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Letter from a friend in the
USA on WSJ Report


Q & A with WSJ Reporter- Part-I

Q & A with WSJ Reporter- Part-II

E-mail to Mark Philip, WSJ Reporter

Op-ed:Terrorism can be won only by love not by war, Pablished in the Yomiuri, Tokyo, Japan on 5th October, 2001

Professor Yunus's Letter to the WSJ Editor Published on
Dec 12, 2001


Annual Report 2000

Back
?

Response to the Wall Street Journal Article

?

Grameen Bank, Micro-Credit and
the Wall Street Journal

?

Muhammad


For the past several months I was being forewarned by my friends in the USA that the Wall Street Journal (WSJ) is "going to get you" -- they are coming up with a damaging report on Grameen Bank. WSJ's Asian bureau chief Daniel Pearl came to see me briefly at my office in August, on the day he was leaving Bangladesh. Later he sent me questions by e-mail. I answered. (Please visit our web-site: www.grameen.com/wallstreetjournal
/ to see the Q & A.) Finally, on November 27, the report appeared, and, as forewarned , it was damaging to Grameen.

A Story Which WSJ Missed
The WSJ missed an opportunity to deliver some good news to the world at a time when we are so hungry for it. Appropriate story and the headline could have been : "Grameen Bank Overcoming Repayment Snag : Proves Credit for the Poor Sustainable Under Difficult Conditions". That's what it really is. Grameen's problem loans have declined over the past sixteen months by 50 per cent. Trend shows that the repayment rate will reach 95 per cent within the next six months. We expect that by December, 2002 repayment rate will reach 98 per cent. Instead, the WSJ chose to present a snap shot to the world, ignoring the positive trend, to show that the repayment rate at the time of writing the report was 90 per cent, instead of 95 per cent, and built the major thrust of the story around it.

I felt very happy that the WSJ endorsed micro-credit as a "great idea". It indeed is. It is a very effective instrument to empower the poor, particularly the poor women, in all cultures and economies of the world. It is cost-effective, sustainable and works in a business-way. It gives a poor person a chance to take destiny in his/her own hands and get out of poverty with his/her own efforts. The world, which has committed itself to reduce the number of poor people by half by 2015, will find micro-credit a powerful tool in its tool box.

The WSJ article points out that Grameen Bank (a) is not as good as it claims. It conceals its repayment rate to make it look good, (b) Grameen's accounting system, the procedure for determining the overdues, and making provisions for them does not follow industry standard, (c) And predicts that Grameen's future will be worse because of it is "delaying inevitable defaults and hiding problem loans".

Whatever accounting system, procedures and definitions we have today, we had them with us for the last twenty-five years. Grameen is probably the most researched institution in the world. Books have been written on those research findings, students got their Ph.D.'s around the world doing their research on Grameen, the World Bank conducted a multi-year multi-million dollar research project on Grameen, thousands of experts visited Grameen poring over our books --- nobody headed for the alarm on Grameen's system, procedures and definitions. Many expressed their discomfort, dissatisfaction, unhappiness that we do not follow the "industry standard" --- but did not think our system and procedure had any fault. We always argued that as long as we are generating all the information to produce every single table, index or ratio familiar in the conventional banking world anybody can translate our information into their information. We do what we need to do. It works fine with us.

Conventional banks do not lend money to the poor because they do not consider them creditworthy. We demonstrated that there is nothing wrong with the poor. Bank rules procedures and concepts are at fault. We created a bank based on completely new set of premises and procedures. Unlike conventional banks, this bank is based on trust. We have no legal instruments between lender and the borrower. Grameen is owned by the borrowers. Nine elected representatives of the borrowers make up the board of Grameen, besides three top government officials (usually from the finance ministry) and the CEO. The board was chaired by the finance secretary to the Government of Bangladesh from 1991 to 1996, and succeeded by Professor Rehman Sobhan, an internationally reputed economist, who is still the chairman.

A Counter-Culture
Grameen had to create a banking counter-culture of its own. Grameen's central focus is to help poor borrower move out of poverty, not making money. Making profit is always recognised as a necessary condition of success to show that we are covering costs. Volume of profit is not important in Grameen in money-making sense, but important as an indicator of efficiency. We would like to make more profit so that we can reduce interest rate --- and pass on the benefits to the borrowers. In Grameen system when a borrower cannot pay back we try to activate our system to help her overcome her problems, rather than go in a punishing mode.

We consider credit as a human right. We built our system on the faith that the poor always pay back. Some times they take longer than the originally scheduled time period, sometimes natural disasters like flood, drought, cyclone, etc and political unrest, rules and procedures of the bank, make it difficult or impossible to pay back; but given the opportunity they pay back. Non-repayment is not a problem created by the borrowers, it is created by factors external to them.

We have always carefully avoided the practices of the conventional banks to make sure we do not fall into the same logical loop which kept the poor out from financial institutions. Grameen had to create new systems to balance financial and human considerations. For example, it presents loan information separately for women and men, lists meticulously every single business of the borrowers in its annual report, and recognizes that a house is not just a house, but a workplace for the poor women, something that is categorised as a 'consumption' loan by the conventional banks is actually a 'production' loan for the poor. Grameen is a system based on human-relationships, not on threats of penalty imposed by legal system or any other agency. Grameen required new style of business, new banking culture of its own.

Sometimes people who are used to conventional banking become suspicious of Grameen because it is different. It is a conflict of two different banking cultures. Just because they do not understand us, they think we are wrong. When they spend some time with us with patience they start enjoying the exciting world of Grameen banking.

Grameen is owned by 2.4 million borrower, 95 per cent of them women. It is almost like a co-op. It is a closed club. Borrowers save, they borrow. Over the last 25 years they took cumulative total loans of Tk 151.88 billion ($ 3.5 billion) and repaid Tk 139.17 billion ($ 3.2 billion). The present outstanding amount is Tk 12.71 billion. When we "worry" about repayment problems, we are "worrying" about the borrowers who already paid back collectively $ 3.2 billion ! The WSJ looks at the dollar figures and gets worried. We look at our hardworking struggling poor women who already demonstrated their capability to repay their loans many times over. We have good reasons to feel confident. Today 85 per cent of the 2.4 million borrowers are paying back their loans with clockwork precision. Only 15 per cent of them are having difficulties in paying back --- that situation was created by our standardised procedures. Borrowers are also depositors. they have a total of Tk 6.5 billion as balance in their savings account. Fifteen per cent of the borrowers who are having temporary difficulties in paying back their loans also have their balance in their savings accounts.

Grameen has stopped accepting new donor money for its operation since 1995. It has borrowed Tk 3.0 billion ($ 60 million) locally to give fresh loans during the devastating flood of 1998. This amount will be fully repaid in May, 2002, without requiring Grameen to borrow again to replace it. Now Grameen generates enough savings, mostly from its borrowers, to repay its loans and finance its future growth. Because of steady flow of deposits, Grameen does not see any need to borrow in future. It has always paid back its domestic and international loans exactly on the dot. It will continue to do so in future.

Repayment Problem
Repayment problem was born because of our standard methodology applied in a national disaster situation, not because of the borrowers reluctance to pay back. It always amazes me how sincere the poor are in paying back their loans. If a bank staff meets a defaulting borrower, who has discontinued her contact with the bank for a period of several years, and reminds her about the outstanding loan, she never says "Forget it", or "Who Cares". She always says: "I am sorry I could not pay back. I'll like to do that as soon as I can". Given an opportunity she always does that.

We created the repayment problem in two ways. First immediately after devastating flood of 1998 (half of the country was under flood water for ten weeks, water flowed over the roof-tops) we disbursed fresh loans without requiring the borrowers to pay back the existing loans. We explained to them that they do not have to worry about the existing loans, this will be converted into a long-term loan. New loans will be their current loan. But we did not change the status of the previous loans in our books. Our internal reasoning was that this will make monitoring more easy, even though repayment rate will show a decline. We'll always understand why the decline took place. But in reality repayment problem did not remain as an accounting phenomenon, it became a real phenomenon --- some borrowers found the loan burden too heavy and discontinued paying their installments.

The WSJ says we forgave the previous loans during the flood. This is not correct. Grameen never forgives loans. Bulk of the amount we are now describing as overdue loans are these previous loans.

New Generalised Grameen System
Gradually we started noticing that our rules were not appropriate for the borrowers in this situation. We took a long preparation to develop a new flexible system and field-tested it over months. We finally introduced the new system in September of 2000. It is a simplified and generalised Grameen system. This can work equally well both in normal and disaster situations. It allows the enterprising borrowers to move ahead faster. Everybody fell in love with it. Borrowers loved it, staff loved it --- because it is so simple, it can offer tailor-made loans rather than previous single-size-fits-all type of all loans. Good news for the WSJ, the questions they raised about provisioning, defining overdue, repayment rate etc have become irrelevant in the context of Grameen's new generalised system.

New system, basically has two types of loans --- (a) Basic loan, and (b) Flexible loan. A borrower can take a basic loan for any income-generating purpose. It can be of any duration mutually agreed between the bank and the borrower, unlike the old system where all loans were for one year. Basic loans can be for 3 months or 6 months, or for 2 years or 3 years. Unlike the old system, now amounts of weekly repayments can be varied during the loan period, according to the pre-negotiated amounts documented in an agreed repayment schedule.

Borrower has to pass through a very strict six-monthly loan quality check-point. If a borrower fails to pay the total amount she is supposed to pay, according to the repayment schedule, during the past six-months, she is classified as a defaulter. Now the entire unrepaid amount, even if it is the first six months of a 3 year loan, becomes overdue. Hundred per cent provision will be made for all overdue loans, unless it is converted into a "flexible loan".

If a defaulter wants to continue to repay her overdue loans she can do it by converting the overdue amount into a flexible loan. Flexible loan is actually a rescheduled loan. She can negotiate her repayment schedule. Fifty per cent provisioning will be made for the outstanding amount under the flexible loan, even if her repayment rate is 100 per cent.

If a borrower fails to repay the flexible loan according to the schedule, the loan becomes overdue, and hundred per cent provisioning will be made for the overdue loan. The borrower will again have the option to renegotiate the loan and convert it into a flexible loan.

Fifty-five per cent of borrowers of Grameen have already moved from the old system of multiple loans to generalised single loan system. Now it has become easy to check the quality of the loans; basic loans mean loans having hundred per cent repayment, flexible loans mean loans at risk. Year 2002 will be the year of completion of the transition process from the old system to the new system. By the time this transition process will be completed our guess is 85 per cent of the borrowers will be on basic loans and 15 per cent on flexible loans, aggregate repayment rate will be 98 per cent and above. In the new system the repayment rate is determined by the ratio between what was the weekly installment the borrower agreed to pay on a particular week according to the repayment schedule, and what is the amount she actually paid. It would no longer be determined under the old method. We'll not have any misunderstanding left on this issue.

Fifty-one per cent of our 1170 branches now have switched to computerised book-keeping and MIS. We hope to have 85 per cent of our branches come into computerised book-keeping and MIS by the end of 2002. This makes it easier for the generalised Grameen system to offer all its attractive features for the benefit of the borrowers.

New system has brought another excitement and inter-branch competition in Grameen. This system has introduced a grading system for branches. This grading system awards colour-coded "Stars" to indicate the quality of performance of a branch. If a branch (typically 2,500 borrowers) has 100 per cent repayment record for two consecutive years it is awarded a green star. If the repayment falls below it during any two successive years, the star is lost. A branch can similarly earn stars for earning profit (blue star), for carrying out its entire loan programme with its own deposits, even generating surplus of deposits for the use of other branches (violet star), by making sure that hundred per cent of the children of Grameen families are in school or have graduated from primary school (brown star), by making sure that all the borrowers in the branch have crossed over the poverty line, certified through an evaluation of each family with a rigourous ten-point test of Grameen (red star). Branch staff can actually wear the stars as a badge of honour and display their stars in the branch stationery to show their achievement.

Now there are 388 branches with one star or more. There are 10 branches with 4 stars. No five star branch yet. We are expecting that by the end of next year branches with atleast one star will increase to 550, that is nearly one-half of all branches. We hope to find atleast one branch with 5 stars. Someday we hope all our branches will be five star branches. That's our mission --- to make all our branches five star branches. Our 12,000 staff work very hard to make that dream come true.

Central Bank Supervision
We can raise our repayment rate to 100 per cent instantaneously by a simple decision to write off all our overdue loans. We have more money in our loan-loss reserve (Tk 3.8 billion) than the present overdue loans. But we chose not to go that way, we want to do it the harder way --- by improving the repayment situation and recover the overdue amount. We do not want to abandon our borrowers/owners by disqualifying them to remain within the Grameen fold. We want them to change their life with Grameen, by solving their problems with Grameen. We don't want to push them away with their problems. We never think of walking away from them. If they don't succeed, there is no reason for us to exist.

The WSJ gives the impression that Grameen makes less than required loan-loss provisioning. Industry standard in Bangladesh is set by the central bank of Bangladesh. We make more generous loan-loss provisioning than the central bank wants us to do. Central bank of Bangladesh has the responsibility of audit and inspection over us. They check our books carefully. We have never heard any complaint from them about our provisioning criteria.

Factual Error
WSJ says PKSF was set up in 1991 "to distribute foreign funds to other Bangladesh micro-lenders". WSJ could not be more wrong. You give a bad name to another reputed world-class organization. PKSF was set up to resist donor money. It started out by stubbornly refusing donor money which was put at its doors. PKSF did that not because it did not need money, it did that because it did not want the dependency that comes with receiving the donor money. PKSF started out with 100 per cent Bangladesh government money. It developed its own organizational and operational style. It established its own credibility as a sound financial organization. When it knew exactly what it wants, how it wants, firmly set up the standard for its programme, only then it opened its doors for the donor money at its own terms. Now international donors come to give money to PKSF. But since PKSF knows how much money it needs, and for what, most of the time PKSF is saying, "No, thank you" to the donors.

Concealing Information
Grameen always tried to remain as transparent as an organization can be. It started to distribute widely its monthly statement containing all basic information about its operation from February, 1980, nearly twenty-two years back, when it was not even a bank yet. It contained all information about disbursement, repayment, borrower numbers etc. all disaggregated by gender, and by region. It never failed to produce it and distribute it globally every single month for the last 262 months ! Among the many universities, donors, and libraries who receive this monthly statement US Library of Congress is one. One may not like our information format, but nobody can complain that we do not share our information. Web-site never became part of our management system. It was the product of IT enthusiasts in the bank. It remained unattended, and unupdated. Sorry that it carried wrong information on our repayment rate. Your reporter collected samples of old monthly statements beginning from the very first one in 1980 and quoted from the most-recent monthly statement, but did not mention its existence in the report.

We publish our Annual Report every year. This contains, besides many other interesting economic, financial, and social information, balance sheet, profit and loss accounts, and cash flow statement for the year, audited by two top audit firms of the country, firms which are affiliated with international audit firms. Nobody ever complained that these reports lacked anything by way of disclosure.

Safety of Depositors' money
Ninety per cent of Grameen deposits come from the borrowers. They borrow several times more money from Grameen than the money they put in their accounts. So the safety of their deposits is automatically guaranteed. Again, they are the owners of the bank too.

A Proposal for WSJ
Grameen has just reached its twenty-fifth birthday. It has been a long way to get here. It is the only bank in the world owned by poor women. We did not expect the most highly respected financial daily of the world would rush to negative conclusions about us without giving us a fair hearing.

I have a proposal for the WSJ. I propose that the WSJ send two top financial reporters (atleast one woman) to Grameen for two weeks or more to find answers to the following questions :

? a)
Will Grameen have more overdue loans (by any definition they choose) one year from now than it is today ? Will there be increase in non-performing loans ?
? b)
Is Grameen's repayment rate (by any definition they choose) likely to be lower one year from now ?
? c)
Do they find Grameen's reporting system transparent and adequate ?

You owe this to Grameen, to its owners, to the large network of committed social entrepreneurs who follow Grameen in their work, as well as to the millions of poor women and their families around the world who would have benefited from micro-loans if you had not put a cloud over Grameen and confused the policy-makers in a year when world leaders will be frantically looking for solutions to massive global poverty.

I hope you'll find my proposal very reasonable.



E-mail Q & A between the Wall Street Journal Asia Bureau Chief Mr. Daniel Pearl and Dr. Yunus during August - October, 2001 in the process of preparing for the WSJ report published on November 27, 2001.



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"

Dr. Yunus,

Hello, I'm the South Asia correspondent for the Wall Street Journal. I'm currently in Dhaka, and am working on an article on Grameen Bank, and how it is responding to current market conditions in micro-lending in Bangladesh. I met Mr. Haq on Tuesday, and left a message seeking a meeting with you. Yesterday I received a message from Mustafa Kamal, but the two numbers he left seem to be fax machines. Anyhow, I would very much like to get a few minutes with you if possible; my wife (also a journalist) and I are scheduled to depart Dhaka on a 5 p.m. flight Sunday, and I wasn't able to reschedule the flight. So I'm hoping you'll get this message soon and that we can meet earlier in the day Sunday. We're at the Sonargaon Hotel room 523. Also reachable by Bombay mobile phone as below.

Thanks and regards,

Daniel Pearl
South Asia Bureau Chief
The Wall Street Journal.
Sanskriti Building, 8 Dongarsi Road
Malabar Hill, Mumbai (Bombay) 400 006
India
+91-22-367-5712(office)
+91-22-367-5727(fax)
+91-98213-39741(mobile)


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

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"
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 : [email protected]
?
? ? ?

ii) Credit and Development Forum (CDF)

?

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

?
? ? ?

I am sending our data to you. I am sending a table showing repayment rates each year from the start of the bank to this date, and a graph showing repayment rates for the recent years. Considering the interest in our repayment information I have decided to put this graph and the table on our web-site. Now this information will be available to more people than the people on the mailing list of our Statement Number One. I have already sent you by fax the Statement No. 1, for the last three months. We monitor borrowers who could not repay the due amounts at 25 weeks, 38 weeks, 53 weeks, 104 weeks.


On July 1, 2001 17, 856 borrowers failed to pay the exact due amount at 25 weeks. Amount of under-payment was Tk. 30 million. 26, 193 borrower could not pay the full amount at 38 weeks. Amount of under-payment was Tk 62 million. Information on 52 weeks and 104 weeks are available in the Statement Number One.


2.0 I don't think "old age" or "too big an organization" are problems in micro-credit. Each are may be more of an advantage, than a drag. "Old age" gives you more experienced borrowers and staff. You have already weathered many problems and adjusted your system to handle crises. Most likely you have a strong financial base; you have gone over the hump and making profits.


"Large size" is also not a problem if your system is in place to handle large number of staff. Grameen Bank has over 12,000 staff. It has very attractive salary package and pension plan. A Grameen staff can retire after putting in 10 years of service, and can get half the pension money in cash. More than 3,000 Grameen staff have already taken early retirement. We have paid them Tk 15.0 billion in cash as pension benefits.


3.0 There may be advantage for new-comers in maintaining high repayment rate, because they have not accumulated problem loans yet. It takes time to accumulate problems. If you are "old" and still doing well, you have learnt the business. Everything depends on how prompt the organization is in addressing problems. It is just like management any where else.


4.0 "Grameen Bank" has not gotten involved in many enterprises. There are many enterprises with a common name of "Grameen". But Grameen Bank is not involved in them in management or financing. Actually creating some of these new organizations has helped Grameen Bank to concentrate on its own exclusive task of banking. Many of these companies were hidden inside Grameen Bank as its projects. Grameen Fund, Grameen Enterprise (Uddog), Grameen Kalyan, Grameen Fisheries Foundation, Grameen Agricultural Foundation were all spin off companies from Grameen Bank ! They were born as "projects" of Grameen Bank. Each Grameen company is totally independent of Grameen Bank in its management and policies. Some of the companies provide services to Grameen Bank borrowers. Grameen Phone is a great source of creating roaring telecommunication business for telephone ladies of Grameen Bank. It has taken the business of Grameen Bank to a new hight. Grameen Business Promotion Company is actually totally dedicated to give guarantee to micro-enterprise loans to successful Grameen borrowers. Success of Grameen Business Promotion Company leads to the success of Grameen borrowers, and as such, GB.

Grameen Information Technology (IT) companies will play a vital role in bringing IT related services to Grameen borrowers. Ultimately Grameen companies will be owned by Grameen borrowers through purchase of their shares through Grameen Mutual Fund. Grameen companies are rather a big help to GB than a burden. There is no question of these being burden because GB has no financial and management responsibility of these companies.


5.0 Yes, I still insist that it isn't "Grameen" if the repayment rate is not over 95 per cent. If you are providing credit to the poor you are under constant pressure to compromise your quality. World is used to offering charity to the poor. When they see that you want your money back, they urge you to go easy on them. That is a mistake. We insist that in credit for the poor the best thing you can do for the poor is to be serious about your business. During the flood of 1998 we were under constant pressure from outside the bank to forgive loans. We stood our ground. We did not write off a penny. We borrowed some Tk 40 billion to give fresh loans on top of the existing loans, to help them overcome the disaster. It worked. When we say "it isn't Grameen if you do not have a repayment record of over 95 per cent" we simply emphasize that you must take this business very seriously.

6.0 Overlapping. When you came to see me, you talked about the "overlapping" problem. You seemed to be worried about this problem. I don't know if I could put you at ease on this issue. My position is ---- it is an interesting development, but it is by no means a problem. This is arising because of clustering of programmes. There are favourite spots for NGO's. Every NGO wants to work in those areas. So they create "overlapping problem". But this problem luckily has built-in self-correcting features. Borrowers do not suffer from this problem. They gain from it. It is the MFI's who suffer. So, some of them, who suffer the most, have to relocate themselves. There are many areas where nobody is working. Now MFI's will look for those areas. Overlap forces MFI's to improve the quality of their work. That's what makes me feel happy about this problem. All said and done, it is a minor issue. Not even 5 per cent of all borrowers are involved in multiple sources for their loans ! In some location it may be high, but over-all it is not worth worrying about.



Date: August 26, 2001
To:

Michael Phillips

From: Professor Muhammad
Subject: Grameen Bank
Copy: Daniel Pearl

?

1.0

Grameen Bank defines the amount remaining unrepaid beyond two years as the amount overdue and defines repayment rate as the overdue, amount divided by amount outstanding. The repayment rate remained above 95 per cent until 1996. It declined to 93 per cent in 1997 and moved to 94 per cent in 1998. In 1999 it declined to 91 and to 89 in 2000. In 2001 it moved to 90.

We always considered this decline below 95 per cent as a temporary fall, basically caused by the devastating flood of 1998. Our borrowers lost their assets and working capital during that flood. We gave them fresh loans, without recovering, and without rescheduling, the previous loans. Obviously, as the old loans became due in 1999, it started showing up as overdue loans. We understood that this was because of our accounting treatment rather than any inherent problem with the bank. But loan burden continued to remain heavy on the borrowers. Ultimately we decided to reschedule the loans since 2000 to make it easy for the borrowers to pay back. It produced result. Repayment flow started becoming regular. Now we stipulate that the rescheduled loans will be repaid in two years from now.

2.0

Newspapers and media continued to mention that Grameen's repayment as over 95 (or 98) per cent by way of description of Grameen Bank as an institution, not as a piece of recent information. We never supplied any information to mislead them to use such figures. Whenever I am asked about the repayment I usually say : "It is now down to 88-89 per cent. Normally our repayment rate is 95 per cent and above."

3.0

Somebody today mentioned to me that our web-site says that our repayment rate is "95 and more". This was put on the web-site in 1996. We did not update this opening page of the web-site since 1996. I got embarrassed that we did not notice the mistake. We do not visit our own web-site ! This information may be creating wrong impression about us. This is part of our inefficiency, rather than deliberate attempt to mislead people. We could have said "normally it is 95 per cent and above." Today I have instructed our staff to put a note on that opening page of the web-site to say that the statistical information given on that page is valid only upto 1996.

4.0

We publish our basic information every month in a bulletin known as "Statement Number One". We have been publishing it for the last 258 months (21.5 years !) without fail. In that bulletin we give the percentage of loan remaining "overdue" (i.e. unrepaid beyond 104 weeks) zone by zone. We also give the percentage of loan remaining unrepaid beyond 52 weeks, so that anybody can check out our repayment status after one year. Mailing list for this bulletin includes US Library of Congress, US-AID, World Bank, IMF, many universities around the world and within Bangladesh, UNICEF, Indian Institute of Management, among many others. Our information is so well-publicised each month on a routine basis we never felt anybody could misunderstand us.

5.0

Now I think I should say something about our way of doing things. I always take the position that "Grameen banking" and conventional banking is like European football versus American football. Both are football games --- but they are played by entirely different rules. You cannot judge one, with the understanding of the other.

6.0

Banking for the poor, called "Grameen banking", did not exist. We created it. That means that we made up our own rules. We still keep making up our rules. We improve on the rules which do not work for our purpose, or create problems for us. We add new rules. We elaborate our existing rules. We try to make them logically and financially consistent. I hope we succeed.

7.0

In the back of our mind we always keep it as a faith that the poor people are creditworthy. We do not need collateral to do business with them. They always pay back --- some times they may take longer time than the rules governing loans permit them. But in the end they pay back. "People" are not like "businesses" --- they (people) do not go down and disappear from the screen without paying the loans. When our borrowers have difficulties Grameen banking is there to help them out and make it a success with their loans. We take this as our "mission".

8.0

Grameen banking is not based on the support from the legal system. We never go to the court. There is no legal instrument between the borrower and the lender in Grameen banking. So the word "defaulter" has no legal significance in Grameen banking. That is a legalistic word. We always avoided the word because it is "insulting" to people. If somebody cannot pay, we would describe her as someone who is in difficulty to pay back. They simply needed more time, more support.

9.0

We laid down our basic lending policy in the following way :
We put a time-line (i.e. 104 weeks) to our loans for accounting and monitoring purpose, and also to help the borrowers to make up their time-budget within their business plans. Although the loans are for two years (104 weeks), borrowers are required to pay them back within one year in weekly installments. If they cannot pay back within one year, we do not consider that they have "violated" any contract.

If a borrower cannot complete total payment of the entire loan, including interest, in 52 weeks, staff of the bank and the "borrower's group" pay special attention to the person. If she cannot pay back in 104 weeks, the bank makes 100% bad debt provision for the amount as a part of financial prudence. If she paid Tk. 90 in 104 weeks against a loan of Tk. 100, we say her repayment rate is 90 per cent.

This does not mean that she is not going to pay the remaining Tk. 10. This does not trigger any procedure to take her to the court for non-repayment. Grameen banking has no room for such a procedure.

10.0

We are computerised. Nearly half of our branches (560 branches out of 1190) do their accounting & MIS through computers. By the end of next year 75 per cent of branches will come under computerised accounting and MIS system. Every bit of daily transactions is available in the computer. We keep record of amount due on any given day for every single borrower, and we record the amount actually paid on each day by each borrower of Grameen Bank. We calculate repayment status on the basis of the ratio between amount due and amount actually paid by each borrower.

11.0

30 day & risk (!!)
Grameen banking does not use this 30-day rule. I have never heard of such a system of assessing portfolio at risk in the conventional banks in Bangladesh. (Danny, do you see it in Indian banks ?) Although Grameen banking emphasizes the value of the discipline of regular weekly repayment, it considers remaining absent in the weekly meeting as more serious breach of discipline than missing a weekly installment.

12.0

Grameen banking is made up of banking elements and social elements. Group formation, centres weekly meetings, weekly installments, election of group chairman, secretary, centre chief etc., sixteen decisions, building centre house, generating group savings, disaster savings, etc are social dimensions of Grameen banking. Repaying loans in two years is the banking dimension of Grameen banking.

If you look at Grameen Bank (GB) with your banking glasses on, all you'll see whether borrowers are paying back their loans with 20 per cent interest within two years. Rest of Grameen Bank will disappear.

13.0

GB has a very generous bad debt provisioning arrangements. GB has a total bad debt reserve of Tk. 3.3 billion. Amount of loan overdue (above two years) is Tk. 1.2 billion.

14.0

My guess is, with the facilitating system that has been put in operation now, 90 per cent of the unrepaid loan amount beyond one year, will be repaid by the borrowers by the end of next year. 79 per cent of Grameen Bank borrowers repay their loans on the dot. Their repayment record is 100 per cent. Only 21 per cent of borrowers have difficulties.

15.0

Grameen banking has a rule --- if a borrower takes a very very long time to pay back her loan, total interest due to her will never exceed the principal amount she borrowed. I don't think conventional banks will like such a rule.

16.0

We never forget that the borrowers of Grameen Bank are also 93 per cent owners of the bank. In the Grameen banking system there is no punishment mode, there is only helping mode.

17.0

Grameen banking requires that when a borrower dies, the branch manager must take an active role in organising her funeral and attend the religious ceremony for burial at her village along with her relatives.

18.0

GB provides scholarships to the students of Grameen families. All students coming from Grameen families in the institutions of higher learning can receive 100% financing of their education, as education loans, from GB. Nobody is refused an educational loan.


Date: Mon, 27 Aug 2001 07:54:18 -0400
Subject:

Letter from Grameen Bank, Bangladesh

From: "Pearl, Danny"
To: "Professor Muhammad"

Hello,

thanks for the faxes - I got the first batch, and my colleague just confirmed that the remaining pages arrived too. I also received your emails, which look quite useful. I'll look over everything carefully and will probably send some follow-up questions tomorrow or Wednesday. Thanks again, and my apologies for all the transmission trouble.

Danny Pearl


Date: Wednesday, August 29 2001
Subject:

Notes to Balance Sheet

From: "Professor Muhammad"
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.

Yunus


Date: Thursday, 30 Aug 2001
Subject:

RE: Notes to Balance Sheet

From: "Pearl, Danny"
To: "Professor Muhammad"

Prof. Yunus,

Thanks for your note. I have received

- several recent monthly reports
- your note to Mike
- the Balance Sheet 2000 and Profit and Loss Statement

but not the Notes to the Accounts. If they're available, they'd probably answer at least one of my questions (on the reserve against one-year delinquent loans for 2000).

Two other questions (sorry):
- Does Grameen have a statistic for what percentage of its borrowers have more than one loan outstanding?
- A study by Khalily, Imam and Khan found Grameen's 1997 subsidy was 1.2 billion taka. Does that sound right, and how much would that have changed since 1997?

Thanks again,

Danny


Date: Thursday, August 30, 2001
Subject:

Acknowledgement

From: "Professor Muhammad"
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
Subject:

Re: Acknowledgement

From: "Pearl, Danny"
To: "Professor Muhammad"

Hello, I know the first fax arrived, but I haven't been able to reach my colleage this evening to ask about the second. I'm hoping to see both of them by end of the day. Will confirm later.

Thanks,

Danny


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

Answer to some follow-up questions

From: "Professor Muhammad"
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 miscommunications.

Thanks for the hard work you are putting in for the story.

Best wishes.

Sincerely yours,
Muhammad

Attachment: Q & A Part-I


Date: Sunday, September 02, 2001
Subject:

Publication List from Grameen Bank

From: "Pearl, Danny"
To: "Professor Muhammad"

Prof. Yunus,

I will be travelling in remote parts of India for a few days, so I would appreciate if you could cc your responses to Mike Phillips on the above email address.

Thank you,

Danny Pearl


Date: Monday, September 03, 2001
Subject:

Re: Publication List from Grameen Bank

From: "Pearl, Danny"
To: "Professor Muhammad"

Hello,

Thank you for sending the publications. I notice these publications all have prices. I don't think we journalists deserve any special favors, so I'm mailing you a check for the following:

Annual reports 1996, 1997, 1998 - $34
Women at Center - $15
Grameen Bank as I see it - $10
Fedex (this is a guess) - $30
--------------------------------------
total: $89

Please let me know if there is any change necessary for the bill, otherwise I'll mail the check tomorrow. The invoice can be mailed to the address below.

Thanks and regards,

Daniel Pearl
South Asia Bureau Chief
The Wall Street Journal.


Date: Wed, 5 Sep 2001 22:16:03 -0400
Subject:

Acknowledgement

From: "Pearl, Danny"
To: "Professor Muhammad"

Dr. Yunus,

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

Danny


Date: Sat, 08 Sep 2001
Subject: Letter to Daniel Pearl
From: "Professor Muhammad"
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

Attachment: Q & A Part-II


To:

"Professor Muhammad"

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
Subject:

follow-up

From: "Pearl, Danny"
To: "Professor Muhammad"

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"
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.

Yunus

Attachment: Op-Ed on Terrorism, Pablished in the Yomiuri, Tokyo, Japan on 5th October, 2001


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Graphs & Tables

Repayment Rates: Graph

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Borrowing from Banks & others
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Repayment Rates:
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