Which way will SHG Vote Swing?: Battle for Tamil Nadu

In 1994, Chandra Babu Naidu of the Telegu Desam was quick to grasp the huge potential of SHGs to swing tightly fought electoral contests. He then supported the anti-arrack (local liquor) agitation that was spearheaded by Self-Help Group (SHG)s and rode the accompanying wave that catapulted him as Chief Minister of the state for two terms. When he betrayed SHGs by removing prohibition and encouraging for-profit micro-finance agencies like SKS; SHARE; BASIX, SPANDANA etc who exploited the poor; SHGs turned against Naidu, one of the major reasons why he was booted out of office unceremoniously. 

That's the power of SHGs.  From then on, SHGs had been increasingly targeted as a vote bank in many parts of the country. However, they rarely behave as a single vote bank as these are basically disparate groups, showing large variations in their demographic and socio-economic profiles, particularly caste electoral behaviour.

At least 1/6th voters in Tamil Nadu are members of Self-Help Groups (SHGs). There are an estimated 500,000 to 800,000 SHGs within the state with each unit having a membership of 20. Collectively, they comprise half of Tamil Nadu's roughly 30-40 million of the state's total electorate. It is not merely the strength of the membership alone that makes SHGs a significant constituency which no politician can ignore. Research studies indicate that each SHG member could influence the voting pattern of at least 3 other non-SHG members.

Little wonder that the two main alliances in the state are bending backwards to woo SHGs. The DMK alliance promised each member of a SHG Rs 5,000-10,000 as a grant. Its rival, the AIADMK promised Rs 1 million to each SHG, three fourth as loans at soft interest rates and the remainder as a subsidy. 

So how will SHGs vote in the current Tamil Nadu Assembly Elections? 

 We have great pleasure to bring you an opinion poll conducted by Bhakther Solomon,   development practitioner-consultant, Chennai. Bhakther has nearly 40 years of experience within the NGO sector and have previously worked with international agencies such as ActionAid. His organization DPG has a fairly large network of micro-credit SHGs, spread over Tamil Nadu, Karnataka and Andhra Pradesh.

An economist by academic qualifications, Bhakther was magnetically drawn into the science of psephology twenty-five years ago just as several other economists including Pranab Roy of NDTV, the master psephologist in the country. Bhakther's opinion polls have been frequently published in leading newspapers such as Times of India; Kannada Prabha; Dinamalar, The Hindu etc since 1989.

In Tamil Nadu, where two alliances DMK and AIADMK usually alternatively come to power, Bhakther’s surveys have always captured the main change trend and often hit the bulls-eye in terms of both vote and seat shares. In Karnataka, Bhakther’s opinion polls hit the bulls-eye repeatedly and had been among the handful of polls that captured the rise of the BJP to power in the state.

SHGs positive tilt towards a particular alliance has a high likelihood to place that alliance in the lead over its rival. The fieldwork for Bhakther's opinion polls among SHG members was undertaken mid-March. It suggests that DMK holds a healthy edge over its rival AIADMK. But as much as 20% are still undecided and as 13th April, voting day approaches, this category will very quickly dwindle in numbers as people make up their minds. It is really for this 20% undecided category, the rival political alliances are pulling out all stops to woo.

For more details on one of its kind opinion poll, read here:

Courtesy: Exit Opinion Poll India 

India's Central Bank finally give a loud unambigous policy signal: MFIs will not die, only need to be castrated.

Wednesday was a red letter for micro-finance industry. In the morning the Reserve Bank of India (RBI) announced the extension of the Special Regulatory Asset Classification (SRAC) benefit to Micro-lenders till March 31. 

Though a one-off exception, this step allowed a special relaxation in debt restructuring norms for MFIs. This provided the sector a much needed respite, who otherwise were on the verge of bankruptcy. 

The RBI step was in a bid to avoid a serious repayment crisis in the micro finance institutions (MFI) sector following the Andhra Pradesh Government’s restrictions on their activities due to suicides by their borrowers. Under these new norms, banks would be allowed to treat the advances to MFIs as good assets even if such loans are not fully secured. Banks will thus be able to restructure loans provided to the MFIs without much difficulty.

The SKS share that was languishing at Rs 650 levels spurted to an intra-day high of Rs 690.60 but lost most of the gains to close Rs 668.55. Bulls sobered their celebration when they learnt about the RBI caveat - MFIs has to agree to reduce their leverage and growth projections!

The same evening saw the release of the long-awaited Malegam report on microfinance companies. This is a Reserve Bank of India’s committee on microfinance institutions (MFIs) that was constituted in October last year to examine issues of high interest rates, coercive recovery process and multiple lending practices by some MFIs. The committee was headed by YH Malegam. 

Bull operators this morning engineered a huge spurt in SKS share price, triggering the 10% upward circuit breaker. The share hit an intra-day high of Rs 757, advancing 13% over the previous day's close, after touching an intra-day low of Rs 651.10, showing high volatility. SKS whose daily market width thinned to around 50,000 spurted to a whooping 4.1 million. 

 

The surge in the share was helped by SKS CFO, Dilli Raj giving live interviews on opening bell to financial news channels like CNBC welcoming the report. "The Malegam report brings structural clarity to the industry. Also, clarity on funding arrangement with the banking sector is a big positive. Interest rate capped at 24% doesn’t affect SKS in any significant way," he pointed out. He further added that the report clearly captures that the Reserve Bank is comfortable with lending to MFIs. And, he sees no regulatory gap in the microfinance industry now and said the new guidelines suggested on functional aspects are welcome. 

Vijay Mahajan, Founder, BASIX and Chairman, MFIN too said, "The Malegam committee report is a very good step forward to the whole controversy about microfinance institutions, particularly non-bank finance companies doing micro finance because that comes under RBI purview."

 
Despite this the rally turned out more in the nature of relief that enabled High Net worth (HNW) and private equity investors in SKS to exit at higher levels. The share lost more than 75% of the intra-day high to close Rs 689.35, advancing 2.93% over the previous day's close. The share has fallen over 60% from its all time high in a matter of months.

"The stock has been hammered badly so I believe this is a relief rally," said Arun Kejriwal, founder of advisory firm Kejriwal Research & Investment Services. "But the issues at hand have not been debated or resolved. It will be a matter of time before people realize we continue to remain where we are," he said.

Another trader in moneycontrolmessageblog.com commented in the same vien "Can't understand the reason for this bounce. In effect, the recommendations would bring severe pressure on the margins of the MFIs, and affect the financials very adversely. And this time the damage would not only be limited to AP but would be felt across India. So no places for MFIs to hide. Sell the stock"

 
Radhika Gupta, Director of Forefront Capital Management is of the view that investors should stay away from SKS Microfinance. As reported by moneycontrol.com, Gupta told CNBC-TV18, 

"We have been bearish on the SKS Microfinance stocks since the IPO days. I think that sort of continues. There is still a couple of issues surrounding the stock. One is the regulatory environment for MFIs where there is some news that has come out but that is still not clear. Second is the corporate governance issues in the stocks has still not cleaned themselves up. Third, this is a business that does not have too much of a public track record as far as listed entities go. We would advice investors to stay away from it.”

"The 24 percent interest rate cap is too low,” said Sanjay Sinha, managing director of Gurgaon, India-based Micro- Credit Ratings International. “It’s going to limit the operations of some institutions -- especially the smaller ones.” 

Meanwhile, the first detailed analysis of the policy recommendations of the Malegam Committee began to trickle through. Ambit Capital opined that "If implemented, we believe these will significantly erode the growth and profitability of the sector and especially SKS Microfinance." Ambit feels that the move would erode SKS Microfinance's profitability and its RoEs could be reduced to levels below 10%. As  another trader in trader in moneycontrolmessageblog.com that goes by the name "Anupiimi" observed:

"The caps for interest rates permitted under Malegam report are as follows: 1) 24% interest 2) 10% NIM levels. SKS has costs of over 6-7% as operational costs. That leaves margin of 3% for SKS. On that, maximum leverage would be around 3. That would give RoE of less (3%)*4 = 12% before NPAs. That is much lower than its cost of equity. This would cause value to deteriorate. We expect share price to decline. Even now, SKS trades at price-book value P/B levels of over 3. That is higher than most banks that have less riskier business models and higher returns."

[RoE = (earnings/assets)*(Assets/Equity)
=(the margin=3%)* ( 1+ Debt/Equity)
=(3%) * (1+leverage)
=(3%) * (1+3)
=(3%) * 4]

Ambit further feels "SKS's networth (total assets minus total outside liabilities) would shrink up to 50% due to delinquencies in AP." Though RBI permits banks not to treat MFI outstanding as bad debts as of now, this freedom does not extend to MFIs who need to reflect these on their own books. We will get an insight next Tuesday when SKS announces its unaudited 3rd quarter results. Whatever the percentage, it has to be significantly more the normal 1% SKS provides for. This factor takes a further hit on the 12% RoE, maximum leverage projections.

Some MFIs feel disappointed that the report only looks at rural poor and excludes urban poor. The reason is that the committee has recommended the creation of a separate category of MFIs called NBFC-MFIs. These NBFCs can give loans only to families whose total income is not more than Rs 50,000 per annum, and largely for income generation purposes. "Anupiimi" incisively points out, that in addition to non-performing assets (NPA), SKS's operational costs that is currently between 6-7% is poised to increase if the Malegam recommendations come into play that further hits the RoE.

“There are further problems for micro-finance companies highlighted in this report that I have not used but would cause further downside for SKS. They are: 1. Ticket size cannot be more than 25000. That would reduce transaction size and hence raise cost per rupee of lending. 2. More than 75% of lending to be used for investment that would increase paperwork for MFIs and raise operational costs."

This view is confirmed by SKS CFO, Dilli Raj in the CNBC interview. "Philosophically, one may oppose the cap on interest rate or regulatory interest regime. But we need to take things in balance and in holistic manner. Now what you need to do is to go back and reinvent your operational models and bring in lot of financial efficiency, reduce operating costs to maintain the ROI”. 

The fair value of the SKS share more and more look around Rs 200, its book value.

Subir Roy: Lessons for micro-finance from 2010

The year 2010 was a tumultuous one for micro-finance institutions (MFIs) in India. It began with the highly successful SKS Microfinance public issue, which prompted other prominent MFIs to announce similar plans. It ended with the tumult in Andhra Pradesh which was marked by the state’s legislation to regulate the sector, severely impairing its ability to survive. MFI recoveries are down and they, in turn, have fallen behind in their repayment to banks. What are the lessons?

  First, all the trouble is in Andhra Pradesh. MFIs are working smoothly in other states. Those with a broader reach and more dispersed operations across states are less affected. The basic flaw with the MFI phenomenon is its excessive concentration in one state (Andhra) and more broadly in the south. If large for-profit MFIs were to go by the fundamental principles of management, they would have started to de-risk their business long ago by spreading it more widely. So everything apart, their managements have performed poorly on this score.

Second, it is all about large for-profit MFIs. They are the ones who matter, accounting for a lion’s share of MFI operations. There are innumerable self-help groups all over the country, many of them linked to banks, which are outside the pale of the controversy. Micro-finance began with such groups and will continue with them, as long as we have the poor with us. The issue is whether for-profit MFIs, a late entrant that revolutionised micro-finance and held out the promise of rapid expansion by streamlining procedures through modern financial institution practices, will survive.

With hindsight, two realities are clear. Market mechanisms, induction of risk capital and servicing of such capital can go counter to the basic goal of attacking poverty as the marketplace has its own frailties. Besides, it should be clear to all that micro-finance on its own cannot remove poverty. It can at best make a dent in income poverty. A setback, be it a flood or drought or illness, can and does take a family back to destitution. For a for-profit sector to anchor its whole business model on a 98 per cent plus rate of recovery is to provoke serious scepticism. If to this you add group guarantee and peer pressure on a defaulter, you know why suicides can happen. MFIs rightly say that not a single suicide has been investigated and linked to coercive recovery, but in the public mind the case against them rests on grounds of plausibility.

All this does not mean that the for-profit model should be abolished. It alone has brought a sea change in efficiency which has given micro-finance both scale and viability. So, it is good to be driven by the profit motive but only up to a point. Investors in micro-finance should be happy with a lower than the market-determined rate of return.

Third, there is urgent need for effective regulation. Two entities have failed to deliver this. One is the Micro-finance Institutions Network, representing the for-profit MFIs, which has been in existence for nearly a year but is yet to bring out norms by which all can know what is the effective rate of interest charged by an MFI. This inability to promote transparency must damage the reputation of the whole tribe.

The apex institution which has failed to enforce effective regulation is the Reserve Bank of India (RBI) which is mandated to regulate for-profit MFIs that are registered as non-banking financial intermediaries and come under its supervision. These are the big boys who matter and the poor are suffering because of the absence of effective regulation. The wrong things that happened in Andhra did so under the RBI’s watch. Worse is the role of the banks. They were happy to lend to MFIs, buy loan portfolios from them to meet their priority sector lending targets and when the trouble began, wanted to stop lending. Neither is the role of NABARD becoming. It wants to be both a regulator and promoter of micro-finance.

Fourth, the issue of excessively high rates of interest charged by for-profit MFIs is a red herring. A short-term income-generating loan, say to a vegetable seller, can be nominally high but not so to her because of the resulting income. What is important is return on assets. By this measure, MFIs outperform banks. So they, in the aggregate, are making good money but again it is really the large MFIs which are doing so. It is RBI that has to monitor them individually and there aren’t that many of them to track. The top ten account for a large share of the market.

Fifth, the regulation that we now have in Andhra is badly put together and flawed. It asks for a degree of grass roots-level registration of micro-finance operations that is impractical and hugely cumbersome. The Andhra reaction came about for two reasons. The state functionaries got hopping mad as the field agents of for-profit MFIs began poaching on the client base of the state-sponsored micro-finance initiative which pre-dates the advent of the former. The troubled politics of the state after the death of Rajasekhara Reddy led to micro-finance-related suicides being widely publicised, forcing the government to be seen to act.

So, large for-profit MFIs and their regulators will put controversy behind them provided they make the following new year resolutions: stop picking on low-hanging fruits in Andhra, come clean on the effective rate of interest, stop taking group guarantees and ensure hands on regulation that keeps an eye on MFI earnings so that the poor get a share of them via declining interest rates.

Courtesy: Business Standard

Micro Finance Institutions Operations & Impact - Guest Post by Bhakther Solomon

About the Author: Bhakther Solomon , the CEO of Development Promotion Group (DPG), Chennai, is an economist by training who worked within the NGO sector for more than 35 years.

He initially worked in senior management capacity for several NGOs, including ActionAid India before founding DPG in 1986 which works in Tamil Nadu, Andhra Pradesh and Karnataka. These projects, both urban and rural in nature, range from watershed development to sanitation to housing to education.

Since 2000, DPG had begun an active role in the provision of micro credit facilities, facilitating federations and SHG-Bank linkages.  RA

In recent years, both urban and rural areas have seen the entry of many Micro Finance Institutions (MFIs) and MNC sponsored Micro Finance Companies. Their declared goal is to provide Micro Finance to the poor, at least cost, at their door steps. One can now see nearly a dozen Micro Finance institutions in almost all villages in our working areas. On the positive side, this has reduced the role of money lenders and the interest rates have come down. 

The other side of the picture is that these institutions have now slowly pegged up their interest rate. In the early period i.e. about a decade ago, MFIs did provide credit at around 12% equivalent to the bank interest rate. But now their rates are much higher than the Bank loan rates. It goes up to even 36%.

MFIs: New Lenders:

If one takes into account all the hidden charges, the interest rate varies from 18% to 36% and in a few cases, well above 36%. Again, due to availability of plenty of credit outlets, many are forced to take credit for all purposes. It is also surprising to note that few families have become clients in more than two or three institutions. A Bangladesh model is slowly getting in operation, wherein one gets a loan from a MFI to repay another MFI loan. Strange but true. 

In few cases, I won’t be surprised if such a trend creeps into our villages also. Even if the credit is used for productive purpose, whatever the poor get as “additional income” is now mostly appropriated by the “new lenders”. Unfortunately, the simple explanation given by MFIs for high interest rate is that the cost of funds plus operation costs are much higher that the normal bank rate! Unfortunately, the labour theory of Karl Marx is not even being talked about by his so-called followers!

Dictomy: 

It is a pity that NGOs which come into being to help the poor to acquire their legitimate rights to be established from the Government, Banks and other development  organizations have now floated their own for-profit micro-finance  institutions to “serve” the same poor. 

The alternative model of growth initiated by MFIs has become very costly compared to normal development credit from banks and other Government sources. The MFIs that are supposed to mobilize the people to get Bank loans under Differential Rate of Interest (DRI) Scheme and other portfolios have now become merchants of their own credit portfolios. Unfortunately, these merchants are more visible everywhere than the financial inclusion policy and practices of banks!

Privatization:

There is a danger of the Government slowly withdrawing from its anti-poverty programmes and allowing “Privatization of anti-poverty programmes”. There is also the danger of Graham’s Law of money operating, in rural areas. The danger of these new Micro Finance entrants driving out old Community Based Organisations’ (CBOs) small Micro Finance Initiatives. 

Will this bubble explode at one point in time resulting in greater injury to the poor? How long will this go on? Will there be a regulatory body-self regulatory or Government controlled one – to ensure that the marginalized are not explicated further? What matters in Development is not the cost of operation but the causes that lead the families to poverty! 

Muhammad Yunus, Banker of the Poor Exposed for Fund Diversion: The Documentary Trail

In a secret memo from 1998 beats the Norwegian Embassy in Bangladesh alarm: Peace Prize winner Yunus has quietly tapped the Grameen Bank -- the poor bank -- for 608 million aid dollars, and moved the money into a company that Norwegians have never heard of.

Burn-point documentary "Caught in the micro-debt" shows a completely different side than the microcredit Muhammad Yunus and his bank Prize-winning Grameen Bank portrays in public.

608 million dollar on aid balance - Focal Point - NRK

In the spring of 1998 was a very stormy period in the relationship between peace prize winner Muhammad Yunus and Grameen Bank on the one hand, and the Norwegian authorities on the other. The relationship has until now been unknown to the public and hidden in the confidential documents in NORAD archive.

But in Burn-point documentary "Caught in the micro-debt" now revealed how the 608 million kroner issued by Norway, Sweden and other countries with a stroke of the pen was transferred from the Grameen Bank to a newly established company with a completely different purpose than to provide poor women micro loans.

The transaction's purpose was, according to saute Laureate among other things that Grameen Bank would not have to pay taxes and to raise funds for the clean-profit corporations.

While NORAD tried to push the Nobel Peace Prize winner Yunus to reverse the transaction, selected Swedish aid authorities to sit still as a mouse to prevent the Grameen Bank's reputation was soiled.

HISTORY OF MONEY

Here is the detailed history of the conflict, based on a folder of secret stamped documents that Focal Point has been given access to the NORAD archive.

5. November 1997:

NOK 32.2 million transferred from Norad to the Grameen Bank, as the final figure, according to a series of agreements between the two parties.

This gives Norway a total of 400 million allocated to the "bank for the poor" in the period 1986-1997. Norway is one of the largest bistandsyterne the Grameen Bank and Muhammad Yunus, both of which ten years later in 2006 will be awarded the Nobel Peace Prize.

Later in the month discovers Officer Einar Landmark at the Norwegian Embassy in Dhaka, Bangladesh by chance a footnote to the accounts of Grameen Bank's annual report for 1996.

In the footnote it says that it made a deal to transfer hundreds of millions of aid compared with the Grameen Bank Grameen Kalyan, a company embassy never heard about.

The substantial amount involved in the transaction includes NORAD and other donor support to the Grameen Bank over many years.

3. December 1997:

The Norwegian Embassy in Dhaka called Muhammad Yunus to a meeting where the Prize winner will be asked to explain the transactions and the reasons for it.

Ambassador Hans Fredrik Lehne writes later in a confidential memo to Norad Director that peace award winner explanations and rationale for the transaction is not "clarifying and compelling." The ambassador pointed out the following:

"Yunus said that the main purpose of the transaction was to reduce tax abilities, and to secure funds for the members (...ed. REF note) of the Grameen Bank."

15. December 1997:

Embassy in Dhaka sends a letter to the Grameen Bank in which they ask for more ufyllende information and explanations. Again embassy a brief response "in a manner that was neither clarification or particularly trustworthy."

8. January 1998:

A letter signed Peace Prize winner Yunus, with various attachments, sent to the embassy in Dhaka. The letter reveals the scope and background to the transaction that the embassy by chance discovered:

A total of NOK 608 million assistance has been transferred from the Grameen Bank Grameen Kalyan, a company embassy never heard about. The money is taken from the so-called revolving funds of the Grameen Bank. These are funds that are created by development funds from Norad and other donors to provide mortgages and other types of micro loans to poor people in Bangladesh.

The agreement between Grameen Bank and Grameen Kalyan -- both companies led by Nobel Peace prize winner Muhammad Yunus -- was signed on 7 May 1997 and came into force with effect from 31 December 1996. On the same date as the transfer occurred, the same amount granted as a loan back from Grameen Kalyan Grameen Bank -- the bank for the poor.

10. February 1998:

Embassy in Dhaka, by Ambassador Hans Fredrik Lehne, turn the alarm about Grameen Kalyan case in a confidential memo to Norad's then director Tove Strand Gerhandsen. The paper summarized the transaction as follows by the ambassador and officer Einar Landmark:

"It has thus been made a bookkeeping transaction where the Grameen Bank has donated funds made available from donors and then to borrow them again. Ownership of the funds has thus shifted from the Grameen Bank Grameen Kalyan, Grameen Bank and .... debts to the Grameen Kalyan"..... .

In the secret memo makes it explicit that the Norwegian assistance has disappeared from the Grameen Bank is about 300 million.

The Norwegian branch represents almost half of the total on 608 million. Other donors who have been affected by the transaction, nobody knew about are SIDA, Ford Foundation, IFAD, CIDA, Kfw and GTZ.

But not enough. Embassy finds out that the purpose of Grameen Kalyan, among other things is to make loans and invest in companies both inside and outside the Grameen family. Through the agreement, Grameen Kalyan received income from interest payable by the Grameen Bank, and had the opportunity to demand repayment of the loan.

Drain money from the Grameen Bank has already come multinationals to good, turn Lehne and Landmark stuck in his note to the Strand Gerhardsen:

"Grameen Kalyan (have) been able to pull funds out of the Grameen Bank and using them for purposes other than they have been allocated by donors, and for other purposes than the Grameen Bank has an opportunity to provide these loans. Grameen Kalyan has already granted BDT 300 million (approximately NOK 50 million) from these funds (...) to partially finance the project to the cellular Grameen Telecom/ GrameenPhone."

DIVIDENDS TO TELENOR

50 million words had already gone to the GrameenPhone case officer at the embassy when the transaction is discovered in a footnote in the 1997. The same year, GrameenPhone was launched with great fanfare on the National Day of Bangladesh on 26 March.

The company, owned by Norwegian Telenor and Yunus, Grameen Telecom Company, has since been a tremendous success and the money machine for Telenor.

According to the Norwegian telecom giant Telenor, GrammenPhone has given a dividend of NOK 855 million over the past eight years.

In the note other than the public to Norad director, the Norwegian Embassy in Dhaka is clear in its ruling:

"Through the agreement with Grameen Kalyan, Grameen Bank transferred outline, and the ownership of these funds for Grameen Kalyan, and the revolving fund for mortgage ceased to exist. This is not acceptable."

Ambassador Lehne and Officer Landmark is not impressed or convinced by the arguments Muhammad Yunus provides for the establishment of the agreement between Grameen Bank and Grameen Kalyan.

CONSTRUCTION TAX

In the letter dated 8 January 1998 Yunus writes in part that the Grameen Bank in 1998 no longer enjoy tax exemption, and that the bank would have paid 40% tax on profits if not agreement with Grameen Kalyan had been signed in 1997.

The tax argument commented as follows in the secret note to NORAD Director:

“At the time, support was granted a wild one from the Norwegian side hardly have accepted organisational structures to prevent the ordinary taxation of possible future economic gains.”

The embassy also writes that Yunus leaves "a confusing impression of the Grameen Bank's management's view of itself." The reason is as follows:

"Grameen Bank's management says it that it is possible that they will not exercise sufficient financial discipline to demand loans granted by the Grameen Bank (to the poor, ed REF note) to be repaid.

Consequently, they have found it expedient to give up the funds, and borrow them again, so that Grameen Kalyan that they borrow from, which is controlled by themselves, can exert the necessary force on themselves as leaders of Grameen Bank to be responsible in handling of loans. The argument may leave a question about repayment of loans of Grameen Bank is about to develop into a problem for management. When the need for the agreement is justified in terms of repayments of loans from Grameen Bank, can also be tempted to ask: Takes place in the re-organisation as an easy, almost selvbedragersk diversion to create the illusion of them even though it has been done about a big problem that requires a very different labor-intensive approach?"

Finally, concludes the note from the embassy in Dhaka to Norad Director Strand Gerhardsen that Norway should demand that the agreement between Grameen Bank and Grameen Kalyan void, that the amounts in the hundreds of millions returned to the Grameen Bank and that a revolving fund for mortgage restored.

3. March 1998:

Legal department in Norad write a memo -- stamped except public -- about the Grameen Kalyan case. Head of Section Sverre Melsom expresses his disbelief over the embassy has narrated in his note to Norad Director:

"Like the embassy, we are very surprised that no submission in advance for Norad (and any other donors) and also without the following information has been such significant change (...). It is outrageous that Norad even have to read to such changes by Century Studies in the audited financial statements that were first received long after the changes had taken place."

Section leader writes that the Legal Section supports the embassy's conclusions and claims to the Grameen Bank:

"However, one must not forget that the agreements regarding the assistance is between Norway and Bangladesh, so we consider it very important that the Ministry and the Finance, Economic Relations Division, will be apprised of and involved in the case at an early stage, and that collect their comments on the changes in management and organisational structure that Grameen Bank seems to have unilaterally implemented."

16. March 1998:

In line with the recommendation from the Legal Department held a meeting between the Norwegian Embassy in Dhaka and representatives from the Ministry of Finance in Bangladesh. In the confidential minutes from the meeting concludes Embassy with the following:

"After the presentation of the case of the embassy and in-depth discussion it was agreed that the agreement between Grameen Bank and Grameen Kalyan was in breach of the agreements between Bangladesh and Norway for support to the Grameen Bank."

Meanwhile, the embassy also warned the Swedish aid agencies (SIDA) on Grameen Kalyan case and asked Sweden to be with the requirement that all money should be returned from Grameen Kalyan Grameen Bank.

17. March 1998:

In a fax from Franck Rasmussen at the Swedish Embassy in Dhaka makes it explicit that Swedish aid agencies (SIDA) has supported a total of Grameen Bank with 210 million SEK during the period 1989 to 1993. Of these, 190 million earmarked for the revolving funds, and consequently transferred from the Grameen Bank Grameen Kalyan with Norad money and other international support.

Rasmussen writes, however, that SIDA is not going to support Norad's claim that the money be returned because it could damage the reputation of the Grameen Bank and the good thing:

"No one wants two make a big thing of this as It might angry the creditability of the Grameen family and pray that would detrimental to the whole cause."

18. March 1998:

The Norwegian Embassy in Dhaka writes a confidential letter to the Ministry of Finance in Bangladesh, where they maintain the criticism of the agreement between Grameen Bank and Grameen Kalyan.

Ambassador Hans Fredrik Lehne concludes by asking the authorities take the necessary steps for the return of the 608 million crowns were transferred to Grameen Kalyan.

1. April 1998:

A new meeting will be held in Dhaka between the embassy and Yunus and other leaders of Grameen Bank. The meeting is being held on the initiative of the Grameen Bank, which a week earlier learned about the embassy's letter to the Ministry of Finance in Bangladesh.

Nobel Laureate Yunus disagrees that Grameen Kalyan case represents a breach of the agreement between Norway and Bangladesh, while the embassy maintains its view.

According to the confidential meeting minutes, however, the embassy stressed "the long-term and good cooperation between the Embassy/NORAD and the Grameen Bank, and maintained that the matter should be resolved as soon as possible so that it would not be known and used to damage the Grameen Bank":

"It was underscored by the embassy site that consideration for confidential treatment had also been underlined in a meeting with Secretary, ERD (in Bangladesh, ed. REF note)."

THE NORWEGIAN EMBASSY IN DHAKA

Muhammad Yunus is now so worried about Grameen Kalyan case that same day he sends a personal letter to NORAD director begins as follows:

Muhammad Yunus wrote letters to the NORAD director and asked for help. In the letter, Yunus writes that there is confusion between Norad/the Norwegian Embassy in Dhaka and the Grameen Bank, and that he hopes Strand Gerhardsen can meet him when he is going to Oslo later this month.

Otherwise, Yunus most concerned that the Embassy has informed the authorities of Bangladesh on the matter, and that this can create major problems for the Grameen Bank if the case is known:

608 MILLION DOLLARS ON AID BALANCE-FOCAL POINT -NRK

"This allegation goodwill Create Object 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 the real problem in Bangladesh."

MUHAMMAD YUNUS

The letter ends with Yunus apologize for taking up these issues with NORAD director, but that he no longer has other ways out.

Norad and held tight. The letter from Yunus to Strand Gerhardsen, and virtually all other documents in the case that Focal Point has found in Norad's archives, is stamped "made public."

29. April 1998:

A note from the Acting Director of Norad, Kjell Storlokken, referring from the meeting with Muhammad Yunus, who is on a visit to Oslo.

NORAD maintains still that there is a breach of the agreement between Norway and Bangladesh, and that money must be returned from Grameen Kalayan Grameen Bank.

Yunus, who, according to the note is accompanied by Arne Fjortoft in the World View and Helge Dietrichson, Telenor will not respond to the request "above board."

Instead orients Peace Prize winner and his entourage of "their plans/ ideas related to the opportunities for continuing and further developing the technology as the mobile technologies introduced in Bangladesh."

5. May 1998:

A few days after Yunus was in Oslo and the situation was totally stuck, something has happened. In an urgent letter from the Norwegian Embassy in Dhaka to Norad -- even excluding the public -- write ambassador Lehne that one of Muhammad Yunus's close associates have contacted the embassy with a proposal for compromise:

"He has asked whether it can be accepted as a final solution that the funds that Norway put into the revolving fund for mortgages under the two agreements of 1993 and 1994 (...) be traced back to the Grameen Bank, against the remaining funds allocated to the Grameen Bank for further loans and revolving funds remain in the Grameen Kalyan own."

AMBASSADOR LEHNE, DHAKA

The Ambassador requested authorization to accept the compromise and justify it that it is not legally possible to claim that all Norad money of 300 million will be reversed:

26. May 1998:

Embassy in Dhaka writes letters to the Nobel Peace Prize winner Yunus where the embassy confirming that they accept the compromise proposal. It is that 170 million is returned from Grameen Kalyan Grameen Bank.

The remaining approximately 130 million kroner of Norway's total support to the Grameen Bank of 400 million, which also demanded that Norway should be returned shall be in accordance with the current compromise of Grameen Kalyan.

Embassy concludes his letter to Yunus as follows: "The Embassy looks forward to continued good cooperation in future."

In 1999 NORAD created a team together with Grameen Bank to evaluate the total Norwegian aid to the bank for many years. In the evaluation report (the Grameen Bank 20: Impact and Future Challenges) is not a word about Grameen Kalyan case and the conflict between the Norwegian aid authorities and Nobel Peace Prize winner Yunus.

Autumn 2010:

Neither SIDA nor other donors has since Brennpunkt knowledge demanded the return of aid funds that were transferred from the Grameen Bank Grameen Kalyan.

Of the 608 million NOK to the Norwegian Embassy in Dhaka by chance discovered that had been drained from Grameen Bank, was in other words, only 170 million returned to the Grameen Bank, after pressure from Norway.

The remaining NOK 438 million remained in Grameen Kalyan, the company that the Norwegians had not even heard of. Three-quarters of the amount, which really was given as assistance to the revolving fund of the Grameen Bank for lending to the poor, has thus remained in Grameen Kalyan, a company that has a completely different purpose.

No responsible within the Ministry of Foreign Affairs or Norad -- neither those who worked on it the time or management today -- have been willing to comment Brennpunkt.

22. August 2010:

Grameen Bank has been detailed questions from the Focal Point of the transaction which, according to Norwegian and Bangladeshi authorities were in violation of the assistance agreement between Norway and Bangladesh. Grameen Bank responds cards in the form of two points in an e-mail dated 22 August this year.

Grameen Bank established Grameen Kalyan to engage in welfare activities of the bank employees and borrowers, subject to approval by the Board of Directors. However, in agreement with the Norwegian Embassy in Dhaka has become the means back to the Grameen Bank.

Grameen Bank never transferred the money to the Grameen Kalyan to avoid paying tax. The Bank has since its establishment in 1983 been exempt from the requirement to pay tax.