Re: [OPE-L] Muhammad Yunus and the secret of original accumulation

From: Patrick Bond (pbond@MAIL.NGO.ZA)
Date: Fri Oct 13 2006 - 13:31:37 EDT

Jurriaan Bendien wrote:
> the original capital accumulation
> comes about through micro credits! 

And don't forget accumulating tin by ripping roofs off women's houses...

November 27, 2001

Grameen Bank, Which Pioneered Loans
For the Poor, Has Hit a Repayment Snag


Microcredit is a great idea with a problem: the bank that made it famous.

Grameen Bank, launched in Bangladesh in 1976 by an economics professor 
named Muhammad Yunus, popularized the idea of giving poor people tiny 
loans to launch businesses. The bank has helped inspire an estimated 
7,000 so-called microlenders with 25 million poor clients worldwide.

To many, Grameen proves that capitalism can work for the poor as well as 
the rich. It has become an icon for the drive to give needy 
entrepreneurs a share in economic development. And that iconic status 
owes a lot to an almost miraculous loan-repayment rate of "over 95%," as 
the bank's Web site says. (

But Grameen's performance in recent years hasn't lived up to the bank's 
own hype. In two northern districts of Bangladesh that have been used to 
highlight Grameen's success, half the loan portfolio is overdue by at 
least a year, according to monthly figures supplied by Grameen. For the 
whole bank, 19% of loans are one year overdue. Grameen itself defines a 
loan as delinquent if it still isn't paid off two years after its due 
date. Under those terms, 10% of all the bank's loans are overdue, giving 
it a delinquency rate more than twice the often-cited level of less than 5%.

Some of Grameen's troubles stem from a 1998 flood, and others from the 
bank's own success. Imitators have brought more competition, making it 
harder for Grameen to control its borrowers. The bank's loan portfolio 
grew rapidly in the early 1990s, but it has now shrunk to 1996 levels, 
at $190 million. Profits have declined about 85%, to the equivalent of 
$189,950 last year from $1.3 million in 1999. The bank, with 1,170 
branches, all in Bangladesh, has high operating costs. Grameen would be 
showing steep losses if the bank followed the accounting practices 
recommended by institutions that help finance microlenders through 
low-interest loans and private investments. And the situation may be 
worse than it appears; the bank is converting many overdue loans into 
new "flexible" loans that Grameen reports as up-to-date.

Safeguarding an 'Idea'

Microlenders have been reluctant to call attention to Grameen's 
troubles. "Grameen's repayment rates have never been as good as they've 
claimed," says Jonathan J. Morduch, associate professor of economics and 
public policy at New York University. "Because Grameen has been so 
well-known, nobody has wanted to risk undermining the reputation of the 

Microcredit is getting renewed attention as other poverty-fighting tools 
come under attack. Left-wing protesters accuse the World Bank of selling 
out the poor to corporate interests. Right-wing U.S. politicians argue 
that aid to the Third World has been wasted. U.S. lobbies often try to 
quash efforts to open American markets to imports from poor countries.

But microcredit is an idea everyone can agree on: It uses private 
enterprise, can be profitable and gets money straight to the poor. 
Bridging the gap between rich and poor "will help eliminate conditions 
of despair and hopelessness that breed violence and extremism,'' 
declares an e-mail message circulated after Sept. 11 by Bill Clapp, the 
chairman of Global Partnerships, a microcredit support organization 
based in Seattle.

Alarmed by Rumors

The microcredit industry knows its reputation rides largely on 
Grameen's. Damian von Stauffenberg, chairman of a Washington-based 
microcredit rating agency called Microrate, was alarmed by recent rumors 
of financial weakness at Grameen, even though the agency doesn't rate 
the bank. "If it's true, it would be a blow to the rest of us, because 
of the symbol Grameen is," Mr. von Stauffenberg says. He says he 
repeatedly asked a Grameen affiliate, Grameen Foundation USA, this 
summer for detailed information on the bank's loan portfolio, but got 
only a brochure and a 1998 annual report.

"I didn't hear back from him after that, so I assumed he had the 
information he wanted," says Alex Counts, president of the foundation, 
which promotes Grameen in the U.S.

Mr. Yunus, a congenial man of 61, acknowledges that Grameen has had some 
repayment difficulties in the past five years. He blames political 
upheavals, the 1998 flood and management errors. Told that the Web site 
still claimed a 95% recovery rate, Mr. Yunus said it was through 
"inefficiency" that Grameen hadn't updated some information. Grameen has 
added a footnote to the Web site saying the information was true as of 
1996. But more recent figures still aren't listed.

The repayment troubles are temporary, according to Mr. Yunus. "There is 
no problem," he said in an August interview in his modest office, which 
has no air conditioning despite Bangladesh's steamy climate. He says 
three-fourths of borrowers repay on time every week, and Grameen assumes 
that the poor will repay even long-delinquent loans. The bank, he says, 
is stronger than ever.

Mr. Yunus says borrowers have surprised him with their ability to take 
on new challenges. Borrowers who reach a certain level of savings can 
buy one share in Grameen, and collectively they own 93%. Mr. Yunus is 
setting up a mutual fund allowing borrowers to invest in other ventures 
under the Grameen umbrella: mobile phones, textiles and high-tech office 
space for rent on the top floors of the Grameen Bank tower.

"We have proved beyond a reasonable doubt that poor people are 
bankable," Mr. Yunus says. "We are not looking for charity."

Grameen, which means "village" in Bengali, got started after Mr. Yunus 
visited a village in southern Bangladesh. He met a woman who wove bamboo 
stools but had to sell them for meager profits to the man providing the 
materials. As an experiment, Mr. Yunus lent a total of $27 to 42 women 
in the village. All of them repaid.

When Mr. Yunus approached the Bangladesh government for funds in 1979 to 
expand his experiment, government bankers were skeptical that poor, 
landless women would repay. So Mr. Yunus conducted an experiment in 
Tangail, a fertile district north of Dhaka. His staffers showed up 
unannounced in villages and recruited groups of women to take loans. 
Again, all of them repaid.

The '16 Decisions'

The new bank was a kind of small-business lender, with some unusual 
policies. It took no deposits at first. It lent only to poor women who 
had no collateral. Borrowers formed groups of five, each member getting 
loans only as long as everybody made payments. Borrowers recited Mr. 
Yunus's "16 decisions" -- including enforcing loan "discipline" within 
the group, keeping families small and not giving a dowry for a 
daughter's wedding -- a difficult "decision" to follow in this culture.

Grameen, which has provided millions of poor Bangladeshi women with 
access to credit, became the industry's symbol mostly through Mr. 
Yunus's personality and proselytizing. He set up the Grameen Trust, 
which gives loans and holds workshops for start-up lenders who have 
adopted the Grameen model from Arkansas to Zimbabwe, with mixed results.

Mr. Yunus is also the guiding force behind the industry's main 
public-relations vehicle, the Microcredit Summit. At the first summit, 
in Washington in 1997, Mr. Yunus sat at the head table at a private 
lunch with Queen Sofia of Spain and World Bank President James D. 
Wolfensohn, who ended the meal by giving Mr. Yunus a big hug. At a 
regional summit last month, he gave an opening address beside Mexican 
President Vicente Fox. Friends tout Mr. Yunus for a Nobel Peace Prize.

Mr. Yunus's 1997 autobiography, "Banker to the Poor," gave no hint of 
doubt in Grameen's future. "All the strength of Grameen comes from its 
near-perfect recovery performance," he wrote. "It is not merely the 
money which is reflected through the recovery rate, it is the discipline."

Even then, however, Grameen's recovery rate was slipping. In 1997, 4.6% 
of Grameen's loans were more than two years overdue, up from 0.7% a 
couple of years earlier. And Tangail has now become Grameen's worst 
region, with 32.1% of loans two-years overdue as of August.

One reason is that microlending has lost its novelty. In Tangail, 
signboards for rival microlenders dot a landscape of gravel roads, jute 
fields and ponds with simple fishing nets. Shopkeepers playing cards in 
the village of Bagil Bazar can cite from memory the terms being offered 
by seven competing microlenders -- a typical repayment plan for a 
1,000-taka ($17) loan is 25 taka a week for 46 weeks. At an annualized 
rate, that works out to 30% in interest. Surveys have estimated that 23% 
to 40% of families borrowing from microlenders in Tangail borrow from 
more than one.

Rebellious Borrowers

Borrowers have also become more rebellious. "The experience was good in 
the beginning," says Munjurani Sharkan, who became leader of a Grameen 
group in Tangail's Khatuajugnie village in 1986. To put pressure on 
"lazy" group members who were slow making payments, she says she used to 
start removing the tin roofs of their homes. But one day, the whole 
group decided to stop making payments.

They were protesting Grameen's handling of a fund it created for each 
group, using 5% of each loan and additional mandatory deposits. The 
"group fund" was meant for emergencies, but many borrowers wanted to 
withdraw money from the group fund. After a protest movement, complete 
with placards and amplified speeches, Grameen finally agreed to give 
borrowers easier access to the fund.

Borrower groups had become lobbying groups, and Mr. Yunus hadn't noticed 
the change, says Muhammad Yahiyeh, former director of Grameen Trust. "An 
entire group would say, 'Unless you pay this person 5,000 taka, we will 
all stop paying,' " says Mr. Yahiyeh, who now runs a small microlender. 
Mr. Yunus says he still thinks groups are good for loan discipline. 
Grameen just didn't explain the group fund properly, he says, and 
politicians stirred up the borrowers.

The typical Grameen success story features a woman who turns a small 
loan into a successful shop or craft business. But Grameen also has 
customers such as Belatun Begum, a borrower in Khatuajugnie since the 
late 1980s. She took one loan in three installments, totaling 30,000 
taka (about $525). She says the original loan was to buy a cow, but she 
actually gave some money to her husband, a well-digger, and used the 
rest to improve her house. She confesses to borrowing a neighbor's cow 
to show Grameen at meetings. One recent study found one-fourth of 
microcredit loan money in Bangladesh is used for household consumption.

Mr. Yunus says that doesn't bother him as long as borrowers repay. 
Grameen tells women to think of a loan as a mango tree and to eat only 
the fruits, he says, not the tree itself.

But Grameen introduced so many loan options in the early 1990s -- 
housing loans, student loans, seasonal loans -- that borrowers were 
often paying off one with another, says Aminur Rahman, an anthropologist 
based in Ottawa, Canada, who studied Grameen borrowers in a Tangail 
village six years ago. Returning earlier this year, he found only six of 
120 borrowers were getting income from Grameen-funded investments.

Massive floods in 1998 hit Grameen's borrowers hard. The bank let 
borrowers skip several payments. Grameen borrowed $80 million from 
Bangladesh's government banks, with a sovereign guarantee, and used the 
money to make new loans to borrowers. Informally, it forgave the old loans.

A 'Flexible Loan'

Grameen also bailed out borrowers whose problems had nothing to do with 
the flood. Ms. Begum, for instance, stopped paying when she had to 
provide dowries for two daughters. She skipped group meetings, but 
Grameen workers came to her door asking for her 200-taka weekly payment, 
she says. "Let us make some income and we'll pay you," she told them.

Earlier this year, Grameen came up with a proposal: pay just 50 taka a 
week for six months, and then take a new Grameen loan for twice the 
amount she repaid. Ms. Begum accepted. Grameen calls the program a 
"flexible loan," and treats the old, delinquent loans as back on 
schedule, as long as some regular payment is being made.

At a Grameen branch near Khatuajugnie, manager Mohammed Imam Modem shows 
his computer-printed ledger, full of cross marks to indicate missed 
payments. The rescheduling program and Grameen's personal visits to 
husbands as well as wives are improving the picture: The branch had 
1,510 defaulters before; now it has 846. Attendance at weekly meetings 
is up to 66%, from 47% before.

"Grameen Bank's philosophy is not to abandon but to rehabilitate," says 
Muzzamal Huq, a Grameen general manager.

But Grameen may simply be delaying inevitable defaults and hiding 
problem loans. One paper produced by the Consultative Group to Assist 
the Poorest, or CGAP, a donor group that sets industry standards, warns 
that heavy use of refinancing "can cloud the ability to judge its 
loan-loss rate." CGAP is a collective of 27 public and private donors, 
including the World Bank, the U.S. Agency for International Development 
and several U.N. agencies, that account for the vast majority of aid to 
microcredit institutions around the world.

CGAP says refinanced loans should at least be listed separately. Grameen 
doesn't do so. It says refinanced loans are one-fifth of its portfolio.

CGAP recommends that microlenders report as at risk the entire remaining 
balance of any loan with a payment more than 90 days overdue. The Palli 
Karma-Sahayak Foundation (PKSF), which Mr. Yunus helped set up in 1991 
to distribute foreign funds to other Bangladesh microlenders, requires 
its microlenders to report as overdue any loan that is one week late. 
The average overdue rate among the foundation's lenders is 2%. It's 
impossible to know Grameen's overdue rate by that standard, since it 
reports only loans that are one year and two years overdue.

PKSF also says it requires borrowers to make a 50% provision against 
potential loan losses for any loan overdue by a year. Grameen made a 15% 
provision for such loans in 1999, and none last year. Following PKSF 
guidelines would have produced a loss of more than $7.5 million for 2000 
instead of Grameen's reported profit of less than $200,000.

In early 1998, Grameen approached the International Finance Corp., the 
business-finance arm of the World Bank, about turning some of Grameen's 
portfolio into securities. The IFC declined to proceed, in part because 
Grameen "didn't provide all the account information the IFC requested," 
an IFC official said. The official requested anonymity because the IFC 
is reticent about discussing its negotiations with clients.

Mr. Yunus denied the IFC official's claims. He said Grameen is 
"generously covered" against loan defaults.

Other microlenders have become much more stringent. Accion 
International, a U.S.-based network of microfinance institutions, 
requires its affiliates in Africa and Latin America to list as "at risk" 
any loan overdue by 30 days or more. Asked about Grameen's two-years 
standard, Accion Chief Executive Maria Otero says, "I don't think any 
[bank] superintendency in a million years would agree to something like 

Grameen Bank isn't under any formal supervision. "They are regulated, 
but they are regulated by themselves," says Akhtaruz Zaman, director of 
the Financial Institution Department for the Bangladesh Bank, the 
country's central bank. He means the board of directors, which is led by 
borrowers. Mr. Zaman says Grameen's deposits are "well-protected " and 
the bank is "doing fine."

Harder-headed microlenders are stealing the spotlight, though. One 
rising star is the Association for Social Advancement (ASA), a 
Bangladesh charity, which boasts 1.5 million borrowers and just 0.7% of 
loans overdue, even by a week. Dispensing with borrower groups, ASA 
leans on borrowers' husbands and relatives if payments are missed, says 
the managing director, Shafiqual Haque Choudhury. To him, Grameen's 
approach is an ingenious idea that didn't stand the test of time.

"If we manage our operation in the Grameen way," says Mr. Choudhury, 
"we'll never be able to cover our costs."

Updated November 27, 2001


Devfinance – Annexes to Quarterly Review October - December 2001
- 1 -
To the Devfinance quarterly Rewiew
October - December 2001

Article on Grameen Bank in Wall Street Journal (15 mails)
From: J. D. Von Pischke []
Sent: Sa 01.12.2001 19:30
Subject: Grameen's Come-uppance
On a bittersweet day last week the financial world read on the front 
page of The Wall Street
Journal that Grameen Bank had been at best lax, and more likely at 
worst, deceptive in reporting
its financial performance.
How little reaction this has generated! Most of us in the trade probably 
had long suspected that
something was fishy, wishing that we had a current analysis as thorough 
as that provided by
Mahabub Hossain back in the 1980s and including factors that may not 
have seemed to be very
important when Hossian was writing. But, we were well served by WSJ—a 
serious, well-balanced
article on microfinance, the second in less than a year that has 
appeared on its front page.
I gave up on trying to make sense of Grameen’s financials in the 
mid-1990s when they were so
late in appearing, when consistency seemed hard to track from year to 
year, and when they
continued to report so much “filler,” data that seemed of little import. 
One year they produced a
report that did not include financial data, an operations report dressed 
up as an annual report, with
a note that financial statements would be available later, on request.
By contrast, the Grameen Foundation USA has got it right in its annual 
reports. Full financial
statements followed by a raft of notes. Presided over by an audit firm I 
never heard of, but that is
OK—my company uses an auditor you never heard of either, located in 
Chantilly VA (where’s
that?). Small clients might get the most inexperienced staff of one of 
the Big 6 audit firms (or
however many are left) and pay dearly for it. The small audit firms are 
less expensive and have
incentives to perform well. But, an audit by an unknown firm may lead a 
lender to spend more time
on due diligence of a small business seeking a loan.
I recently trolled the web in search of financial data made available by 
the large actors in
microfinance. The results were mixed. One large and famous one (not 
Grameen) also gave me
old data that was virtually useless, but with lots of pictures of 
photogenic poor women. (Gotta like
those gals.) I’d suggest that dfn readers do the same—pick one or two 
and have a look.
IMI offers an interesting format that suits its owners ( 
Results on its website do not
include the value of TA in the investments it has made, as discussed at 
the recent Frankfurt
Seminar. (See Chapter 3 in Kimenyi et al., STRATEGIC ISSUES IN 
MICROFINANCE, for details
of the TA approach and cost.) What do others do?
Will the WSJ piece foreclose the possibility of a Nobel Prize? Can a 
bunch of bean counters derail
a major brand? Or is something else at stake, i.e., the transparency 
demanded by an increasingly
skeptical and information-conscious world that relentlessly seeks lower 
transaction costs and
equity, comparing like to like? Is Grameen doing any better in reporting 
the truth than the
nationalized banks in Bangladesh? (Probably Grameen is lightyears 
ahead—but this is based on
my experiences of 10 years ago in Bangladesh.) Is Grameen’s pickle any 
different from
development assistance at large: promoted too strongly and “results” 
reported too generously? (A
good friend from the World Bank once suggested the process, at least as 
it relates to financial
sector operations generally, has historically been one of reverse 
alchemy—turning gold into lead.)
The good that should come out of the WSJ piece is first of all a better 
understanding of a
diminished Grameen and second but more importantly, a race to the top as 
the industry generally
provides more useful data. The MBB is in the lead on an industry-wide 
basis. MicroRate seeks to
create a commercial market in data. What can individual providers do to 
meet normal commercial
disclosure standards? Do donors have a role to play, requiring public 
disclosure—websites are
most accessible—at the level of the individual mirofinance institution 
on the ground, as part of
conditionality? Will microfinance advocates in Washington and around the 
world use their political
clout to provide excuses for Grameen or to push for more detailed 
industry-wide disclosure?
J.D. Von Pischke
2529 Trophy Lane
Reston VA 20191-2126
Page 5
Devfinance – Annexes to Quarterly Review October - December 2001
- 5 -
fax 703 758 1388
Sent: Mo 03.12.2001 08:58
Subject: Grameen's Come-uppance
A thoughtful and interesting analysis of the Wall Street Journal article 
on Grameen by one of the
old sages of microfinance, J.D. Von Pischke. I myself have been 
suspicious for a long time about
the true situation of Grameen so often disguised by Dr. Yunus’s global 
steller status what being
considered for a Nobel Prize, initmate with the Clintons and frequently 
invited to the White House,
The lessons, of course like for any financial institution of 
intermediation (an investment bank, Bank
of America, Goldman Sachs, PADME in Benin, Socremo in Mozambique, 
Ecobank, etc. etc.) is
complete transparency in financial reporting and disclosure. These of 
course are underpinned by
sound financial management, operations and administration. More 
importantly, people within
financial institutions dedicated to and owners of the fiduciary duty 
they hold being in possession
and custodians of other people’s money.
C. Ross Croulet
Coordinator, AMINA
African Development Bank
01 B. P. 1387
Abidjan, Côte d’Ivoire (Ivory Coast)
West Africa
Telephone: (225)20-20-57-43
Fax: (225)20-20-59-72
Internet web site:
From: Robin Ratcliffe []
Sent: Fr 07.12.2001 18:12
Subject: ACCION Responds to WSJ article re Grameen
Richard...thank you for your comment and certainly we at ACCION are well 
aware that most MFIs
are tiny, donor dependent and fairly unsophisticated in terms of 
financial reporting. The letter
actually says: Grameen’s borrowers represent a small percentage of the 
estimated 25 million poor
“microentrepreneurs” being served by large, specialized microfinance 
institutions (MFIs)
throughout the world. The vast majority of these MFIs are rigorous, 
transparent etc. etc.
What we meant to point out and perhaps did not do so effectively is that 
the vast majority of the
recipients of credit are being served by large MFIs which operate in a 
rigorous way. We were
thinking of ASA, BRAC, Bank Rakyat Unit Desa, Compartamos, Mibanco, a 
number of Bolivian
institutions, K-Rep Kenya and the like.
Hope this helps. Kind regards, Robin Ratcliffe
-----Original Message-----
From: Richard Meyer []
Sent: Wednesday, December 05, 2001 3:15 PM
Subject: Re: ACCION Responds to WSJ article re Grameen
Robin: Thank you for posting this letter and my appreciation to Maria 
for sending an important
clarifying letter to the WSJ. Perhaps one sentence in the letter 
deserves comment.
It reads “The vast majority of these MFIs are rigorous, transparent and 
financially self-sustaining.”
Page 6
Devfinance – Annexes to Quarterly Review October - December 2001
- 6 -
I think all of us who are close to the industry wish that was the case, 
but the general perception is
that worldwide the majority of the total number of MFIs in operation are 
weak, not very transparent
because they have not reached that stage in the sophistication of their 
accounting procedures, and
in fact are subsidized in the sense of not covering their full costs 
through earned revenue and/or
they have access to resources at less than market rates. The numbers are 
imprecise but we
generally understand that there are thousands of MFIs operating 
worldwide but there are only a
couple of hundred that have sufficiently good records to submit them to 
the MicroBanking Bulletin
and/or to be rated by one of the rating agencies. As I understand it, 
most if not all ACCION
affiliates fall into this strong category. One of the shared objectives 
of the industry is to improve
the weaker ones as quickly as possible.
At 05:16 PM 12/3/2001 -0500, you wrote:
Dear Colleagues:
Our ongoing discussions “in the family” of such topics as reporting 
standards, institutional
transparency and regulation and supervision of microfinance institutions 
have been catapulted to
the “outside world” with the publication of the WSJ article last week. 
Since ACCION’s María Otero
was quoted in the article, we sent an immediate Letter to the Editor 
which I have included below for
your information. As yet, it has not been
published. <<WSJ Letter to Editor 11-27-01.doc>>
Robin Ratcliffe
Vice President, Communications
ACCION International
56 Roland Street, Suite 300
Boston, MA 02129 USA
tel: 617-625-7080x1235
fax: 617-625-7020
From: Dave Richardson []
Sent: Di 11.12.2001 04:55
Subject: Grameen's Come-uppance
Wow J.D.....
I’m late in responding, but your bucket of cold water was very 
provoking!! It might cause some
sizzle within the Grameen labyrinth, but then again, maybe not. When you 
are the bell cow, you
don’t need to pay attention to the barking dogs ....
Aside from the sin of omission, Grameen has committed another grievious 
infraction: Dancing with
the Devil while trying to enter into Heaven!
“Elastic” loan recoveries may work in some cases, but under no condition 
should they be
accompanied by “elastic” loan loss provisions. A prudent financial 
institution may take a soft
approach with it’s delinquent borrowers, but should internally take a 
“hard line” approach in the
creation of loan loss provisions. It also has a responsibility to the 
savers who are financing such
loans. This means that even though a borrower is given two years to pay, 
the bank should
adequately provision (read 100% provision) such loans to protect their 
innocent savers.
The only way that justice and mercy can both be satisfied is if someone 
pays the fiddler. In the
case of Grameen, it appears that they want to be merciful, but are 
unwilling to underwrite the risk
within a prudent time frame. In case the message is not clear, let me 
repeat myself: The gateway
to Brother Yunus’s proverty-free heaven can only be accompanied by 
someone who pays the entry
Cooperative Greetings,
Page 7
Devfinance – Annexes to Quarterly Review October - December 2001
- 7 -
Dave Richardson
World Council of Credit Unions
From: dfitchett []
Sent: Fr 14.12.2001 02:59
Subject: Grameen Bashing
The discussion continues to very interesting, if at times a bit intemperate.
But one should ask who are Grameen’s real friends? Are the real friends 
those who wish that
Grameen would adhere to standard financial reporting practices in order 
to assure sustainability
and solid growth of the program, or are the real friends those who are 
not concerned that
“Grameen’s accounting practices are quite creative”, as Eugene phrases 
it? (Just as Enron, or
Xerox, or Cendant, etc., resorted to “creative” or “innovative” 
financial accounting and reporting
practices and “proformas”.)
For example, what does Grameen lose by adhering to the standard accepted 
definition of Portfolio
at Risk (PAR)? Kudo’s to CGAP for trying to introduce some generally 
accepted definitions and
financial reporting standards for the MFI industry.
Just think what a great contribution Grameen would make to the future of 
the MFI movement
around the world if it would put its enormous prestige and outreach to 
support that CGAP effort!
Del Fitchett
From: J. D. Von Pischke []
Sent: So 16.12.2001 04:24
Subject: Grameen's Unfortunate Fumble
Grameen Bank’s letter to the editor of the Wall Street Journal’s 
editorial page appeared in the
December 12 edition. Unfortunately, it compounded any difficulties that 
the WSJ’s front page
article of November 27 may have caused Grameen. In his letter Prof Yunus 
chided the WSJ for
seeing problems where he sees progress, i.e., dealing with an arrears 
situation by running them
down by colleting them rather than writing them off against reserves 
that he claims more than
adequately cover the bank’s risks. He also says that by the end of 2002 
the repayment rate will
reach 98%, and invites the WSJ back to provide a “fair hearing.”
All well and good. But, how are arrears calculated? Still one or two 
years after the due date of the
final installment? Why not five, if the poor in fact repay and you have 
abundance liquidity and
capital? How is “clockwork precision” in repayment measured—for those 
85% of borrowers
claimed to behave in this manner? One day late, 7, 30, 90 or 180 days 
are industry conventions.
Are new loans used to erase arrears on old ones? Without attention to 
detail in describing the
arrears situation, providing disclosure of standards or criteria used to 
classify loans, the reader is
no better off than she was on 27 November.
The letter fails to deal comprehensively with the specific concerns the 
WSJ raised. This may be a
cultural issue, as in NGOs in poor countries vs bank regulators in rich 
ones, and it just might also
reflect sensitivities about disclosure in Bangladesh, a pretty 
contentious place, where big numbers
may attract predators. If so, this is something we should know about and 
probe, as it could have
some bearing on the industry generally. And, if Grameen no longer 
accepts subsidies of any type
as a matter of policy and if it faces a local threat, it of course has 
the right to remain silent. What
does it advise that its replicaters do?
Otherwise, the response represents an incredible lost opportunity, 
playing the wrong card at the
wrong table. Grameen Bank and its friends in Washington must surely be 
aware of the readership
of the WSJ and have some appreciation of their expectations and 
standards. How many of its
readers subscribe generously to charitable causes, or would consider 
investing part of their
fortunes in microfinance if the industry can come up with an attractive 
vehicle? In fact, there is no
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- 8 -
richer vein in the large scale media than the WSJ for this sort of 
audience. A clear and detailed
explanation by Grameen, in response to the original article, might have 
pried some funds loose for
the cause or, more importantly, brought microfinance closer to the 
mainstream in many readers’
Simply to provide assurances and to tout helping the poor does not carry 
the day for WSJ’s
audience. Even less the stance that “We consider credit as a human 
right,” which would be
offensive, pathetic or even laughable to many American readers of the 
WSJ and possibly
questionable to others in countries where rights are to a high degree 
enforceable. (I’d be happy to
elaborate on this for those not familiar with the view of human rights 
incorporated in the US
Declaration of Independence and Constitution.)
Has Grameen’s website been dusted off since the original article? What 
does the balance sheet
and income statement look like for 2000 and for the first six months of 
How regrettable that the public relations situation was allowed to get 
worse when it could have got
better. Rather than stonewalling, a better result could have been 
achieved by the provision of
more detail about Grameen’s financial performance. How sad if Grameen’s 
supporters did not sufficiently coach Prof Yunus on the sort of response 
that would resonate and
be culturally congenial to WSJ readers and within the world of finance 
generally, or if they did, that
they did not prevail. All the worse because the WSJ is almost alone 
among the global media,
presenting more good news than bad news.
J.D. Von Pischke
From: Dale W. Adams []
Sent: Mo 17.12.2001 17:52
Subject: Caesar's Wife
I second J.D.’s lucid comments about M. Yunus’s letter to the editor of 
the <<Wall Street Journal>>
on December 12
. His letter is evasive and unresponsive to the concerns raised in the 
November 27
Journal article on the Grameen Bank.
No one is criticizing GB for rescheduling loans when borrowers suffer 
natural disasters. Likewise,
no one is criticizing the bank’s efforts to provide financial services 
to people of modest means. It is
not bashing a bank when one asks serious questions about the loan 
recovery measures it uses or
to question its loan provisioning policies. If that is bashing, then 
every single bank in the U.S. is
regularly “bashed” by bank examiners to the benefit of all depositors. 
If GB wishes to act like a
bank it ought to use understandable loan recovery measures and not 
continue to pull the mythical
loan recovery number of 97% out of thin air.
Yunus fails to define how the GB measures a loan that is overdue in his 
letter. As J.D. asks, is its
loan recovery performance “improving” simply because bad loans are being 
refinanced or the loan
recovery measure is being flexed?
In the days when agricultural development banks were doing most of the 
altruistic lending, it was
common for them to be casual about publishing audited annual statements, 
use creative measures
of loan recovery performance, and set aside too little to cover real 
loan losses. To obscure the
sorry state of their loan recovery the worst of these banks would often 
publish figures on the total
amount they had ever lent, and the total amount they had ever recovered 
and hope the reader
would conclude their current loan recovery performance was much better 
than it actually was.
Yunus does the same thing in his letter by saying the total amount that 
GB has ever lent is $3.5
billion and the total amount they have ever recovered is $3.2 billion. 
 From these number I suppose
he hopes readers will conclude that his loan recovery performance is 
still over 90% and
supposedly improving. Instead, the skimpy information he provides 
suggests that up to one-
quarter of GB’s current loan portfolio may be in arrears and who knows 
about the collectability of
the loans that are yet to come due? Like a cancer, loan recovery 
problems tend to cascade and
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Again, I’d be less concerned about GB’s casual financial reporting and 
cavalier response to
criticism if the deposits and savings of millions of poor people were 
not at risk. Yunus preachs
about debt being a human entitlement; I’d feel more comfortable if he 
concerned himself more
about the rights and assets of his poor shareholders and depositors.
If this is a sign of things to come, god help the poor if the microdebt 
industry ever gets heavily
involved in mobilizing deposits!
If one sets themselves up as the pope or prophet of the microdebt 
industry, then one must lead a
life beyond reproach as was expected of Caesar’s 
From: Navraj Simkhada []
Sent: Di 18.12.2001 07:08
Subject: [cmf-list] The Wall Street Journal Article on Grameen Bank {01}
Dear all members of the CMF list serve:
Greetings from Nepal. This is to forward the following e-mail sent by Mr 
Sam Daley- Harris,
Director, Micro-Credit Summit Campaign regarding the wall street journal 
article about Grameen
Bank. Sam’s response together with response by others and Professor 
Yunus to the article follows.
I also want to put in my response as follows:
I agree to every word written by Sam in his response (please read it 
below). I also want to add my
personal feeling that providing financial services to the poor is not a 
joke and an excluded aspect
by the commercial sector. Now, when the campaign to eradicate this 
exclusion and provide
financial service to as many poor people all over the world as possible 
in order to improve their
livelihood is finally gearing speed I must say that articles as the one 
published by the wall street
journal will hamper the movement of the Micro-Credit /Finance sector. 
This undoubtedly will
hamper the interest of the millions of poor people all over the world 
who are still deviod of such
services. As we are witnessing all over the world that day by day due to 
war or other calamities the
number of poor are increasing. Now we do not want “distructive 
criticism” to push the Micro-Credit
movement behind. If organisations and individuals are concerned let 
people come up with
constructive criticism which will help improve the methodology of 
financial services to reach as
many poor people all over the world as possible. As Sam rightly says 
Grameen like any other
progam may have its problems but they are working at solving it and will 
do so ultimately. But
more important than that is the fact that the THE GRAMEEN MOVEMENT HAS 
THE POOR TO THE FOREFRONT. Therefore the organisations and people behind 
this movement
will, I am sure, join hands to combat the difficulties in the movement 
but at the same time not let
any adverse propaganda disrupt the good work commenced.
I just want to point out the fact here that in Nepal alone following is 
the approximate figure of poor
household being serviced by finacial products offered through grameen 
1. About 1,30,000 Household by a combination of 5 Government subsidised 
Grameen Banks
2. About 100,000 Households by private sector Grameen replicators 
including NIRDHAN, CSD,
DEPROSC, NSSC, and others I would also like to point out here that most 
of the organisations
mentioned under point 2 have their business plan showing when and how 
they will reach financial
sustainability and they are moving towards it. Please note that the 
approximate 230,000
households quoted here are some of the poorest households in the world. 
Therefore if anyone is
concerned it may serve better to join hands with us in the summit 
campaign to improve the living
conditions of all these poor people rather than disrupting commendable 
work which have already
been commenced. With best wishes for the season and committmet to 
strengthening the Micro-
Finance movement
Namrata Sharma
Managing Director
Centre For Micro-Finance, (CMF) Nepal
From: Sam Daley-Harris, Director
Date: December 14, 2001
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- 10 -
Re: The Wall Street Journal article on Grameen Bank
Many of you know that on November 27, 2001, the Wall Street Journal 
published a negative article
on Grameen Bank and its founder and managing director, Muhammad Yunus. I 
am taking this
opportunity to circulate links to the article, links to Muhammad Yunus’ 
response which was
published in the Journal on December 12, and, since the Journal has not 
yet published any of the
many letters written in response, I am also sending a few of the letter 
prepared by members of the
campaign. Many of these links will take you to CGAP’s website which 
includes additional
What follows are:
1. The Wall Street Journal article.
2. The response from Muhammad Yunus
3. A response from Grameen Foundation USA President Alex Counts:
4. A response from ACCION President Maria Otero
5. A response from World Council of Credit Unions President Arthur
6. My own response to the Journal is here:
November 29, 2001
Letters to the Editor The Wall Street Journal 4300 Route 1 North South, 
Brunswick, NJ 08852
To the editor,
With the U.S. engaged in a war in Afghanistan and President Bush 
assuring the world that our fight
is not with Islam but with terrorists, I find myself wracking my brain 
to understand why the Wall
Street Journal finds it front page news that the Grameen Bank is having 
repayment problems in
some of its branches (November 27 story, “Bank that Pioneered Loans to 
the Poor Hits Repayment
Reporters Pearl and Phillips note that “...10% of all the bank’s loans 
are overdue, giving it a
delinquency rate more than twice the often-cited level of less than 5%.” 
Yes, Grameen has a
repayment problem. Your reporters say that Grameen Bank founder and 
Managing Director
Muhammad Yunus, “acknowledges that Grameen has had repayment 
difficulties in the past five
years” and that the bank is working with staff and clients to correct 
the problem.
But with Grameen providing small loans and other financial services to 
2.4 million poor or formerly
poor Bangladeshis, 95% of them women..., I believe you are missing the 
real story.
I know the piece was started before September 11 (I was interviewed by 
one of the reporters
several times in August). But the world has changed since then and your 
reporting must do a better
job of reflecting that change. Here are some other challenges you might 
also have focused on that
Grameen and Professor Yunus have tackled. Their success in meeting these 
challenges is a
beacon of hope in a world that so needs it.
1. Dr. Yunus has struggled with fundamentalist clerics, starting in the 
late 1970s, in his effort to
reach women clients who now number more than 2.2 million. This is a 
problem that, if not solved,
would have hampered other institutions in Bangladesh who, along with 
Grameen, are now
reaching more than 7 million women according to the State of the 
Microcredit Summit Campaign
Report 2001...
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- 11 -
2. In the late 1970s and early 1980s Prof. Yunus struggled to convince 
Bangladeshi banks and the
government that poor people were creditworthy without collateral. He 
succeeded and, as your
article states, now there is great competition in Bangladesh—but 
Bangladesh is one of the few
countries where that is the case. This has to change. If the world is to 
reach the UN Millennium
Summit’s goal of cutting absolute poverty in half by 2015, an even more 
important goal since 9/11,
then we will need more commitment to high quality microcredit delivery 
around the world because
of its significant contribution to relieving poverty. A World Bank study 
from 1997 found that every
year Grameen Bank helps 120,000 families (some 600,000 family members) 
move out of poverty.
The Microcredit Summit’s goal of reaching 100 million poorest families 
by 2005 would be a good
place for the Journal to start its new vein of reporting.
3. Grameen argued long and hard during the 1980s to get the government’s 
permission to offer
$300-600 housing loans. Can you imagine what a villager’s one-room house 
must have been like if
a new one, built with a $600 loan, is a major improvement? For one 
thing, a new roof, now made of
tin, means that it won’t rain inside anymore. Grameen has given more 
than 500,000 housing loans.
Grameen Bank works in a society where many of the well-off don’t repay 
their loans, where
government loans might be forgiven before an election, where corruption 
is too often the rule rather
than the exception, where husbands can’t understand why loans are given 
to their wives, where
most of its clients are illiterate, where bank branches are likely to 
have no electricity, and where
women had previously never touched money and still never go into the 
Yes, Grameen has a repayment problem and they have been working 
successfully to solve that
problem and many, many others. I am not asking for the use of kid gloves 
or for special treatment,
just for balanced reporting.
Sam Daley-Harris, Director Microcredit Summit Campaign
This is a response to my letter from Jeff Ashe:
I thought your comments were well taken. Let’s put these repayment 
problems (which are by no
means institution threatening) into the context of what Grameen has 
There are many who are licking their chops about the troubles of one of 
the leaders in the field.
Every initiative has its strong points and its difficulties and running 
a bank with more than
2,000,000 poor women clients must rank among one world’s more difficult 
Jeff Ashe, Visiting Scholar Institute for Sustainable Development Heller
School Brandeis
From: BRCS []
Sent: Mi 19.12.2001 07:38
Subject: Grameen Bashing
This is a topic near and dear to my heart (see
for details). The
Grameen problem is indeed ‘cultural’, but the clash is between people 
who see microfinance in
different ways, not Yankee suit bankers and Bangladeshi professors.
On one hand you have those who believe passionately that to be 
sustainable, microfinance has to
be abstracted from the social conditions in which it is employed and 
treated as a scarce resource
subject to maximum conservation. Social externalities from microfinance 
practise are valued, but
not in the technical sense that money is valued. ‘Performance’ is 
therefore seen in terms of
equilibrium amongst the financial variables involved, including 
opportunity costs, albeit in the
context of trying to achieve the specific goal of alleviating financial 
poverty as opposed to making
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- 12 -
On the other hand there are those who believe equally passionately that 
the social externalities
Versluysen cites should be valued not just as morally ‘good’, but as 
legitimate outputs of a
development effort that uses money to mobilise poor people and to change 
their survival
strategies. These changes are not just about savings and credit, but 
also about shifting attitudes
and social and political relationships that contribute to poverty. As 
such they have both proximate
and mediate economic value. ‘Performance’ is therefore seen more broadly 
than financial
equilibrium since the concept of opportunity costs also includes forgone 
opportunities to shift social
Problem No. 1 is that the ‘money people’ and the ‘social change people’ 
speak the same language
- sort of - but operate from such different underlying assumptions that 
common words have
different conceptual meanings for them. ‘Money people’ (who are 
invariably those hired to do
evaluations) want to evaluate all programmes on the basis of what they 
themselves know and
value, whilst the programme practitioners might have very different 
values. Donors are caught in
the middle, since they often have no expertise in either approach and 
become alarmed when
‘money’ and the ‘social change’ people give different assessments of the 
same thing, using the
same language, but with diametrically opposed conclusions. This leads to 
confusion and distress
for all involved.
Problem No 2 is that the ‘social change people’ often neglect to develop 
and use the skills needed
to talk to the ‘money people’. For example, many social change MF 
practitioners cite positive
social externalities and social asset creation in their programmes, but 
are either unable to value
these in a financial sense or unwilling to do so because they believe 
(wrongly, IMHO) that “you
can’t win if you enter the terrain of technical microfinance debate, so 
rather don’t go there at all”.
So they leave the terrain altogether, leading to a bifurcation in the 
donor community between those
who deal with ‘sustainable’ MF programmes (usually bilaterals) and those 
who deal with the others
(usually church-based).
It should be possible to develop a framework that (a) allows both 
parties to communicate
effectively without leaving so much implicit, and (b) specifies under 
what conditions the ‘money’
and ‘social change’ approaches can and should be employed.
Otherwise we remain stuck with apples and oranges.
Ted Baumann
Bay Research and Consultancy Services
Specialist Support to Community Development and Microfinance Organisations
Cape Town, South Africa
Tel: +27-21-788-2311 - Fax: +27-21-788-6380 - Cell: +27-82-602-4330
The views expressed in this email are those of the author and should not 
be attributed to BRCS
clients unless otherwise stated.
----- Original Message -----
From: Linda MAYOUX
Sent: Thursday, December 13, 2001 1:19 PM
Re: Grameen Bashing
I was also rather dismayed at the way the debate went. Mohammed Yunus, 
together with others
like Ela Bhatt of SEWA should indeed be applauded for their life’s work 
of bringing the issues of
poverty and the injustices faced by poor women onto the agenda of donor 
agencies like USAID
and World Bank.
From: Eugene Versluysen]
Sent: Tuesday, December 11, 2001 7:05 PM
Subject: Grameen Bashing
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Greetings All.
Bashing Grameen seems to be a popular pass-time for MFI experts.
It is true that Grameen's accounting practices are quite creative, and 
that Muhammad Yunus
comes a close second to Madonna as a celebrity. But let's not blame 
Yunus for being a frequent
guest at Clinton's White House or for
corralling kings and queens to the cause of microfinance. His aim, I 
believe, is to make
microfinance more widely acceptable and to attract more donor support. 
As for his being a
potential Nobel Peace Prize nominee, I wouldn't mind.
Or do people think that the likes of Arafat (1994), Kissinger (73), 
Anwar Al-Sadat (1978), F.W. De
Klerk (85), and Shimon Perez (94) were worthy winners? If so, Yunus had 
better stay at home; no
fancy trip to Oslo for him.
Let's also remember what Grameen has achieved. Anyone who has spent time 
at a Grameen
Bank branch in a small village in Bangladesh soon realizes that Grameen 
has done a great deal to
emancipate rural women in a strict Muslim society, and change archaic 
and repressive social
practices, such as dowry. Not only that. Grameen turns social norms 
upside down when male staff
serve lunch to women clients, and when Grameen convenes meetings of its 
clients' spouses and
brothers to make them realize that women too have a place in society and 
can be breadwinners.
I've been there, seen it, and it's really impressive. Knocked my socks 
right off.
Evidence in Bangladesh and other poor countries shows that domestic 
violence is far less frequent
in households where women are breadwinners, and that giving women a more 
equal role in the
family increases school enrollment of girls. It used to be a saying in 
Bangladesh that sending one's
daughter to school was like watering one's neighbor's garden. No longer. 
Perhaps purists who look
solely at balance sheets and take audit reports as the next best thing 
to holy water (anyone
remember Enron?) don't give a toss about women's fate. I do. Does anyone 
remember the head
of the SEC in the early 1980s who was a wife beater? Broke his wife's 
ribs in a bout of rage
andwas promptly sacked. He could have benefited from attending a Grameen 
workshop for
Not only that. By financing and building monsoon-proof houses for its 
better clients Grameen has
helped to dramatically reduce monsoon-related deaths. I find that quite 
impressive. Let's add to
that Grameen's numerous and successful replicators.
Enough about that. Let's look at what went wrong at Grameen, and why, 
and look at other MFIS
One of the reasons Grameen's payment record tumbled is the tremendous 
losses clients suffered
in the 1998 tyuphoon. Of course, it is perfectly acceptable to 
reschedule a developing country's
loans after corrupt officials have squandered gazillion dollars on dumb 
projects, but it apparently
stinks if Grameen extends a loan maturity and calls it a flexible loan.
Now, how do others fare when their clients experience calamities on the 
scale of Bangladesh's
devastating 1998 typhoon? The AIDS pandemic in eastern and southern 
Africa, and its impact on
MFIs is a good example. In November 1999 I spent about four weeks in 
that region and met scores
of MFIs whose clients and staff were dying in droves from AIDS. One of 
these MFIs, FINCA
Uganda, which had 10,000 active clients at the time, still boasted 99.9% 
repayment rate. Now I
found that stretching the facts, given the high
incidence if HIV/AIDS among its staff and clients. In Zimbabwe, ZAMBUKO 
Trust had an average
default rate of 20% due to AIDS mortality, and K-REP's loan defaults 
were of the same magnitude.
I also doubt that BRI's Unit Desa have sailed unscathed through 
Indonesia's financial crisis, and
the last I heard about BancoSol, angry clients had stromed a number of 
brach offices demanding
Now a final note on the source/cause of this recent fuss and splurge of 
Grameen bashing; the Wall
Street Journal! It's a right-wing Republican paper whose editorial lines 
would have made Genghis
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- 14 -
Khan blush. Let's presume that it has a hidden agenda and that anyone, 
Yunus included, who
frequented the Clinton White House must be bad. Let the WSJ wallow in 
its prejudices and give
Muhammad Yunus a break.
Hapy holidays to everyone, Yunus bashers included.
Eugene Versluysen
Washington DC
From: On Behalf Of Linda MAYOUX]
Sent: Thursday, December 13, 2001 3:20 AM
Subject: Grameen Bashing
I was also rather dismayed at the way the debate went. Mohammed Yunus, 
together with others
like Ela Bhatt of SEWA should indeed be applauded for their life's work 
of bringing the issues of
poverty and the injustices faced by poor women onto the agenda of donor 
agencies like USAID
and World Bank.
Addressing issues of poverty and women's empowerment is an enormous and 
ongoing task and it
is therefore to be expected that there will be shortcomings. What is 
needed is not Grameen
bashing and the sort of point-scoring I saw from Accion and others but a 
really serious debate
about how the shortcomings can be overcome. I was also surprised that 
anyone serious about
poverty alleviation should suggest that Grameen should not have 
rescheduled its loans after the
cyclone. In UK and US bank borrowers would expect no less support in 
times of crisis. It is some of
the assumptions underlying the WSJ article which should have been 
bashed, not Grameen.
Although balance sheets are obviously important, where these become the 
main preoccupation it
is inevitable that programmes will attempt to massage the figures. Any 
honest programme which is
really trying to address issues of poverty and women's empowerment is 
bound to have higher
costs and will need greater flexibility than those who are only 
concerned with pushing out money to
the better-off and recouping it.
I think we need to get beyond both Grameen adulation and Grameen bashing 
to a real informed
debate about the problems and what to do about them.
From: Didier Thys []
Monday, December 17, 2001 8:00 PM
Grameen Bashing
Nice call to action. I think we have all had our opportunity to send in 
our "tsk, tsk, Grameen but
that's not us" or "don't pick on Grameen because they mean well" 
letters. Since we are all
obviously motivated by our desire to eradicate the absolute, life 
threatening deprivation that affects
so many of the world's poor, how might we use this opportunity to 
improve our own performance?
Two issues come to mind with regard to the transparency of our actions.....
1. Some organizations have begun to float the idea for developing a code 
of conduct for
microenterprise institutions. This would be in the vein of developing a 
self-regulating mechanism
which we could all adhere to as practitioners. I have no clue as to what 
should go into such a
code, but a lot of people on this listserve obviously do. Let's hear 
some suggestions. We've heard
a lot about common accounting standards and practices which is useful 
and thanks to CGAP is
getting some good promotion and backstopping. The challenge here is to 
think about this and
more. What standards would we be willing to commit ourselves to?
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2. I like financial transparency, but we all have a long way to go. That 
is why a lot of the money
designated for microfinance has gone to "capacity building" through 
training and technical
assistance and most of that money has gone to "support organizations" 
from North American and
European countries. Our message to our partners in developing countries 
has been improve your
services, improve your governance, improve the transparency of your 
operations and finances.
We even rate them now on their balance sheets and income statements and 
determine how
subsidy dependent and cost-effective (great new book by Yaron and 
Schreiner for doing this -
check it out on the CGAP website!) they are. However, I have been trying 
for two years now to find
out the value of technical assistance and training that organizations 
receive and I keep
encountering the same problem. They cannot give it to me, because that 
information is in the
hands of their northern partners and is not generally shared with them. 
Moreover, northern
partners rarely look at the cost structure of their technical assistance 
and training since it is almost
entirely subsidized through public and private grants or 
government/multilateral contracts. We
spend a lot of time ascribing a value to a grant provided to an MFI, but 
we spend no time
determining the value of our technical assistance and incorporating it 
into the subsidy dependence
index for that same MFI. Given the call to transparency, do I hear a new 
openness to sharing our
own cost data with regard to technical assistance for MFIs? I think it 
would be great. I am seriously
interested in hearing if there are any institutions out there who would 
like to work on developing a
subsidy dependence index that incorporates the full value of externally 
subsidized technical
From: Linda MAYOUX
Sent: Thursday, December 20, 2001 3:10 AM
Subject: Codes of conduct
Dear Didier,
Thanks for this.
This idea of codes of conduct is really important. I think though it 
should go beyond just accounting
procedures to areas like:
• social responsibility : In the States I believe banks have social 
responsibility requirements to
invest part of their profits in community development - or am I 
misinformed in this? In UK the banks
are bending over backwards to get social responsibility credentials - 
however small the actual
measures taken are in practice. Few MFIs make profits, but there are 
many ways in which loans,
savings, insurance and pensions could be designed to take social 
responsibility considerations into
account. This could include things like commitment to act in the best 
interest of the client eg not
pushing inappropriate loan products, not tying clients into unprofitable 
savings and insurance and a
concern with loans which would assist local community development eg to 
enable local trained
health care workers to purchase the necessary equipment, for girl’s 
secondary education, for
purchase of land and house sites in women’s names.
• gender equity : equal opportunities policies for staff, 
non-discrimination against clients (either
women or men unless this is justified by their mandate as a ‘women’s or 
men’s programme). In
Canada I believe banks are required to conform to these principles and 
women who feel they are
discriminated against in loan applications can take the banks to court - 
or again am I misinformed?
• environmental responsibility : to consider the environmental impact of 
the use of loans eg when
used for widespread purchase of pesticides, for expansion of polluting 
Obviously these would raise many contentious issues, and actual concrete 
measures may be
difficult to arrive at (as with the financial measures) but the 
discussions would lead to a real debate
about how the potential development contribution of micro-finance can be 
increased - as most are
and are likely to continue to be recipients of development funds.
An integral part of this should also be discussion of setting up systems 
for proper impact
monitoring and assessment - more along the lines of the SEEP approach 
than that of AIMS but
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Devfinance – Annexes to Quarterly Review October - December 2001
- 16 -
also building on other participatory and sustainable innovations. Some 
of these are discussed in
my paper on the DFID-EDIAIS website:
which is an ongoing draft which will be periodically updated and 
comments/contributions gratefully
I also think the point about donor financial transparency is also 
important. The large amounts of
money spent on expensive international consultants who spend very short 
periods in a country on
‘development tourism’ and often play havoc with programmes does I think 
need to be justified.
From: Didier Thys []
Sent: Sa 22.12.2001 00:19
Subject: Codes of conduct
I like the direction you are taking this. Let us say that financial 
transparency would be one of the
categories that would need to be included and that there is already a 
wealth of work to draw from
for setting these standards. Despite how we may feel about Grameen, the 
accounting and
reporting techniques it pioneered when there were no standards or tools 
are not the ones that the
rest of the movement/industry will be or are carrying forward. The work 
in this area has been
abundant over the last 5-10 years so there are plenty of good ideas and 
tools to draw from.
Your comments point us to areas where there has been less investment and 
effort and it would be
fun to stimulate the thinking on what they imply in terms of our own 
codes of conduct.
1. Social Responsibility: This is near and dear to the hearts of 
everyone in this business, but have
we truly expressed what the social responsibilities of microfinance 
institutions are. A lot of the
issues you raise I would actually put into a separate category as they 
are very important in their
own right. These are the questions of appropriate financial products, 
terms and conditions. I
think the organizations—it would be nice if one of them spoke up! -- 
that have proposed a code
of conduct were thinking about these and have mentioned “consumer 
protection” as a guiding
theme. We should probably make a commitment to consumer protection - ya 
think? What
kinds of rules would microfinance institutions be willing to abide by in 
this area? The other
aspect of social responsibility is along the lines of the examples you 
mention that banks in the
US and Canada have to follow - committing a portion of their resources 
to underprivileged
zones or client populations. This is a depth of outreach question. Is 
there some statement
about an organization’s commitment to the poor that can be made and a 
process for auditing or
rating that commitment that microfinance organizations could commit to?
2. Gender equity. No argument here, particularly in terms of policies 
for governance and staff
structures. I am constantly struck by the fact that this industry 
markets itself in terms of serving
women and that most of the organizations are run by guys!
3. Environmental responsibility. Here’s something we never talk about. 
The USAID Bureau for
Africa has developed an interesting document called “Environmental 
Guidelines for Activities
with Micro and Small Enterprises”. I wonder how many of us are aware of 
it and would agree
with the standards they would like to see microfinance (and BDS) 
institutions follow? Don’t
worry - there is still time to make can find the 
document at
These are three (or four if you separate out consumer protection) that 
maybe we can work on and
bring to the level of development of the financial standards and 
guidelines. That would give us
five areas to look at for an institutional code of conduct. Would this 
not serve to both validate the
need for financial transparency while appropriately contextualizing it 
within a wider spectrum of
issues an organization must be vigilant about?
From: J. D. Von Pischke []
Sent: So 30.12.2001 21:17
Page 17
Devfinance – Annexes to Quarterly Review October - December 2001
- 17 -
Subject: Let's Embrace a Microfinance Curriculum
I am concerned about a couple of things from the recent exchanges 
arising from the items in the
Wall Street Journal concerning Grameen Bank.
One is interpretation: My guess is that almost or even virtually 
everyone on this list respects, if not
stands in awe, of what Grameen has accomplished. Some of us have put 
this in writing in the
literature. Yet, any criticism whatsoever seems to be interpreted as 
Second is the false dichotomy: Invidious distinctions rank below 
holistic reflections about what it
takes to run a bank or any other financial institution or service that 
can help empower the poor on
a sustainable basis. (I believe that most of us are committed to 
sustainability, however defined.)
These false dichotomies come in two types.
One is that since Grameen has done such a great job, it is not important 
that it disclose data or
report accurately. Any disagreements or concerns about how financial 
data are handled can be
dismissed as “bashing” or otherwise deemed irrelevant.
The second form is stereotyping us/them, good guys/bad gals, white 
hats/black hats. If we’re
interested in balance sheets and related financial statements, then it 
goes without saying that we
are indifferent toward the poor. But, if we really do care about the 
poor, then financial statements
and by extension financial performance are by definition entirely 
irrelevant to our quest or dream
to ease the burden of poverty. Mere impediments planted by bean counters 
along the road that
need not concern the right thinking traveler.
Also, isn’t it interesting that “they” are tainted by ideology while 
“we” have values. Yet it is all the
same at the end of the day. Who would not want to have both values and a 
I believe that the place where good things are most likely to occur is 
at the frontier or margin.
There are two broad positive possibilities when two or more forces, 
factors, actors, schools,
institutions or whatever meet. One is that they discover synergy and 
create mutual empowerment
through collaboration. The other is that they compete and in so doing 
reduce costs to their clients
through innovation and efficiency. Aren’t these the whole story of 
microfinance? Deep answers
unto deep, but from different backgrounds and directions. In the process 
skills are broadened
because we want to know why the other side, or another side, is either 
having so much fun or else
missing so much opportunity. Clients benefit.
If microfinance is where microenterprise meets “formal” finance at the 
frontier, what identifies a
microfinance practitioner or professional? I propose that the following 
“microfinance curriculum”
defines our club.
Anyone who has been involved for about five or more years (excluding 
undergraduate work)
A) be dedicated to helping the poor,
B) have dealt in some capacity with the poor face to face, preferably in 
a language spoken by the
target group, at some stage in his or her career,
C) have a good feel for the financial flows of target group households,
D) be able to identify and quantify the risks the target group face in 
their most common
occupations and from the most common external shocks, and evaluate their 
most common
responses to these risks,
E) be fully conversant with at least one lending technology,
F) understand the changes in a lender’s financial structure and 
performance over time by
comparing the lender’s balance sheet and income statement as of the end 
of different
accounting periods,
G) have a grasp of the construction of financial ratios that are 
commonly used to describe the
financial condition and performance of microlenders, and their 
H) be able to recite the target or threshold norms for such ratios for 
at least the part of the industry
or crusade to which the practitioner belongs,
I) be actively curious about technical and institutional issues beyond 
the daily concerns.
Possibilities include being able to discuss and compare i) innovations 
that have occurred or are
Page 18
Devfinance – Annexes to Quarterly Review October - December 2001
- 18 -
occurring in microfinance at the national level, regionally or globally; 
or ii) the strengths,
weaknesses, opportunities and threats (SWOT) inherent in a) different 
types of institutions as
providers (e.g., NGOs, cooperatives, commercial firms that are not 
cooperatives, government
entities); or b) different types of lending technologies (e.g. group 
based, individual, credit scoring);
or iii) the ins and outs of impact analysis.
This core curriculum is celebrated in varying proportions at Boulder, in 
Frankfurt, at the Summits
and elsewhere as posted on dfn and the usual list of other sites.
Criteria A) is required and non-negotiable. But if, say, three of the 
others are not met by
practitioners with five or more years experience, it seems to me that 
such people are oriented
toward professions or jobs other than microfinance: e.g., social work, 
community development,
advocacy or lobbying, financial management, accounting, IT, research, 
policy analysis, contract
management, grant management, philanthropy. People in these occupation 
are clearly extremely
useful in assisting microfinance practitioners. However, lacking 
sufficient familiarity with the
curriculum they are unlikely to be able to contribute very much to 
Is my outlining this microfinance curriculum an attempt to create an 
“us” and “them” dichotomy?
Absolutely, but it is also an invitation, open to anyone who wants to 
develop an integrated
perspective. This is important for young people who seek career 
development in a viable
profession, for their mentors, for MFI executives and the board members 
to whom they report. The
curriculum can affirm best practice, and standards of credibility and 
seriousness. And no one ever
For those no longer on the front lines, our club fortunately welcomes 
folks who in their journey
have traversed most of the curriculum.
Let’s move on to 2002.
J.D. Von Pischke


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: 
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 

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 

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 

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 

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 :
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 ?
Is Grameen's repayment rate (by any definition they choose) likely to be 
lower one year from now ?
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.

Letter from a friend in the USA

Date: Sat, 18 Aug 2001 01:11:34 -0400
Subject: Wall Street Journal interview request
From: "Pearl, Danny" <>
To: "Professor Muhammad Yunus" <>

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
Date: Sat, 25 Aug 2001 20:31:18 +0600
Subject: some follow-up questions
From: "Pearl, Danny" <>
To: "Professor Muhammad Yunus" <>

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" <>
To: "Pearl, Danny" <>

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 :

ii) Credit and Development Forum (CDF)

House no. 9/2, Block D
Lalmatia, Dhaka
Phone : 880-2-9132493/495
Fax : 880-2-9112340
Email :

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 

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

Michael Phillips
From: Professor Muhammad Yunus
Subject: Grameen Bank
Copy: Daniel Pearl


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.

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."

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.

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.

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.

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.

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".

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

Letter from Grameen Bank, Bangladesh
From: "Pearl, Danny" <>
To: "Professor Muhammad Yunus" <>


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

Notes to Balance Sheet
From: "Professor Muhammad Yunus" <>
To: "Pearl, Danny" <>

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.

Date: Thursday, 30 Aug 2001

RE: Notes to Balance Sheet
From: "Pearl, Danny" <>
To: "Professor Muhammad Yunus" <>

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,

Date: Thursday, August 30, 2001

From: "Professor Muhammad Yunus" <>
To: "Pearl, Danny" <>

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

Re: Acknowledgement
From: "Pearl, Danny" <>
To: "Professor Muhammad Yunus" <>

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.


Date: Sat, 01 Sep 2001 13:18:10 +0600

Answer to some follow-up questions
From: "Professor Muhammad Yunus" <>
To: "Pearl, Danny" <>

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 

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

Publication List from Grameen Bank
From: "Pearl, Danny" <>
To: "Professor Muhammad Yunus" <>

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

Re: Publication List from Grameen Bank
From: "Pearl, Danny" <>
To: "Professor Muhammad Yunus" <>


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

From: "Pearl, Danny" <>
To: "Professor Muhammad Yunus" <>

Dr. Yunus,

I received yesterday the two books you sent. Thank you,

Date: Sat, 08 Sep 2001
Subject: Letter to Daniel Pearl
From: "Professor Muhammad Yunus" <>
To: "Pearl, Danny" <>

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

"Professor Muhammad Yunus" <>
From: "Pearl, Danny" <>
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

From: "Pearl, Danny" <>
To: "Professor Muhammad Yunus" <>

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" <>
To: "Pearl, Danny" <>

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.


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