Grameen Bank: The Other Side of the Nobel Prize

While awarding the Nobel Prize for Peace 2006, the Swedish Academy stated “permanent peace is possible only when people jointly cross the barriers of poverty”. If so, rich people would have been living in peace. But is it so in Europe and America? The appreciable thing about Prof. Yunus is that he targeted only the poor people. But Islami Bank Bangladesh helped others also along with the poor, and that too, in a fully Islamic fashion. No doubt, there are a lot of things that can be learnt and copied from Yunus. But, in the process, both the means and ends should be justified, says ALI K. K., present Chief of the Kerala based Islamic financing venture, Alternative Investments & Credits Ltd. (AICL).

 

 

There are certain realities which are left unnoticed or suppressed while praising Grameen Bank and its founder, Prof. Muhammad Yunus, on their receipt of this year’s Nobel Prize for peace. A general understanding of the activities of Islami Bank Bangladesh Ltd, the fifth largest bank in Bangladesh, and which was established in 1983, would be useful at this point. This is the first full-fledged interest-free commercial bank in the entire South East Asian region functioning fully on Islamic Shariah principles. The Bank’s authorized capital is 100 million dollars, and it has around 200 branches and over 5000 employees.

The remarkable services provided by Prof. Yunus’s Grameen Bank are also provided by Islami Bank Bangladesh which has already given millions of Bangladesh Takas to very poor people under their Rural Development Scheme (RDS). These amounts were disbursed under 340 different schemes aimed at eradicating poverty and creating self-employment for the poor.

Assistance under RDS is restricted to the marginalized people whose annual income is below 300 US$ and those who own less than half-acre agricultural land. Further, huge number of similar type of small loans are given to the poor sections of society by Islami Bank Foundation functioning under Islami Bank Bangladesh.

We can find lot of similarities in the functioning of both Grameen Bank and Islami Bank. As in the case of Grameen Bank, Islami Bank also organizes small groups of five people each. The remaining processes and functioning of both banks are the same. The most acclaimed ‘collateral-free financing’ of Grameen bank is available also with Islami Bank Bangladesh.

As per the report of some study groups, both the banks follow similar policies in deployment of funds, prioritizing and identifying beneficiaries. Similarly, diversion of funds for non-productive purposes is 9 % in Grameen Bank whereas it is 11% in Islami Bank. Bad debt is below 10% in both the Banks. Islami Bank has helped 86000 poor people spread out in 2200 villages in Bangladesh.

The amount of assistance was in the range of 3000–15000 Takas. So far, Islami Bank has spent 90 crore Takas in this area alone. However, both Banks are functioning on conceptually different grounds. While Grameen Bank charges 16-20% interest on loan, Islami Bank works entirely interest-free. There are some modernists who are claiming that Prof. Yunus’s rate is below the Bangladesh Government’s interest rate of 22%.

Islam’s strict ban on paying and receiving of interest is not a problem for Prof: Yunus. He appears to be western in outlook and he encourages his bank’s beneficiaries for adopting family planning. Yunus raised funds by interest based borrowings from money market, financial institutions, central banks, international agencies etc. Further, he accepts deposits from the members of his bank on the same basis. There are people who smell an imperialistic agenda behind awarding Nobel Prize to Yunus and his Grameen Bank. As some commentators ask, could Yunus eradicate poverty from his country (Mathrubhumi weekly, November 12, 2006)? It is true that Bangladesh has been little upgraded from her earlier status of one of the poorest countries. More than 60% of the population still lives below the Poverty Line. Further, it is sad to know that 85% of Bangladesh’s villages have no electricity. Can an interest-based economy totally eradicate poverty?

While awarding the Nobel Prize, the Swedish Academy stated “permanent peace is possible only when people jointly cross the barriers of poverty”. If so, rich people would have been living in peace. But is it so in Europe and America?

The glory of Yunus is that he targeted only the poor people. But Islami Bank helped others also along with the poor, in a fully Islamic fashion. No doubt, there are a lot of things we can learn and copy from Yunus. But, the means and ends both should be justified.

[The author is the Chief Executive Officer of Alternative Investments and Credits Ltd. (AICL). He receives his emails at aiclimited@rediffmail.com]