Evaluating Corporate Governance & Ethics in Grameen Bank's Model

This essay provides an analysis of corporate governance and ethical issues surrounding Grameen Bank, particularly focusing on accusations against its founder, Dr. Yunus, regarding financial impropriety and high interest rates. It examines the political governance framework in Bangladesh and its impact on financial management and reforms. The essay also discusses the government's intervention in Grameen Bank's administration and the subsequent controversies. Furthermore, it highlights the importance of corporate governance principles such as accountability, transparency, and integrity in improving the bank's operations. The essay concludes by emphasizing the need for Grameen Bank to adopt these principles to ensure ethical practices and maintain its vision of 'Banking for the Poor,' with Desklib providing additional resources for further study.

Running head: Corporate Governance & Ethics
Corporate Governance & Ethics

Corporate Governance & Ethics 1
Contents
Answer to Q1..............................................................................................................................................2
Answer to Q2..............................................................................................................................................2
Answer to Q3..............................................................................................................................................4
References...................................................................................................................................................7

Corporate Governance & Ethics 2
Answer to Q1.
Certain accusations were claimed against Dr. Yunus that he treated the bank as his personal
asset. He was suspected to use large amount of funds for his personal profit and to generate huge
amounts of income for himself. He was proclaimed for transferring the funds for his personal
business. He was claimed to use the brand name of the Bank for developing many businesses
and misusing the purpose for which the microfinance institution was formulated. The Bank was
accused to charge interest rates as high as 30% (Grameen Bank, 2016).
So, as a result, the Bank and its founder faced ethical dilemma of financial impropriety and
charging higher rates of interest than the Private Commercial Banks (PCB). The PCBs were
charging an interest of around 14 % on their loans while the Grameen Bank was charging 20%
on its income generating loans (Dhaoui, 2015). But, on the contrary, the income generating loans
were meant to be lent to the economically rich classes which were capable of borrowing loans
from the PCBs as well (Lentner, Szegedi & Tatay, 2015).
On the other hand, the Bank charged 0% interest from the backward classes, for whom it was
formulated. The Bank offered 8 % interest on the house building loans and educational loans
were charged at 5 % which was payable after completing the education. So, by charging low
interest rates ,the Bank catered to the needs of the underprivileged which was reflected in its
vision ‘Banking for the Poor’ (Grameen Foundation, n.d.).
Answer to Q2.
According to Shakil & Marzia (2013) Bangladesh is governed by a strong political governance
framework in the fields of financial management, reporting, watchdog institutions and audit.
Programs such as Strengthening Public expenditure Programs (SPEMP) and Bangladesh Local
Governance Support Project (LGSP) have been helpful in bringing financial management
reforms and upgrading the audit capability of the banking institutions.
The electoral system plays an important role in stretching the democratic process. So, the
Election Commission with the Chief Election Commissioner with members at the apex conducts
free and fair elections in Bangladesh. The elected Government is responsible for introducing

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reforms and following and implementing the constitutional provisions, legislative acts and
judicial code.
In this context, many public administration reforms such as development of the training policy
for promotion for government employees, evolution of the Career Planning and Training wing in
the Ministry of Establishment have been introduced by the Bangladesh Government in the recent
years. The government issues annual budget guidelines to upgrade the financial management
system which comprises of strategic budgeting practices, good fiscal discipline and coordination
of capital and recurrent budgets. Also, the Bangladesh Government aims to implement and
upgrade the following aspects in the country:
1. Corporate Social Responsibility: The government aims at implementing the principles of
answerability and clarity in the government departments and committees such as Public
Accounts Committee, Bangladesh Bank, Public Service Commission etc. The
government departments should be responsible towards their duties. They should disclose
full information to the public. Citizens should have a right to access the information of
the government departments.
2. Decreasing administrative barriers: The government aims at reducing the barriers and
the formalities related to the process of providing resources and infrastructural services to
the industries and micro finance institutions. It is also focused to formulate the Board of
Investment and Export Processing Zone Authority.
3. Empowerment of the downtrodden and economically backward classes: The government
of Bangladesh aims at introducing certain reforms and investment in the public services
such as health, education and sanitation. It also targets to empower the poor through
encouraging their participation in the decision making process through the public
representatives (Sherratt, 2016).
In December 2010, under the leadership of Prime Minister Sheikh Hasina, the Government of
Bangladesh opposed Dr. Yunus and Grameen Bank. He was compelled to resign from the
position of managing director of the bank in May, 2011. A Grameen Bank commission was
appointed by the government to review its administration and to make recommendations. Under

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the leadership of Prime Minister Hasina, the Bangladesh Cabinet passed an amendment to the
law administering Grameen Bank (Yunus, 2010).
This modification on the law removed the power to select the managing director from the present
board, in which 9 of 13 members were women which were elected by the bank’s shareholders.
By passing this decision the government disempowered the shareholders who held 97% of the
shares of the bank, to administer their own institution. After the release of the interim report in
February, 2013 recommendations were issued by the Grameen Bank Commission proposing to
streamline the Bank with the holding of 51 % of the shares by the Government and the board of
directors seated on the important positions in the Bank (NLASW Professional Issues
Committee, 2015).
It also suggested that bank should be divided into 19 or more separate bank entities with no legal
relationship amongst them and converting it into a private company. Each of the situations would
affect the independence of the Bank and its fulfillment of the vision ‘Banking for the Poor’ and
mission to provide financial assistance to the poor for their empowerment, so that they can
realize their capabilities and break the merciless cycle of poverty (Grameen Bank, 2016).
The decision of the Grameen Bank Foundation regarding the withdrawal of the activities of the
Bank from its clients and shareholder-run board poses a threat to the independence of the micro
finance institutions at large. The Committee would weaken the efforts which Grameen Bank has
made in empowering the women in Bangladesh and enabled them to lift themselves out of
poverty (Fu, 2015).In the context of Bangladesh economy and its progress; the international
community should strongly safeguard the independency of activities of the Bank and its millions
of shareholders.
Answer to Q3.
Corporate Governance is the mechanism of rules and regulations through which an institution is
regulated and monitored. It comprises of deriving equilibrium among the interest of the
stakeholders of the company such as shareholders, management, customers, suppliers, financiers,
government and the community. It assists the institution or a company to achieve its goals. It is

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present in each part of the organization’s strategies, right from its action plans to the
performance management and disclosers made by the company (Himaj, 2014).
Corporate Governance is the set of regulations and resolutions which is implemented to regulate
the behavior of the management .The political Governance of Bangladesh should adopt five
basic components of Corporate Governance for its development. These are namely:
1. Accountability: In the organization, those seated on the highest designations, must be
accountable and responsible for his/her actions and behavior. The officials should
disclose every information with the shareholders and must be accountable for it.
2. Efficiency and Effectiveness: The management should endeavor to achieve the goals of
the organization. It should motivate every employee to work towards the mission and
vision of the organization along with integrating their personal goals with those of the
organization.
3. Integrity: The employees should act to safeguard the integrity of the organization.
4. Transparency: The management must work with transparency. The officials should be
aware of their obligations.
5. Truthfulness: Every employee in the organization should work with truthfulness and
honesty (Mnasri, 2015).
The principles of Corporate Governance can be applied to improve the working of Graeme Bank
through the following ways:
1. The role of remuneration policies in Good Governance: The Bank should consider the
risks arising from its remuneration policies. Special committee should be formed
comprising of whole or in part of independent directors, who should be well versed with
the knowledge of risk management. They must be appointed to review the reward and
salary structure of the employees and the board members of the bank.
The policies related to the compensation and earnings of the staff members and the board
should be disclosed in the annual report as a part of good governance. The Board of
Directors should be able to express their views on the performance related remuneration

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programmers inclusive of the cost of the programs, performance structure and the
adjustment of the remuneration against the related risks (Zerban & Ateia, 2016).
2. Disclosure and transparency: The financial and non-financial information should be
disclosed by the management in its annual report which is presented to the stakeholders.
It should be viewed as a strict compliance rather than an efficient tool for managing
stakeholder relationships and value addition to the business.
The management should have an access of the information related to the beneficial owners
even in the case when it is not mandatory to disclose it publicly. The consolidated financial
reporting should ensure that the disclosures on intra group dealings and related party
transactions should be made on transparent basis for the purpose of complying with the rules.
A Chief Risk Officer (CRO) should be appointed to overview the disclosures and analysis of
the risk with the accountability to report it to the board and stakeholders of the company.
Appointment of the auditors is a good practice to ensure that the procedures are followed and
the discrepancies are rectified. The auditors should monitor the related party transactions to
make sure that these are carried out as per the terms agreed by the board (Hajer & Anis,
2016).
3. Conflict of Interest and Related Party Transactions: The bank should create information
barriers known as Chinese Walls between different departments so that the decision
making of one department is unaffected by the decision made by the other. To regulate
the situations involving conflict of interest, the bank should formulate the compliance
committee to monitor the same.
The bank’s framework should be designed in such a manner that it discloses all the
Related Party Transactions. Also, it should be clarified that the established standards are
merely examples of Related Party Transactions and they include items of similar type.
In order to pursue the goal of Good Governance, the Grameen Bank should take
appropriate actions to transform it into reality (Basel Committee on Banking Supervision,
2015).

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References
Basel Committee on Banking Supervision (2015). Guidelines Corporate governance principles
for banks. Retrieved from https://www.bis.org/bcbs/publ/d328.pdf on 15th February,
2018.
Dhaoui, E. (2015). The role of Islamic Microfinance in Poverty Alleviation: Lessons from
Bangladesh Experience. Retrieved from
https://mpra.ub.uni-muenchen.de/63665/1/MPRA_paper_63665.pdf on 15th February,
2018.
Fu, I. P. (2015). Favoritism: Ethical Dilemmas Viewed Through Multiple Paradigms. The
Journal of Values- Based Leadership, 8(1).
Graeme Bank (2016) Annual R e p o r t 2016. Retrieved from http://www.grameen.com/wp-
content/uploads/bsk-pdf-manager/GB-AR-2016_34.pdf on 15th February, 2018.
Grameen Bank (2016). Annual R e p o r t 2016. Retrieved from http://www.grameen.com/wp-
content/uploads/bsk-pdf-manager/GB-AR-2016_34.pdf on 15th February, 2018.
Grameen Foundation (n.d.). Vision. Retrieved from https://www.grameenfoundation.org/about
on 15th February, 2018.
Hajer, C. & Anis, J.(2016). Analysis of the Impact of Governance on Bank Performance: Case
of Commercial Tunisian Banks. Journal of Knowledge Economy. Retrieved from
https://doi.org/10.1007/s13132-016-0376-6 on 15th February, 2018.
Himaj , S.(2014). Corporate Governance in Banks and its Impact on Risk and Performance:
Review of Literature on the Selected Governance Mechanisms. Journal of Central
Banking Theory and Practice, 2014(3). 53-85.
Lentner, C., Szegedi, K. & Tatay, T.(2015). Corporate Social Responsibility in the Banking
Sector. Public Finance Quarterly, 2015(1). 95-103.

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Mnasri, K. (2015). Ownership Structure, Board Structure and Performance in the Tunisian
Banking Industry. Asian Academy of Management Journal of Accounting And
Finance,11(2). 57–82.
NLASW Professional Issues Committee (2015). Ethical Decision-Making in Social Work
Practice. Retrieved from
http://www.nlasw.ca/sites/default/files/inline-files/Ethical_Decision_Making_Framework
.pdf on 15th February, 2018.
Shakil, M. R. H. & Marzia, K. (2013). Political Parties and Good Governance: Bangladesh
Perspective. IOSR Journal of Humanities and Social Science,8(5). 37-45.
Sherratt, L.(2016). Can Microfinance Work?: How to Improve Its Ethical Balance and
Effectiveness. Oxford University Press,
Yunus, M. (2010).Banker to the Poor: Micro-Lending and the Battle Against World Poverty.
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Zerban, A.M. & Ateia, W.B.E. D.(2016). Corporate Governance in the Banking Sector
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