ACCT 19083 - Corporate Governance and Ethics: The Grameen Bank Case

This case study delves into the corporate governance and ethical landscape surrounding Grameen Bank, a microfinance institution in Bangladesh founded by Professor Muhammad Yunus. It examines Grameen Bank's social responsibility initiatives, its mission to empower the poor, and the ethical dilemmas it faced, including allegations of fund diversion and high interest rates. The analysis further explores the impact of political governance on the bank, particularly the government's intervention and the removal of Dr. Yunus. The study concludes by suggesting improvements to political governance in Bangladesh and applying corporate governance principles to enhance Grameen Bank's governance structure, emphasizing transparency, accountability, and stakeholder participation. This document is available on Desklib, a platform offering a wide range of study resources for students.

Running head: Corporate Governance & Ethics
Corporate Governance & Ethics

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Contents
Answer to Q1...............................................................................................................................................2

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PART A
Answer to Q1.
A socially responsible business (SRB) is a business whose aim is to create positive
transformations in the society and contribute to its stakeholders including the local community
along with its focus on profit maximization. The SRB is a profit oriented as well as it is socially
accountable. It targets not only to gain financially but also aims to develop the wellbeing of the
community (EY, 2015).
Through SRB, the company can involve with the community in which it operates. It directs the
company to minimize the hazards of its activities on the community and to contribute positively
to the society. SRB assists the company to create a market space for itself. The company can
form partnerships and alliance with the local community and team up with the NGO to fulfill its
mission. It is a socially responsible activity and aims to create a long term relationship with the
society (Mahmud & Ara ,2015).
In this context, certain companies have adopted SRB approach .Some of them are:
1. General Electric: The GE foundation donated $88 Million to community and educational
programs in 2016. The employees and retirees had also contributed through the
organization’s matching gift programs. Also, the company’s Developing Health program
aims at providing medical facilities around the world.
2. Deloitte: The organization is committed to create a societal change and environmental
sustainability working along with government and non-profit organizations. It motivates
its employees to contribute to pro bono work (Ferrell, Fraedrich & Ferrell, 2016).
Answer to Q2.
As the vision of Grameen Bank states, ’Banking for the Poor’ and its mission statement is to
provide financial services to the poor for enabling them to realize their potential and bring them
out from the vicious circle of poverty. It is focused towards empowering the poor especially
women (Grameen Foundation, n.d.)

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Grameen Bank is a bank which provides microfinance to the poor and downtrodden. It supports
the development of the community and grants small loans to the poor without any collateral
security. It was founded in Bangladesh in 1976 by Professor Muhammad Yunus. It has created a
system free from collateral which is opposite to the conventional banking practices. Its
mechanism is based on mutual faith, responsibility, participation and creativity. It serves as a
promoter in the development of the socio economic conditions of the poorest of the poor in
Bangladesh.
For its “Low -Cost Housing Program” the bank won the World habitat Award in 1998. In 2006,
the bank along with its founder jointly won the Nobel Peace Prize. So, with its focus on the
development of the financial, agricultural and health services by using digital technology to
upgrade the lives of the poor, especially women , it can surely be called as a ‘Socially
Responsible Business Enterprise’ (Grameen Bank, 2018).
Answer to Q3.
An ethical dilemma or ethical paradox occurs when the individual has to select between two
unfavorable alternatives. It is a decision making problem being two possible moral options
neither of which are acceptable or preferable. The complication arises when opting for one
solution would result in contravening other.
There are certain features of ethical dilemma. Conditions when the individuals have to select the
best course of action can be called as ethical dilemmas. Secondly, there must be a various course
of actions to choose from. Thirdly, no matter which course of action is opted, some ethical
principle is compromised. Thus, ethical dilemma has various options to choose from and it has
multiple and undefined outcomes. It is not an easy choice to select between right and wrong
(Mahmood & Islam, 2015).
The ethical dilemma can be explained with the help of some examples. When the social worker
with the expertise of mental health care services, in a village is confronted by the client who is
suffering from agoraphobia, an anxiety disorder with a fear of open and public places. If the
clinician denies treating the patient on the ground of incompetence, it would create an ethical
dilemma with his commitment to boost the wellbeing of the clients. In this case, the ethical

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paradox can be resolved by accepting the case and treating the patient by training himself in this
area (Sustainable Development Knowledge platform, 2017).
Answer to Q4.
Certain allegations were claimed against Grameen Bank and its founder that he treated the bank
as his personal property and used it to generate income for himself .Also, Dr. Yunus was accused
of averting huge funds to a business and using the brand name of Grameen for developing many
businesses. They claimed that the bank is sucking blood from the poor by charging interest rates
as high as 30%.
But in reality, the rates of interest on microfinance loans were less than 20%. The Grameen Bank
offered loans at different interest rates which are as follows:
1. Income generating loans were charged at 20%.
2. House building loans were charged at 8%.
3. Educational loans were charged at 5% (payable after completing the education).
4. Loans to economically struggling family were granted at 0% (Grameen Bank, 2016).
So, the bank and its founder were faced with the ethical dilemma and allegation of diverting the
bank’s funds and charging higher interest rates than the Private Commercial Banks (PCB).The
PCBs charged around 14 % on their loans. On the contrary the Grameen Bank charged 20% on
the income generating loans. However, the income generating loans were structured for the
economically rich classes which were capable to borrow the loans from PCBs as well. But it
charged 0% interest from the economically backward classes which fulfilled its vision of
‘Banking for the Poor ‘(Adair & Berguiga, 2015).
PART B
Answer to Q1.
Bangladesh has a strong political governance framework in the areas of financial management,
fiscal reporting and watchdog institutions. Programs such as Strengthening Public Expenditure
Management Program (SPEMP) and Bangladesh Local Governance support Project (LGSP)

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have been strengthening the financial management reforms and audit capacity of the banking
institutions.
According to Habib (2016) in December, 2010, Dr. Yunus was accused of averting the funds to
the other businesses and using the brand name of Grameen to develop other businesses. It
affected the governance of Grameen Bank after this ethical dilemma.
The Bangladesh Government formulated a committee to monitor the activities of the bank. The
Finance Minister of Bangladesh Mr. A.M.A. Muhith claimed that Dr. Yunus whose age was 70
at that time, should hand over the administration of the bank to others. He argued that as per the
country’s banking rules, the retirement age of executives is 65.
As a result, Bangladesh Central Bank passed an order to remove Dr. Yunus from the post of
Managing Director, as he has crossed the retirement age. The High Court also rejected his writ
petitions claiming the legality of the Central Bank’s action. The appeal is pending before the
Supreme Court (Adamek, 2014).
Answer to Q2.
Corporate Governance can be defined as the mechanism which is able to recognize the basic
values of society such as economic, political and socio-cultural including the human rights. The
political governance of Bangladesh can be improved by implementing the components of Good
Governance in the following ways:
1. All the citizens of the country should have the right to participate in the decision making
process directly or indirectly through intermediaries which represent them.
2. The public representatives should have a broad and long term perspective on good
governance.
3. The institutions and processes should be able to serve the stakeholders and must be
capable to meet the necessities while making the best use of resources.
4. The decision making authority in the government and the public sector should be
accountable to the public.
5. All the citizens irrespective of their gender should be able to improve their living
standards .The laws and regulations should be fair and applied impartially (Hossain,
Enam & Hasan, 2017).

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The principles of Corporate Governance to be applied for improving the governance of Grameen
Bank are as follows:
1. The bank should follow the rules and regulations framed for the administration of
microfinance organizations by the government of the country.
2. The information regarding the decision making should be easily accessible to those who
are affected by such decisions and enforcements.
3. All the members of the bank should feel that they have a share in the bank’s performance
and decision making.
In order to achieve good governance and to ensure sustainable human development, actions must
be taken to make it a reality (Hudon & Sandberg, 2013).

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References
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is there a moral issue? Ethics and Economics, 12(2).
Adamek,J.(2014).Ethics of Microfinance in the Perspective of Profit as the Element Influencing
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EY (2015). Client protection in microfinance the current state of law and regulation. Retrieved
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Ferrell, O. C., Fraedrich, J. & Ferrell (2016). Business Ethics: Ethical Decision Making & Cases.
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Habib, H. (2016). Bangladesh: crisis of the Grameen Bank. The Hindu. Retrieved from
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Hudon,M. & Sandberg, J.(2013).The Ethical Crisis in Microfinance: Issues, Findings, and
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Sustainable Development Knowledge platform (2017). A New Transformation Path. Retrieved
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