexible loan. A borrower can take a basic loan for any
income-generating purpose. It can be of any duration mutually agreed
between the bank and the borrower, unlike the old system where all
loans were for one year. Basic loans can be for 3 months or 6 months,
or for 2 years or 3 years. Unlike the old system, now amounts of
weekly repayments can be varied during the loan period, according
to the pre-negotiated amounts documented in an agreed repayment
schedule.
Borrower has to pass through a very strict six-monthly loan quality
check-point. If a borrower fails to pay the total amount she is
supposed to pay, according to the repayment schedule, during the
past six-months, she is classified as a defaulter. Now the entire
unrepaid amount, even if it is the first six months of a 3 year
loan, becomes overdue. Hundred per cent provision will be made for
all overdue loans, unless it is converted into a "flexible
loan".
If a defaulter wants to continue to repay her overdue loans she
can do it by converting the overdue amount into a flexible loan.
Flexible loan is actually a rescheduled loan. She can negotiate
her repayment schedule. Fifty per cent provisioning will be made
for the outstanding amount under the flexible loan, even if her
repayment rate is 100 per cent.
If a borrower fails to repay the flexible loan according to the
schedule, the loan becomes overdue, and hundred per cent provisioning
will be made for the overdue loan. The borrower will again have
the option to renegotiate the loan and convert it into a flexible
loan.
Fifty-five per cent of borrowers of Grameen have already moved from
the old system of multiple loans to generalised single loan system.
Now it has become easy to check the quality of the loans; basic
loans mean loans having hundred per cent repayment, flexible loans
mean loans at risk. Year 2002 will be the year of completion of
the transition process from the old system to the new system. By
the time this transition process will be completed our guess is
85 per cent of the borrowers will be on basic loans and 15 per cent
on flexible loans, aggregate repayment rate will be 98 per cent
and above. In the new system the repayment rate is determined by
the ratio between what was the weekly installment the borrower agreed
to pay on a particular week according to the repayment schedule,
and what is the amount she actually paid. It would no longer be
determined under the old method. We'll not have any misunderstanding
left on this issue.
Fifty-one per cent of our 1170 branches now have switched to computerised
book-keeping and MIS. We hope to have 85 per cent of our branches
come into computerised book-keeping and MIS by the end of 2002.
This makes it easier for the generalised Grameen system to offer
all its attractive features for the benefit of the borrowers.
New system has brought another excitement and inter-branch competition
in Grameen. This system has introduced a grading system for branches.
This grading system awards colour-coded "Stars" to indicate
the quality of performance of a branch. If a branch (typically 2,500
borrowers) has 100 per cent repayment record for two consecutive
years it is awarded a green star. If the repayment falls below it
during any two successive years, the star is lost. A branch can
similarly earn stars for earning profit (blue star), for carrying
out its entire loan programme with its own deposits, even generating
surplus of deposits for the use of other branches (violet star),
by making sure that hundred per cent of the children of Grameen
families are in school or have graduated from primary school (brown
star), by making sure that all the borrowers in the branch have
crossed over the poverty line, certified through an evaluation of
each family with a rigourous ten-point test of Grameen (red star).
Branch staff can actually wear the stars as a badge of honour and
display their stars in the branch stationery to show their achievement.
Now there are 388 branches with one star or more. There are 10 branches
with 4 stars. No five star branch yet. We are expecting that by
the end of next year branches with atleast one star will increase
to 550, that is nearly one-half of all branches. We hope to find
atleast one branch with 5 stars. Someday we hope all our branches
will be five star branches. That's our mission --- to make all our
branches five star branches. Our 12,000 staff work very hard to
make that dream come true.
Central Bank Supervision
We can raise our repayment rate to 100 per cent instantaneously
by a simple decision to write off all our overdue loans. We have
more money in our loan-loss reserve (Tk 3.8 billion) than the present
overdue loans. But we chose not to go that way, we want to do it
the harder way --- by improving the repayment situation and recover
the overdue amount. We do not want to abandon our borrowers/owners
by disqualifying them to remain within the Grameen fold. We want
them to change their life with Grameen, by solving their problems
with Grameen. We don't want to push them away with their problems.
We never think of walking away from them. If they don't succeed,
there is no reason for us to exist.
The WSJ gives the impression that Grameen makes less than required
loan-loss provisioning. Industry standard in Bangladesh is set by
the central bank of Bangladesh. We make more generous loan-loss
provisioning than the central bank wants us to do. Central bank
of Bangladesh has the responsibility of audit and inspection over
us. They check our books carefully. We have never heard any complaint
from them about our provisioning criteria.
Factual Error
WSJ says PKSF was set up in 1991 "to distribute foreign funds
to other Bangladesh micro-lenders". WSJ could not be more wrong.
You give a bad name to another reputed world-class organization.
PKSF was set up to resist donor money. It started out by stubbornly
refusing donor money which was put at its doors. PKSF did that not
because it did not need money, it did that because it did not want
the dependency that comes with receiving the donor money. PKSF started
out with 100 per cent Bangladesh government money. It developed
its own organizational and operational style. It established its
own credibility as a sound financial organization. When it knew
exactly what it wants, how it wants, firmly set up the standard
for its programme, only then it opened its doors for the donor money
at its own terms. Now international donors come to give money to
PKSF. But since PKSF knows how much money it needs, and for what,
most of the time PKSF is saying, "No, thank you" to the
donors.
Concealing Information
Grameen always tried to remain as transparent as an organization
can be. It started to distribute widely its monthly statement containing
all basic information about its operation from February, 1980, nearly
twenty-two years back, when it was not even a bank yet. It contained
all information about disbursement, repayment, borrower numbers
etc. all disaggregated by gender, and by region. It never failed
to produce it and distribute it globally every single month for
the last 262 months ! Among the many universities, donors, and libraries
who receive this monthly statement US Library of Congress is one.
One may not like our information format, but nobody can complain
that we do not share our information. Web-site never became part
of our management system. It was the product of IT enthusiasts in
the bank. It remained unattended, and unupdated. Sorry that it carried
wrong information on our repayment rate. Your reporter collected
samples of old monthly statements beginning from the very first
one in 1980 and quoted from the most-recent monthly statement, but
did not mention its existence in the report.
We publish our Annual Report every year. This contains, besides
many other interesting economic, financial, and social information,
balance sheet, profit and loss accounts, and cash flow statement
for the year, audited by two top audit firms of the country, firms
which are affiliated with international audit firms. Nobody ever
complained that these reports lacked anything by way of disclosure.
Safety of Depositors' money
Ninety per cent of Grameen deposits come from the borrowers. They
borrow several times more money from Grameen than the money they
put in their accounts. So the safety of their deposits is automatically
guaranteed. Again, they are the owners of the bank too.
A Proposal for WSJ
Grameen has just reached its twenty-fifth birthday. It has been
a long way to get here. It is the only bank in the world owned by
poor women. We did not expect the most highly respected financial
daily of the world would rush to negative conclusions about us without
giving us a fair hearing.
I have a proposal for the WSJ. I propose that the WSJ send two top
financial reporters (atleast one woman) to Grameen for two weeks
or more to find answers to the following questions :
|
a)
|
Will
Grameen have more overdue loans (by any definition they choose)
one year from now than it is today ? Will there be increase
in non-performing loans ?
|
|
b) |
Is
Grameen's repayment rate (by any definition they choose) likely
to be lower one year from now ?
|
|
c)
|
Do
they find Grameen's reporting system transparent and adequate
?
|
You
owe this to Grameen, to its owners, to the large network of committed
social entrepreneurs who follow Grameen in their work, as well as
to the millions of poor women and their families around the world
who would have benefited from micro-loans if you had not put a cloud
over Grameen and confused the policy-makers in a year when world
leaders will be frantically looking for solutions to massive global
poverty.
I hope you'll find my proposal very reasonable.
E-mail
Q & A between the Wall Street Journal Asia Bureau Chief
Mr. Daniel Pearl and Dr. Yunus during August - October,
2001 in the process of preparing for the WSJ report published
on November
27, 2001.
|
Date: |
Sat,
18 Aug 2001 01:11:34 -0400 |
Subject: |
Wall
Street Journal interview request |
From:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
To:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
Dr.
Yunus,
Hello,
I'm the South Asia correspondent for the Wall Street Journal. I'm
currently in Dhaka, and am working on an article on Grameen Bank,
and how it is responding to current market conditions in micro-lending
in Bangladesh. I met Mr. Haq on Tuesday, and left a message seeking
a meeting with you. Yesterday I received a message from Mustafa
Kamal, but the two numbers he left seem to be fax machines. Anyhow,
I would very much like to get a few minutes with you if possible;
my wife (also a journalist) and I are scheduled to depart Dhaka
on a 5 p.m. flight Sunday, and I wasn't able to reschedule the flight.
So I'm hoping you'll get this message soon and that we can meet
earlier in the day Sunday. We're at the Sonargaon Hotel room 523.
Also reachable by Bombay mobile phone as below.
Thanks
and regards,
Daniel
Pearl
South Asia Bureau Chief
The Wall Street Journal.
Sanskriti Building, 8 Dongarsi Road
Malabar Hill, Mumbai (Bombay) 400 006
India
+91-22-367-5712(office)
+91-22-367-5727(fax)
+91-98213-39741(mobile)
Date: |
Sat,
25 Aug 2001 20:31:18 +0600 |
Subject: |
some
follow-up questions |
From:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
To:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
Prof.
Yunus,
I
wanted to thank you for giving us your time and thoughts last week
in Dhaka. I've been typing up my notes and sharing them with my
colleague, Michael Phillips, in Washington - he covers international
lending institutions and has been following microcredit. Some of
his questions have looped back to you, but I wanted to put some
more focus on what we're seeking as follow-up:
-
Is there any data that would allow us to compare Grameen's current
repayment rate with those of other micro-lending institutions, even
in Bangladesh? For example, PKSF's partners are supposed to report
as unpaid any loans unpaid even for less than a year. Does Grameen
have that data available, or only the one-year and two-year data?
-
If Grameen's repayment rate is worse than the others, do you think
that suggests that it is hard to sustain the performance of microcredit
over time (as some suggests) or that small lenders have an advantage
(as others suggest), or that Grameen, by getting involved in so
many other activities, lost some focus on the repayment issue?
-
Can we get the 2000 financial information, so that we're using the
latest figures to assess Grameen's financial strength?
-
Why have the figures of 98% or 95% repayment rate been used so consistently
in the last two years, by Grameen and in the press, if they're no
longer true? Did Grameen consider the lower figures to be a temporary
aberration?
-
In your book, you said that in replicating Grameen, it just isn't
Grameen if the repayment rate is near perfect. Do you think, in
retrospect, you put too much of an emphasis on the repayment rate?
I
appreciate your help. We're trying to produce something fair and
serious that looks at microfinance in its mature state, and reflects
both problems and successes. Please let me know if you'd like to
continue the dialogue by telephone, I'll be back in Bombay today.
Thanks
and regards,
Daniel
Pearl
South Asia Bureau Chief
The Wall Street Journal.
Date: |
August
26, 2001 |
Subject: |
Letter to Daniel Pearl
|
From:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
To:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
Dear
Danny :
1.0
We have no data on other micro-credit institutions. Best place to
find them are :
i)
Palli Karma Shahayak Foundation (PKSF)
|
House
no. 31/A, Road no. 8
Dhanmondi R/A
Dhaka 1205, Bangladesh
Phone : 880-2-9126243
Fax : 880-2-9126244
Email : pksf@citechco.net |
|
|
|
|
ii)
Credit and Development Forum (CDF)
|
House
no. 9/2, Block D
Lalmatia, Dhaka
Bagladesh
Phone : 880-2-9132493/495
Fax : 880-2-9112340
Email : CDF@bdonline.com
|
|
|
|
|
I
am sending our data to you. I am sending a table showing repayment
rates each year from the start of the bank to this date, and a graph
showing repayment rates for the recent years. Considering the interest
in our repayment information I have decided to put this graph and
the table on our web-site. Now this information will be available
to more people than the people on the mailing list of our Statement
Number One. I have already sent you by fax the Statement No. 1,
for the last three months. We monitor borrowers who could not repay
the due amounts at 25 weeks, 38 weeks, 53 weeks, 104 weeks.
On July 1, 2001 17, 856 borrowers failed to pay the exact due amount
at 25 weeks. Amount of under-payment was Tk. 30 million. 26, 193
borrower could not pay the full amount at 38 weeks. Amount of under-payment
was Tk 62 million. Information on 52 weeks and 104 weeks are available
in the Statement Number One.
2.0 I don't think "old age" or "too big an organization"
are problems in micro-credit. Each are may be more of an advantage,
than a drag. "Old age" gives you more experienced borrowers
and staff. You have already weathered many problems and adjusted
your system to handle crises. Most likely you have a strong financial
base; you have gone over the hump and making profits.
"Large size" is also not a problem if your system is in
place to handle large number of staff. Grameen Bank has over 12,000
staff. It has very attractive salary package and pension plan. A
Grameen staff can retire after putting in 10 years of service, and
can get half the pension money in cash. More than 3,000 Grameen
staff have already taken early retirement. We have paid them Tk
15.0 billion in cash as pension benefits.
3.0 There may be advantage for new-comers in maintaining high repayment
rate, because they have not accumulated problem loans yet. It takes
time to accumulate problems. If you are "old" and still
doing well, you have learnt the business. Everything depends on
how prompt the organization is in addressing problems. It is just
like management any where else.
4.0 "Grameen Bank" has not gotten involved in many enterprises.
There are many enterprises with a common name of "Grameen".
But Grameen Bank is not involved in them in management or financing.
Actually creating some of these new organizations has helped Grameen
Bank to concentrate on its own exclusive task of banking. Many of
these companies were hidden inside Grameen Bank as its projects.
Grameen Fund, Grameen Enterprise (Uddog), Grameen Kalyan, Grameen
Fisheries Foundation, Grameen Agricultural Foundation were all spin
off companies from Grameen Bank ! They were born as "projects"
of Grameen Bank. Each Grameen company is totally independent of
Grameen Bank in its management and policies. Some of the companies
provide services to Grameen Bank borrowers. Grameen Phone is a great
source of creating roaring telecommunication business for telephone
ladies of Grameen Bank. It has taken the business of Grameen Bank
to a new hight. Grameen Business Promotion Company is actually totally
dedicated to give guarantee to micro-enterprise loans to successful
Grameen borrowers. Success of Grameen Business Promotion Company
leads to the success of Grameen borrowers, and as such, GB.
Grameen
Information Technology (IT) companies will play a vital role in
bringing IT related services to Grameen borrowers. Ultimately Grameen
companies will be owned by Grameen borrowers through purchase of
their shares through Grameen Mutual Fund. Grameen companies are
rather a big help to GB than a burden. There is no question of these
being burden because GB has no financial and management responsibility
of these companies.
5.0 Yes, I still insist that it isn't "Grameen" if the
repayment rate is not over 95 per cent. If you are providing credit
to the poor you are under constant pressure to compromise your quality.
World is used to offering charity to the poor. When they see that
you want your money back, they urge you to go easy on them. That
is a mistake. We insist that in credit for the poor the best thing
you can do for the poor is to be serious about your business. During
the flood of 1998 we were under constant pressure from outside the
bank to forgive loans. We stood our ground. We did not write off
a penny. We borrowed some Tk 40 billion to give fresh loans on top
of the existing loans, to help them overcome the disaster. It worked.
When we say "it isn't Grameen if you do not have a repayment
record of over 95 per cent" we simply emphasize that you must
take this business very seriously.
6.0
Overlapping. When you came to see me, you talked about the "overlapping"
problem. You seemed to be worried about this problem. I don't know
if I could put you at ease on this issue. My position is ---- it
is an interesting development, but it is by no means a problem.
This is arising because of clustering of programmes. There are favourite
spots for NGO's. Every NGO wants to work in those areas. So they
create "overlapping problem". But this problem luckily
has built-in self-correcting features. Borrowers do not suffer from
this problem. They gain from it. It is the MFI's who suffer. So,
some of them, who suffer the most, have to relocate themselves.
There are many areas where nobody is working. Now MFI's will look
for those areas. Overlap forces MFI's to improve the quality of
their work. That's what makes me feel happy about this problem.
All said and done, it is a minor issue. Not even 5 per cent of all
borrowers are involved in multiple sources for their loans ! In
some location it may be high, but over-all it is not worth worrying
about.
Date: |
August
26, 2001 |
To: |
Michael Phillips
|
From: |
Professor
Muhammad Yunus |
Subject: |
Grameen Bank |
Copy: |
Daniel Pearl |
1.0 |
Grameen
Bank defines the amount remaining unrepaid beyond two years
as the amount overdue and defines repayment rate as the overdue,
amount divided by amount outstanding. The repayment rate remained
above 95 per cent until 1996. It declined to 93 per cent in
1997 and moved to 94 per cent in 1998. In 1999 it declined
to 91 and to 89 in 2000. In 2001 it moved to 90.
We always considered this decline below 95 per cent as a temporary
fall, basically caused by the devastating flood of 1998. Our
borrowers lost their assets and working capital during that
flood. We gave them fresh loans, without recovering, and without
rescheduling, the previous loans. Obviously, as the old loans
became due in 1999, it started showing up as overdue loans.
We understood that this was because of our accounting treatment
rather than any inherent problem with the bank. But loan burden
continued to remain heavy on the borrowers. Ultimately we
decided to reschedule the loans since 2000 to make it easy
for the borrowers to pay back. It produced result. Repayment
flow started becoming regular. Now we stipulate that the rescheduled
loans will be repaid in two years from now.
|
2.0 |
Newspapers
and media continued to mention that Grameen's repayment as
over 95 (or 98) per cent by way of description of Grameen
Bank as an institution, not as a piece of recent information.
We never supplied any information to mislead them to use such
figures. Whenever I am asked about the repayment I usually
say : "It is now down to 88-89 per cent. Normally our
repayment rate is 95 per cent and above."
|
3.0 |
Somebody
today mentioned to me that our web-site says that our repayment
rate is "95 and more". This was put on the web-site
in 1996. We did not update this opening page of the web-site
since 1996. I got embarrassed that we did not notice the mistake.
We do not visit our own web-site ! This information may be
creating wrong impression about us. This is part of our inefficiency,
rather than deliberate attempt to mislead people. We could
have said "normally it is 95 per cent and above."
Today I have instructed our staff to put a note on that opening
page of the web-site to say that the statistical information
given on that page is valid only upto 1996.
|
4.0 |
We
publish our basic information every month in a bulletin known
as "Statement Number One". We have been publishing
it for the last 258 months (21.5 years !) without fail. In
that bulletin we give the percentage of loan remaining "overdue"
(i.e. unrepaid beyond 104 weeks) zone by zone. We also give
the percentage of loan remaining unrepaid beyond 52 weeks,
so that anybody can check out our repayment status after one
year. Mailing list for this bulletin includes US Library of
Congress, US-AID, World Bank, IMF, many universities around
the world and within Bangladesh, UNICEF, Indian Institute
of Management, among many others. Our information is so well-publicised
each month on a routine basis we never felt anybody could
misunderstand us.
|
5.0 |
Now
I think I should say something about our way of doing things.
I always take the position that "Grameen banking"
and conventional banking is like European football versus
American football. Both are football games --- but they are
played by entirely different rules. You cannot judge one,
with the understanding of the other.
|
6.0 |
Banking
for the poor, called "Grameen banking", did not
exist. We created it. That means that we made up our own rules.
We still keep making up our rules. We improve on the rules
which do not work for our purpose, or create problems for
us. We add new rules. We elaborate our existing rules. We
try to make them logically and financially consistent. I hope
we succeed.
|
7.0 |
In
the back of our mind we always keep it as a faith that the
poor people are creditworthy. We do not need collateral to
do business with them. They always pay back --- some times
they may take longer time than the rules governing loans permit
them. But in the end they pay back. "People" are
not like "businesses" --- they (people) do not go
down and disappear from the screen without paying the loans.
When our borrowers have difficulties Grameen banking is there
to help them out and make it a success with their loans. We
take this as our "mission".
|
8.0 |
Grameen
banking is not based on the support from the legal system.
We never go to the court. There is no legal instrument between
the borrower and the lender in Grameen banking. So the word
"defaulter" has no legal significance in Grameen
banking. That is a legalistic word. We always avoided the
word because it is "insulting" to people. If somebody
cannot pay, we would describe her as someone who is in difficulty
to pay back. They simply needed more time, more support.
|
9.0 |
We
laid down our basic lending policy in the following way :
We put a time-line (i.e. 104 weeks) to our loans for accounting
and monitoring purpose, and also to help the borrowers to
make up their time-budget within their business plans. Although
the loans are for two years (104 weeks), borrowers are required
to pay them back within one year in weekly installments. If
they cannot pay back within one year, we do not consider that
they have "violated" any contract.
If a borrower cannot complete total payment of the entire
loan, including interest, in 52 weeks, staff of the bank and
the "borrower's group" pay special attention to
the person. If she cannot pay back in 104 weeks, the bank
makes 100% bad debt provision for the amount as a part of
financial prudence. If she paid Tk. 90 in 104 weeks against
a loan of Tk. 100, we say her repayment rate is 90 per cent.
This does not mean that she is not going to pay the remaining
Tk. 10. This does not trigger any procedure to take her to
the court for non-repayment. Grameen banking has no room for
such a procedure.
|
10.0 |
We
are computerised. Nearly half of our branches (560 branches
out of 1190) do their accounting & MIS through computers.
By the end of next year 75 per cent of branches will come
under computerised accounting and MIS system. Every bit of
daily transactions is available in the computer. We keep record
of amount due on any given day for every single borrower,
and we record the amount actually paid on each day by each
borrower of Grameen Bank. We calculate repayment status on
the basis of the ratio between amount due and amount actually
paid by each borrower.
|
11.0 |
30
day & risk (!!)
Grameen banking does not use this 30-day rule. I have never
heard of such a system of assessing portfolio at risk in the
conventional banks in Bangladesh. (Danny, do you see it in
Indian banks ?) Although Grameen banking emphasizes the value
of the discipline of regular weekly repayment, it considers
remaining absent in the weekly meeting as more serious breach
of discipline than missing a weekly installment.
|
12.0 |
Grameen
banking is made up of banking elements and social elements.
Group formation, centres weekly meetings, weekly installments,
election of group chairman, secretary, centre chief etc.,
sixteen decisions, building centre house, generating group
savings, disaster savings, etc are social dimensions of Grameen
banking. Repaying loans in two years is the banking dimension
of Grameen banking.
If you look at Grameen Bank (GB) with your banking glasses
on, all you'll see whether borrowers are paying back their
loans with 20 per cent interest within two years. Rest of
Grameen Bank will disappear.
|
13.0 |
GB
has a very generous bad debt provisioning arrangements. GB
has a total bad debt reserve of Tk. 3.3 billion. Amount of
loan overdue (above two years) is Tk. 1.2 billion.
|
14.0 |
My
guess is, with the facilitating system that has been put in
operation now, 90 per cent of the unrepaid loan amount beyond
one year, will be repaid by the borrowers by the end of next
year. 79 per cent of Grameen Bank borrowers repay their loans
on the dot. Their repayment record is 100 per cent. Only 21
per cent of borrowers have difficulties.
|
15.0 |
Grameen
banking has a rule --- if a borrower takes a very very long
time to pay back her loan, total interest due to her will
never exceed the principal amount she borrowed. I don't think
conventional banks will like such a rule.
|
16.0 |
We
never forget that the borrowers of Grameen Bank are also 93
per cent owners of the bank. In the Grameen banking system
there is no punishment mode, there is only helping mode.
|
17.0 |
Grameen
banking requires that when a borrower dies, the branch manager
must take an active role in organising her funeral and attend
the religious ceremony for burial at her village along with
her relatives.
|
18.0 |
GB
provides scholarships to the students of Grameen families.
All students coming from Grameen families in the institutions
of higher learning can receive 100% financing of their education,
as education loans, from GB. Nobody is refused an educational
loan.
|
Date: |
Mon,
27 Aug 2001 07:54:18 -0400 |
Subject: |
Letter
from Grameen Bank, Bangladesh
|
From:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
To:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
Hello,
thanks for the faxes - I got the first batch, and my colleague just
confirmed that the remaining pages arrived too. I also received
your emails, which look quite useful. I'll look over everything
carefully and will probably send some follow-up questions tomorrow
or Wednesday. Thanks again, and my apologies for all the transmission
trouble.
Danny
Pearl
Date: |
Wednesday,
August 29 2001 |
Subject: |
Notes
to Balance Sheet
|
From:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
To:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
Dear
Danny:
I
just got the fresh set of questions. I am in the middle of a series
of appointments. I'll get back to you soon.
Ref:
Your question No 22:
I
did send you the Balance Sheet 2000 and Profit and Loss Statement
with the Notes attached to it. I am sending it again. Please tell
me if you are looking for something else.
Can
you please send me a list of items you have received from me by
e-mail and by fax? That way I'll know what you got, and what you
did not.
Best
wishes.
Yunus
Date: |
Thursday,
30 Aug 2001 |
Subject: |
RE:
Notes to Balance Sheet
|
From:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
To:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
Prof.
Yunus,
Thanks
for your note. I have received
- several recent monthly reports
- your note to Mike
- the Balance Sheet 2000 and Profit and Loss Statement
but
not the Notes to the Accounts. If they're available, they'd probably
answer at least one of my questions (on the reserve against one-year
delinquent loans for 2000).
Two
other questions (sorry):
- Does Grameen have a statistic for what percentage of its borrowers
have more than one loan outstanding?
- A study by Khalily, Imam and Khan found Grameen's 1997 subsidy
was 1.2 billion taka. Does that sound right, and how much would
that have changed since 1997?
Thanks
again,
Danny
Date: |
Thursday,
August 30, 2001 |
Subject: |
Acknowledgement
|
From:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
To:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
Dear
Mr. Daniel Pearl :
We
sent a fax (total 6 pages) at fax no. 91-22-367-6940 this morning.
Please confirm that you have received them.
Warm
regards.
Sincerely
yours,
Date: |
Thursday,
30 Aug 2001 |
Subject: |
Re:
Acknowledgement
|
From:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
To:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
Hello,
I know the first fax arrived, but I haven't been able to reach my
colleage this evening to ask about the second. I'm hoping to see
both of them by end of the day. Will confirm later.
Thanks,
Danny
Date: |
Sat,
01 Sep 2001 13:18:10 +0600 |
Subject: |
Answer to some follow-up questions
|
From:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
To:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
Dear
Danny :
I
am sending my responses to your questions. I hope this will sufficiently
answer to your questions. But please feel free to raise more questions
and clarifications. Grameen is my (and for many of my colleagues)
life-time work. You are asked to sit on judgement on it on the basis
of a quick glimpse at it. I know how difficult your job is. I hope
you'll do the best you can.
I
am sending these responses quickly so that you can ask more questions
before September 3. I'll be out of Dhaka from September 3 to 6.
If you need some urgent information or clarification please fax
it to my office.
About
phone conversation. I would prefer written questions. I'll give
written responses. That way it is all on record. Once your report
is published I am sure many people would like to know what is our
story. I can then pass around my responses to your questions.
Also
written responses are safer in the context of avoiding any miscommunications.
Thanks
for the hard work you are putting in for the story.
Best
wishes.
Sincerely
yours,
Muhammad Yunus
Attachment: Q &
A Part-I
Date: |
Sunday,
September 02, 2001 |
Subject: |
Publication
List from Grameen Bank
|
From:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
To:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
Prof.
Yunus,
I will be travelling in remote parts of India for a few days, so
I would appreciate if you could cc your responses to Mike Phillips
on the above email address.
Thank you,
Danny Pearl
Date: |
Monday,
September 03, 2001 |
Subject: |
Re:
Publication List from Grameen Bank
|
From:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
To:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
Hello,
Thank
you for sending the publications. I notice these publications all
have prices. I don't think we journalists deserve any special favors,
so I'm mailing you a check for the following:
Annual
reports 1996, 1997, 1998 - $34
Women at Center - $15
Grameen Bank as I see it - $10
Fedex (this is a guess) - $30
--------------------------------------
total: $89
Please
let me know if there is any change necessary for the bill, otherwise
I'll mail the check tomorrow. The invoice can be mailed to the address
below.
Thanks
and regards,
Daniel
Pearl
South Asia Bureau Chief
The Wall Street Journal.
Date: |
Wed,
5 Sep 2001 22:16:03 -0400 |
Subject: |
Acknowledgement
|
From:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
To:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
Dr.
Yunus,
I
received yesterday the two books you sent. Thank you,
Danny
Date: |
Sat,
08 Sep 2001 |
Subject: |
Letter
to Daniel Pearl |
From:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
To:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
Dear
Danny :
I
am back. I am sending the responses to your questions. I am glad
you raised these questions. This gave me an opportunity to clarify.
I
found another error in my previous responses (August 1, 2001). Please
look at the last paragraph of page 9 (response no. 14). The para
should read :
"Amounts
which are written off also get repaid later on. We have recovered
a total amount of Tk 43 million so far against Tk 637 million which
was written off. This is 7 per cent of the amount written off."
Please
confirm that you have received the responses with all the attachments,
and the faxes.
If
you have more questions please do not hesitate to ask.
Best
wishes.
Muhammad
Yunus
Attachment: Q &
A Part-II
To:
|
"Professor
Muhammad Yunus" <yunus@grameen.net>
|
From:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
Subject: |
acknowledgement
|
Prof.
Yunus,
I
wanted to let you know I received your emails with responses to
our questions. Thank you for the incredible amount of effort you
have put into this. We're going to need to digest and perhaps do
some further reporting, and will let you know of any other questions.
As
you can probably surmise, the attack yesterday on Washington and
New York has pushed all other news aside, so it may be some time
before an article on Grameen will appear. Thanks again for your
help and patience.
Best
regards,
Danny
Pearl
Date: |
Sat,
October 6, 2001 |
Subject: |
follow-up
|
From:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
To:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
Professor
Yunus,
I don't want to take up too much more of your time, but I hoped
I could get the following:
- Latest monthly report
- Response on Khalily study on Grameen subsidies.
- Has anything changed at Grameen as a result of the Sept.
11 attack on the U.S.? We saw one editorial suggesting U.S. had
to pay some attention to the Third World more than ever now, and
resume earlier levels of foreign aid. I assume you wouldn't necessarily
agree with that second part.
Thanks very much,
Daniel
Pearl
South Asia Bureau Chief
The Wall Street Journal.
Date: |
Wed,
17 Oct 2001 |
Subject: |
Re:
follow-up |
From:
|
"Professor
Muhammad Yunus" <yunus@grameen.net> |
To:
|
"Pearl,
Danny" <danny.pearl@wsj.com> |
Dear
Danny:
I
am back from a trip to Venezuela and Mexico.
My
office has already sent you the monthly statement.
I
am faxing some comments we sent him at that time. I hope this will
serve your purpose.
I
think subsidy is a non-issue for us now, because we do not receive
new money from donors, or government. Now we are in the process
of paying back all their loans whenever they fall due.
September
11 has not changed anything in Grameen. On the broader issue I wrote
an op-ed which you may have look at. I
am attaching it. Let me know if you agree with my views.
Best
regards.
Yunus
Attachment: Op-Ed on Terrorism, Pablished
in the Yomiuri, Tokyo, Japan on 5th October, 2001
|