Microcredit pioneer in Grameen Bank survival battle

It is not the usual routine for Professor Muhammad Yunus, the Nobel Peace laureate and a pioneer of microcredit.

Instead of travelling the world advising governments on microcredit, Mr Yunus has been confined to his native Bangladesh fighting court battles.

Mr Yunus founded the microcredit Grameen Bank in 1983.

He now finds himself in the uncomfortable situation of fighting to save his job.

On Tuesday, Bangladesh's Supreme Court is set to reopen its appeal hearing into Mr Yunus's dismissal from Grameen Bank.

'Function smoothly'

During the course of an interview with the BBC, Mr Yunus, appeared disappointed and a bit perplexed about the recent turn of events.

The 70-year-old economist cautiously avoided talking about the decision of Bangladesh's central bank to force him out of Grameen saying the matter was before the court.

"The important thing for Grameen Bank right now is transition so that the bank continues to function smoothly without any kind of shock or uncomfortable feeling about it," said Mr Yunus.

Mr Yunus was sacked in March this year by the authorities who said he was well past the mandatory retirement age.

They also said he was reappointed about 10 years ago as the managing director of Grameen without the approval of the central bank.

Mr Yunus argued that Grameen Bank had been given special status and it was exempt from the rule.

Bangladesh's High Court has upheld the central bank's decision to remove him from his post. Mr Yunus has now appealed to the Supreme Court.

Fighting poverty

Mr Yunus founded Grameen Bank about three decades ago with the aim of helping alleviate poverty by giving the poor microloans that did not need any collateral.

"Collateral was the one which was kind of separating out a vast majority of people in this planet from the banking system. We broke that wall which separated them out by de-linking the banking system from collateral," Mr Yunus said.

Image caption Women in rural areas are said to benefit from Microcredit

The concept has been copied in many countries around the world as microcredit is considered by many as an effective tool to fight poverty.

In Bangladesh today, Grameen Bank has 2,500 branches serving more than eight million borrowers in 81,000 villages. It has loaned more than $1.4bn (£875m) to its millions of borrowers, most of them women.

The bank is owned 75% by its borrowers, while the government has the remaining 25%.

'Honourable settlement'

Mr Yunus's supporters say the decision to force him out of Grameen is political.

They say Mr Yunus fell out with Bangladesh Prime Minister Sheikh Hasina when he tried to set up his own political party about three years ago.

Shortly after being asked to leave the bank, Mr Yunus tried to get himself the post of the chairman of the board of directors so that he could continue to oversee the bank after retiring.

But the government has refused.

"We want to have an honourable settlement on this issue," the Bangladeshi Finance Minister Abul Maal Abdul Muhith told the BBC.

"I have made an offer to Mr Yunus but we haven't got any response. Mr Yunus went to the court not the government."

The minister also dismissed suggestions that the move to sack Mr Yunus was politically motivated.

Rural economy

Some economists warn that the sudden decision to abruptly remove Mr Yunus from Grameen Bank will have negative consequences for the bank's stability, and this in turn may hurt the country's economic and social fabric.

"Now, almost three quarters of the poor people are under Grameen's coverage," said Dr Debapriya Bhattacharya, an economist at the Centre for Policy Dialogue in Dhaka.

"So whatever happens with Grameen's borrowers, essentially we are talking about what is happening to the poverty alleviation efforts."

Supporters of Mr Yunus are also not sure about the impact the controversy will have on the overall rural economy and other microcredit organizations.

"If a hostile environment is created in the rural area or a negative moral attitude has been created to the microcredit entities, then all other microcredit organizations may also face adverse circumstances," said Mr Bhattacharya.

Critics of Mr Yunus dismiss arguments that if Mr Yunus leaves then Grameen Bank will collapse.

They add that he should have retired at least a decade ago according to the rules and that he has also failed to find a successor.

Agency regulation

Microfinance has come under close scrutiny in recent months, both inside and outside of Bangladesh.

There have been accusations that some microcredit agencies have been charging very high interest rates and adopting coercive debt collection methods.

Image caption Proponents argue that micro credit facilitates cash flow in rural areas

Bangladesh is among many countries that have imposed regulations on microcredit agencies.

Economists say that despite the debate over whether or not microcredit has helped to alleviate poverty it still remains a vital sector of the rural economy of Bangladesh.

They argue that the system is essential as it facilitates cash flow in rural areas, many of which commercial banks have not yet reached.

In addition to Grameen Bank, they say there are around 1,000 microfinance agencies in Bangladesh that have loaned about $2bn to more than 25 million people.

All this means that the ongoing tussle between Mr Yunus and Bangladeshi authorities will be keenly watched both inside and outside of the country.

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