1983: Grameen Bank officially formed and expands phenomenally

Initial request to transform Grameen into independent bank ridiculed

By 1983 Dr Yunus's main preoccupation was addressing concerns of his staff that were forcing some of them to leave. These issues included low pay, lack of job security, and the abuse they continued to suffer at the hands of the government bank employees with whom they were forced to work. Dr Yunus searched for an alternative permanent solution which could address these problems and also allow the bank to expand.

He asked Gangopadaya and the managing directors of the banks participating in the project to transform Grameen Bank into an independent financial institution specialising in bringing banking services to the poor. This bank, he proposed would be owned by the poor people who borrowed from it. Not surprisingly, his proposal was ridiculed by all present https://books.google.co.uk/books?id=ovrsdJBMTTAC&pg=PA38&hl=en&sa=X&ved=0ahUKEwi9lsSCpqXJAhVDQBoKHX-dDBUQ6AEIHzAA#v=onepage&f=false.

The assembled bankers spoke in one voice against the absurdity of the idea.

Dr Yunus recalls the negative reaction of the banking dignitaries

But another change of goverment in Dhaka would prove to be a blessing in disguise for the ambitious professor.

Newly elected Finance Minister A. M. A. Muhith takes Grameen case to CMLA Ershad but government become main shareholder, contrary to Prof. Yunus's proposal

In March 1982 Prof. Yunus attended a seminar by Bangladesh Academy for Rural Development (BARD) in Comilla where he was supposed to present a paper about the future of the Grameen Bank Project. Among the attendees was A. M. A. Muhith who had been the economic counselor to the Pakistan Embassy in Washington DC while Dr Yunus was teaching in the United States. During the 1971 War of Liberation both men collaborated in lobbying the US government and trying to create public support in the US for Bangladesh cause. Dr Yunus knew Muhith from his days running the Bangladesh Information Center in Washington, when he had been the most openly pro-Bengali Pakistani embassy official. They became good friends.

Now, eleven years later, as both men assembled in the conference hall, it was announced that a coup d'etat had toppled the civilian government headed by President Abdus Sattar and General Hussain Muhammad Ershad, the Chief of Army Staff (COAS), had assumed power. Martial law was declared and General Ershad became the Chief Martial Law Administrator (CMLA). The people within the conference were not permitted to leave the building and all meetings were banned. Dr Yunus and Muhith sat in the cafeteria of the academy with all other delegates and chatted.

Though Bangladesh has a population of 120 million, it is run entirely by a handful of people, most of whom are college or university friends. Time and again this unfortunate feature of Bangladesh society and politics has helped Grameen overcome other impossible bureaucratic hurdles.

Muhith had become an admirer of Grameen when he was still a civil servant. He had even hoped to start a Grameen program in his own village. Stuck in the conference room, I spent most of the day explaining to him my dream of making Grameen an independent bank and how government civil servants and the bureucracy of the Central Bank were against me.

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By the end of the day, the military relaxed its restrictions on public movement and they returned to Dhaka.

Few days later Muhith was "unexpectedly" named Finance Minister by Ershad's new government. Several months later Dr Yunus met Muhith and asked him for help. Muhith obliged and put Grameen's case on the agenda at the next monthly meeting of the Central Bank. It was a fiery meeting where Muhith met the backlash of the managing directors from all the government-owned banks who claimed converting Grameen into an independent bank would be disastrous https://books.google.co.uk/books?id=jBxPraEoW58C&pg=PT78&hl=en&sa=X&ved=0ahUKEwitt9r5nKrJAhUBXQ8KHSeyCsgQ6AEITTAG#v=onepage&f=false.

Muhith tried again couple months later. Again it was the same negative response.

With the help from secretary of Finance Ministry Syeduzzaman, Muhith took the proposal directly to Hussain Ershad, who by now assumed the power of President of Bangladesh. President Ershad gave the proposal his blessing and the cabinet approved of it without raising any new issues. Muhith was now given the all clear to implement the plan https://books.google.co.uk/books?id=jBxPraEoW58C&pg=PT78&hl=en&sa=X&ved=0ahUKEwitt9r5nKrJAhUBXQ8KHSeyCsgQ6AEITTAG#v=onepage&f=false.

When Dr Yunus pressed his case to Muhith, he found the new minister receptive but unable to build any support in the banking community for the proposal to create an independent Grameen Bank. Muhith decided to directly approach Ershad, who threw his support behind the idea and ordered Muhith to draft an ordinance that would establish Grameen as an independent bank.

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Dr Yunus wanted the new Grameen Bank to be 100% owned by the borrowers. However Muhith convinced him that his proposal would have a better chance of passing if Dr Yunus offered shares to the government https://books.google.co.uk/books?id=jBxPraEoW58C&pg=PT78&hl=en&sa=X&ved=0ahUKEwitt9r5nKrJAhUBXQ8KHSeyCsgQ6AEITTAG#v=onepage&f=false. With that in mind, Dr Yunus approached his barrister friend and another Grameen admirer, Dr. Kamal Hossain to draft the legal framework. Dr Hossain was a former foreign minister and senior aide to Bangladesh's first president, who had played a central role in drafting Bangladesh's first Constitution.

Dr Hossain suggested that Grameen should offer 40% shares to the government and keep the other 60% for borrowers https://books.google.co.uk/books?id=jBxPraEoW58C&pg=PT78&hl=en&sa=X&ved=0ahUKEwitt9r5nKrJAhUBXQ8KHSeyCsgQ6AEITTAG#v=onepage&f=false. Finally they submitted the draft to the Finance Ministry. In late September 1983, while Dr Yunus was on a tour of Rangpur, he received a call saying that President Ershad had signed the proclamation and the Grameen Bank was born. However, when he returned to Dhaka and read the smaller details carefully there was a nasty surprise: the ownership percentages had been reversed. Now the government owned 60% while the borrowers owned 40%!! Feeling betrayed, he rang Muhith immediately. Muhith explained to Dr Yunus that he had no other alternative. This was the only offer that'd would appeal to the cabinet for approval.

We [Dr Hossain and Dr Yunus] went over countless drafts, discussing each paragraph, line, and word in exhaustive detail. Finally we submitted our draft to the ministry.

[The day President Ershad signed the proclamation] That was a day of rejoicing. My tiny project in Jobra had grown into a formal financial institution! But back in Dhaka, when I finally read the full text of the proclamation, I was shocked to see that the ownership percentages had been reversed - the government had kept 60% of the ownership and the borrowers had been granted only 40%. In effect, Grameen had become a government-owned bank. I felt betrayed.

The first thing I did was to call the finance minister. A patient man, Muhith sympathised with my position. "Yunus, I know you are angry at me," he began. "But you wanted to have a bank, didn't you? This was the only way I could get it to you."

"But this is contrary to everything I was working for," I said.

"No, it is not. I have a very clear plan for your bank. I didn't want to get shot down. If I had presented the proposal your way, it never would have gotten through the cabinet. So I changed it to make it easy for the cabinet to approve. Now you go ahead with the task of setting up the bank. Once it is established, you can come back to the Finance Ministry to change the ownership structure. That will be a much easier task. I promise you that within two years I'll get the ownership ratios reversed. You have my word."

I was not quite convinced. I went back and discussed the issue with my colleagues. We all felt we had no choice and that, like it or not, the Grameen Bank was born. We had better take what we had and steer it in the right direction.

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With that, the Grameen Bank Project was officially authorised and transformed into a full-fledged independent bank by a Government of Bangladesh Ordinance with the name 'Grameen Bank' on 1 October 1983.

Official formation on 1 October 1983 and opening ceremony held next day in an open field in the village of Jamurki, Tangail

The following day Grameen Bank had an opening ceremony where Finance Minister Muhith was the chief guest. As a break away from the norm, Grameen decided to hold the opening ceremony in a village since it was a bank of the rural people and that would be more symbolic. However, the Finance Ministry official responsible for Grameen Bank warned them that the minister and other top government officials may not attend if it was not held in Dhaka https://books.google.co.uk/books?id=jBxPraEoW58C&pg=PT78&hl=en&sa=X&ved=0ahUKEwitt9r5nKrJAhUBXQ8KHSeyCsgQ6AEITTAG#v=onepage&f=false. Dr Yunus remained adamant. He refused to hold the ceremony anywhere but a village. He rang Muhith and told him the date, place and order of events. Muhith immediately consented and gave names of several friends who Dr Yunus should also invite. Muhith also laughed off the silly suggestion by the official who wanted the ceremony in Dhaka.

He is crazy. Why should the Grameen (Rural) Bank have its opening ceremony in the city? I cannot even imagine such an absurd thing.

Finance Minister A. M. A. Muhith laughs off his official's suggestion

The ceremony was held in a big open field in the village of Jamurki in Tangail and was very well attended.

We invited groups of borrowers and all the staff from several branches to participate in the ceremony. They filled the field. Other guest came from Dhaka. Minister Muhith, representatives of the borrowers. and I sat on the podium. It was a wonderful day, full of bright sunshine. We began the ceremony with recitations from the holy Qur'an, as is customary on such occasions, and emotional speeches from the women borrowers.

For all of us who had laboured so long and so hard to achieve this, it was a dream come true. I looked over all those women seated in their colur red, green, ocher, and pink saris - a sea of saris - these hundreds of barefoot borrowers who joined our celebration. They had voted with their feet. There was no doubt about their commitment and their determination to break free from poverty. It was a beautiful spectacle, powerful in all respects.

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Grameen logo conceptualised by Prof. Yunus in a seminar in Bangkok, Thailand

When they were drafting the legal framework for the bank, Dr Yunus was trying to come up with a logo for Grameen Bank. He toyed with several ideas. Finally, while attending a seminar in Bangkok https://books.google.co.uk/books?id=jBxPraEoW58C&pg=PT78&hl=en&sa=X&ved=0ahUKEwitt9r5nKrJAhUBXQ8KHSeyCsgQ6AEITTAG#v=onepage&f=false, Dr Yunus had his eureka moment and sketched the idea: a red arrow-shaped hut with a green rectangle at the centre.

Rather than paying attention to the lecture, I was working on the theme of the hut. Suddenly out popped a design. I drew several versions of it. One I liked right away. I knew I had found my logo and I even wrote down its colour scheme.

...The logo's hut stood for the rural but could also be read as an arrow shooting upward, with the red colour of the arrow signifying speed. The green at the centre of the hut stood for new life, and that was the goal the arrow was aiming toward.

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1985: Friendship develops with Bill Clinton, later President of USA

Among its list of prestigious client, ShoreBank advised Bill Clinton on the development of community banking in the US. Clinton, later President of USA from 1993 to 2001, was then governor of the state of Arkansas. ShoreBank introduced Muhammad Yunus to Bill Clinton and his wife Hilary Clinton and they met in Washington in 1985. The meeting laid the foundation for long-term friendship and Prof. Yunus inspired the Clintons to help launch a replication of the Grameen Bank in Arkansas. Prof. Yunus had even travelled to Arkansas that year at the invitation of Bill Clinton to help conceive a Grameen-type program to help low-income people. ShoreBank were also involved in the project. Sadly for them, unlike in Bangladesh, their microlending program did not gain much success.

It's not a regulatory problem in this country [i.e. USA]. It's a market problem. People have more access to credit cards in this country.

Mary Houghton on why microcredit failed to launch successfully in USA,

The failure did not diminish their friendship, and Bill and Hilary Clinton had remained strong supporters of Prof. Yunus and advocates of Grameen Bank.

1986: Ownership share reversed to make borrowers main shareholders & Prof. Yunus no longer a government worker

Having fought skepticism for many years, independence now allowed Grameen Bank to grow at a breathtaking rate. It was "a time of growth, innovation, and confidence", and the loyal staff now had job security. Later, attention shifted back to altering the corporate structure according to Dr Yunus's original proposal. However, sadly, Finance Minister Muhith resigned in 1985. Thankfully for Grameen Bank, the permanent secretary of the Finance Ministry, Syeduzzaman, was a close friend of Muhith and another Grameen admirer. He "very quietly" changed the ownership structure of Grameen by granting 75% of the shares to the borrowers and keeping 25% for the government, the government-owned Sonali Bank, and the Bangladesh Krishi Bank https://books.google.co.uk/books?id=jBxPraEoW58C&pg=PT78&hl=en&sa=X&ved=0ahUKEwitt9r5nKrJAhUBXQ8KHSeyCsgQ6AEITTAG#v=onepage&f=false.

In 1986 Dr Yunus fought off an intense battle with the minsitry of finance to remove himself as a government-appointed managing director and become employee of the bank. His previous role as a civil servant that was forced upon him by the government meant that he could be replaced at any one time, and asking the president for permission before leaving the country to attend meetings https://books.google.co.uk/books?id=jBxPraEoW58C&pg=PT78&hl=en&sa=X&ved=0ahUKEwitt9r5nKrJAhUBXQ8KHSeyCsgQ6AEITTAG#v=onepage&f=false. Dr Yunus sought the help of the secretary in charge of the presidential Secretariat to arrange a meeting with the President and other powerful dignitaries. Thankfully the secretary just happened to be a former student of Dr Yunus's math class while he was teaching at the University of Colorado in Boulder https://books.google.co.uk/books?id=jBxPraEoW58C&pg=PT78&hl=en&sa=X&ved=0ahUKEwitt9r5nKrJAhUBXQ8KHSeyCsgQ6AEITTAG#v=onepage&f=false. Using this senior bureaucrat's help, Dr Yunus attended a high-level meeting which was presided by the President and attended by the Vice President, the governor of the Central Bank, the Finance Minister, the Finance Secretary, and the Planning Minister. Dr Yunus argued his case "forcefully" and, even though the Finance Secretary strongly opposed it, he was successful in convincing the others. The proposal was passed to parliament who passed it just before the parliament was dissolved and the Ershad government was brought down by a people's uprising https://books.google.co.uk/books?id=jBxPraEoW58C&pg=PT78&hl=en&sa=X&ved=0ahUKEwitt9r5nKrJAhUBXQ8KHSeyCsgQ6AEITTAG#v=onepage&f=false.

I had been teaching in the United States and I returned to Bangladesh after independence to participate in rebuilding the nation. I came with the arrogance of a PhD. I thought we could solve the problems of Bangladesh. Once I was there, I was confronted with a nationwide famine and the arrogance melted away. I felt humbled; I couldn't do anything.

Then I decided that, rather than worrying about what happens to the whole world, or Bangladesh, or the famine situation, I would just find out what I could do to help one person have a better day.

I started going to people's houses, talking to them, trying to understand their life. I saw how people suffered for lack of a tiny amount of money. One dollar, two dollars can make so much difference in a life. We made a list of 42 people who needed a total of only $27, less than one dollar apiece. That was the biggest shock. How can people suffer for want of such small sums of money? The government was allocating millions of dollars, yet nobody cared how people suffered for such a tiny amount.

My first response was to loan them money from my own pocket Then I thought once I started, I would have to keep on lending my money. I should arrange with the bank to make the loans.

I approached a bank, but the bank manager said, "No, no, no. You cannot lend money to poor people. They will not pay you back." I said, "How do you know? Have you ever tried?". They said, "No, we don’t have to. We know they don't."

I said, "We'll find out. I think they will pay it back."

It's a long story, but in the end I offered the bank my services as a guarantor. I borrowed the money from the bank, loaned it to the poor, and people paid it back.

But the bankers still said, "Oh, you're a fool. They will repay the money this time, but the moment you loan more, they’ll stop." I was told that the loans were repaid because the borrowers were all from one village where I had been meeting and talking with the people. So I did it in two villages, then five, 10, 20 villages, 30 villages, 100 villages. Each time it worked. Each time the bankers waited for the whole thing to collapse, and it did not. It grew.

Finally I decided to set up my own bank. The government thought it was a funny idea: poor people cannot borrow money. I showed them the examples, the reports, but they didn't pay any attention. I lobbied, knocking on doors for two years. Finally, I was given permission, and we became a bank.

Dr. Muhammad Yunus,