Nobel Peace Prize winner’s reputation under threat in riddle of £40m loans

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*Fariha Karim, Dhaka, and Francis Elliott, Delhi*

The Times of London

The reputation of a Nobel peace laureate, credited with helping to defeat global poverty through microcredit, hung in the balance last night after allegations that he had diverted £40 million from a bank set up to help the poor.

Muhammad Yunus, internationally fêted as banker to the world’s poor, now faces an investigation by the Norwegian Government, which donated funds to him.

It marks a further blow to the reputation of microfinance, once hailed as the most effective way to help the most needy out of poverty.

The model of extending small loans to help to stimulate entrepreneurial activity was pioneered by Dr Yunus in Bangladesh. It won him the Nobel Peace Prize in 2006.

But letters obtained by a Norwegian film-maker suggest that Oslo’s embassy in Dhaka was furious to discover that cash donated to his microfinance vehicle, Grameen Bank, for housing loans had been diverted to another company without its knowledge or permission. The arrangement, which Dr Yunus claimed had been made for tax reasons, was not mentioned in Grameen Bank’s annual report.

When his actions were challenged in formal correspondence, Dr Yunus wrote to the head of an aid agency, Norad, asking for its help.

“This allegation will create a lot of misunderstanding within the Government of Bangladesh. If the people, within and outside government, who are not supportive of Grameen get hold of this letter, we’ll face real problem[s] in Bangladesh,” he wrote.

Dr Yunus was ordered to return the money but while about £17.6 million was repaid, the rest of the funds were used for other social causes including victims of cyclones, according to the Norwegian Government.

The chain of events — which took place between 1996 and 1998 — came to light this week after the letters were aired as part of a documentary on microfinance that was shown on Norwegian television.

Although it said that there was no suggestion of tax fraud, a minister in the current Oslo administration said that it was “totally unacceptable” that aid was used for purposes other than what was intended.

A report into the matter has now been ordered by the International Development Minister after questions in the Norwegian parliament.

Dr Yunus could not be contacted for comment in Bangladesh last night and aides said that he was out of the country.

A statement released by Grameen Bank said that the claims were false and that a full explanation would be provided at the “earliest convenient time”.

The Nobel Committee stood by Dr Yunus last night, admitting that it was aware of “isolated incidents” relating to Grameen Bank when it awarded him the Peace Prize, but it does not plan to raise any further questions.

The director of the Norwegian Nobel Institute, Geir Lundestad, said: “The Norwegian Nobel Committee looked into Yunus and the Grameen Bank very thoroughly before he was awarded the Peace Prize in 2006, and we used many international and Norwegian experts to find out about the larger picture and not just the isolated incidents. On this basis he was awarded the prize for 2006 and we are not raising any questions in this context.”

He refused to clarify whether the committee was aware of allegations of financial irregularities, saying: “We have a 50-year secrecy rule. I’m not commenting on anything else.”

Erik Solheim, the Norwegian Minister of the Environment and International Development, insisted that there were no suspicions of tax fraud or corruption committed by the bank.

He added: “Having said that, the Government of Norway finds it totally unacceptable that aid is used for other purposes intended, no matter how praiseworthy the cases might be.

“In the light of an audit review in 1998, Grameen Kalyan returned 170 million kroner [£17.6 million] to Grameen Bank. The additional funds have among other projects been spent on emergency aid after a devastating cyclone hit Bangladesh.

“I will ask the Norwegian Agency for Development Co-operation for a full report into this matter. At the same time it is important to stress that we are firm believers in microfinance as a tool in the fight against poverty.”

The allegations will further fuel the controversy surrounding microfinance amid concerns that what has grown into a massive and largely unregulated industry is doing more harm than good.

The Indian state of Andhra Pradesh, the hub of small-loan activity, cracked down on microfinanciers after accusations that high interest rates and aggressive debt collectors had led to more than 30 suicides.

Report in bdnews24.com

Earlier article on Grameen Bank

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5 Responses to Nobel Peace Prize winner’s reputation under threat in riddle of £40m loans

  1. Ruhul Abdin says:

    Hopefully people will not strike while the iron is hot. Here is a man who struggled to set up a Bank that would help the poor.
    Its mistake was to go global in such a short time. I know from experience that the vision on man has is not the same as another. Keeping it grass-roots and manageable, creating teams that are fully versed in the philosophy of the Bank.

    Grameen has triggered so many positives, that people were happy to ignore the negatives. The new educated class is able to see clearly flaws that they have personal experience with or have witnessed and yet it takes a white man to state this, to be heard in the media. and surprisingly, it is Norway, the country that awarded him and the Bank the nobel peace prize. It will be interesting to hear what Yunus has to say.

  2. Nalaka Gunawardene says:

    This is indeed revealing, but the Norwegians have a track record of allowing their favourites to get away with almost anything, at least for a while. Another case in point was the massive, multi-million dollar case involving the Worldview International Foundation in Sri Lanka, which was headed by a Norwegian who siphoned off large amounts of Norwegian development aid for commercial ventures started by his non-profit foundation. The Norwegian aid agency was well aware of this, but they looked the other way until a change of government in Norway led to an audit investigation that finally stopped what had become a gravy train for a crafty few. See http://www.thesundayleader.lk/archive/20030511/spotlight.htm

  3. Pingback: IDSC Professor “Caught in the micro-net” | IDCE News Blog

  4. Carl Hahn says:

    The pictures are interesting, and the article about the Nobel Peace Prize winner.

  5. Amin Armaan says:

    Here is an interesting update on this issue:

    Report on Norwegian assistance to Grameen Bank

    Norad submitted its report today on Norwegian support to Grameen Bank in Bangladesh in the 1980s and 1990s.

    Minister of the Environment and International Development Erik Solheim requested Norad to prepare the report after the Norwegian television series “Brennpunkt” raised the question of where the Norwegian aid money had gone.

    Norad’s report shows that Grameen Bank transferred a total of NOK 608.5 million to its sister company Grameen Kalyan in 1996. Norway’s share of this amount is estimated to be approximately NOK 170 million. The Norwegian Embassy in Dhaka reacted immediately when it discovered the transfer in 1997. In the embassy’s view, the transfer was not in accordance with the agreement. The matter was raised with Grameen Bank. Following negotiations, it was agreed in May 1998 that NOK 170 million was to be transferred back from Grameen Kalyan to Grameen Bank.

    “According to the report, there is no indication that Norwegian funds have been used for unintended purposes, or that Grameen Bank has engaged in corrupt practices or embezzled funds. The matter was concluded when the agreement concerning reimbursement of the funds was entered into in May 1998 under the government in office at the time,” said Mr Solheim.

    The report will be made available in English at mfa.no as soon as possible.

    Press contact: Christian Grotnes Halvorsen, mobile tel.: +47 48 153 748

    Source: Norwegian Ministry of Foreign Affairs official website.

    or

    http://www.regjeringen.no/en/dep/ud/press/news/2010/report_grameen.html?id=627366

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