Padma Bridge Financing Stalemate in Retrospect

http://www.thedailystar.net/newDesign/news-details.php?nid=251360

 

Thursday, September 27, 2012

OP-ED

Bridge financing stalemate in retrospect

Mo Chaudhury

In its September 20, 2012 statement, the World Bank (WB) expressed its intention to reinstate the previously cancelled Padma Bridge (PB) loan subject to a series of measures agreed to by the government of Bangladesh (GOB). At this critical juncture, it is worthwhile to reflect back on the preceding stalemate between the WB and the GOB so that similar pitfalls can be avoided in future.

The PB has the potential to significantly expand and accelerate the pace of productive activities in the country, especially in the south central region. Politically, construction of the PB would fulfill a key election promise of the current governing party. For the WB, the PB would be its largest ever infrastructure project and could expand its future development activities in Bangladesh. It is thus puzzling that the differences between the two quarters were not ironed out for so long. So let us try to understand the critical elements in the making of this stalemate.

First, once the alleged corruption schemes were brought to the attention of the WB and the RCMP of Canada concluded that the allegations were credible enough to merit a trial, the WB had to cancel the PB loan and could not afford to reinstate it as the GOB did not quite fulfill the stipulated remedial actions. Otherwise, the WB would be violating its own governance policy, creating a bad precedence of lax implementation of its governance standards, and also facing severe backlash from its governance-weary major donor countries.

Second, a scheme to engage in corruption is not an act of legally punishable corruption according to the operational definition of the GOB. As such, the prime minister and some GOB officials believe that no corruption was perpetrated since no bribe actually changed hands. However, any corruption scheme by itself is considered a legally punishable crime by the WB and its major donor countries.

Third, the WB publicly encouraged the GOB to release all of their shared information and communications, but the GOB released only some of its communications to the WB and none from the WB to the GOB. The often changing and conflicting statements of the GOB ministers and officials only deepened this dire information crisis. Consequently, instead of standing firm and united behind a consensus, the nation seemed more polarised and fractured than ever before. From a negotiation point of view, the credibility deficit of the GOB's position and actions loomed large in favourably reversing the hardened negative opinion of the major donor governments and hence the loan cancellation decision of the WB.

Fourth, the GOB followed an incremental and minimalist approach to address the concerns of the WB, perhaps believing that the WB stipulated a set of conditions that was broader than it was ultimately going to settle for. Also even a partial enactment of WB's recommended set of actions was likely seen by the GOB as over-accommodating given its operational definition of corruption. Further, perhaps the GOB felt that implementing the entire set of actions prescribed by the WB and doing so at once in a prompt manner might unduly extend the reach of external interference in the internal affairs of Bangladesh. As the events unfolded, it was apparent that the GOB grossly miscalculated the resolve of the WB in pursuing the entire set of remedial conditions.

Fifth, the GOB followed incoherent and sometimes quite contradictory paths of managing the PB financing crisis, for example, seeking other development assistance, self-financing, partnership with China and/or Malaysia, and on-again and off-again pursuit of reinstatement of the WB loan. Perhaps the GOB wanted to keep open alternatives routes to ultimately financing a PB, if not the PB. The inevitable consequence, however, was an overall sense of confusion, a lack of credibility for the restarted negotiations with the WB, and a widely shared perception that the government was in disarray.

Sixth, many in Bangladesh believe that the WB had an ulterior motive behind its PB loan cancellation. Among the competing theories, the one that became most popular and enjoys the support of the PM is that the foreign friends of Dr. Muhammad Yunus were exacting revenge for what they perceived to be a grossly unfair treatment of the Nobel laureate by the PM and her government.

Even if the revenge theory were true, it is unfathomable how such accusations by the GOB leaders could help the reinstatement of the PB loan and future economic interest of Bangladesh. Further, with no remedy for the perceived unfair treatment of Dr. Yunus, the GOB's recent Grameen Bank Ordinance could have only hardened the stand of his foreign friends on the PB loan.

Now, for the revenge theory to be valid, Dr. Yunus would have to promote the political and/or business interests of his foreign friends controlling the WB affairs. This sounds rather absurd. No political regime has ever complained about him acting to enhance the interests of any political party or ideology. Financially, microcredit institutions like the GB are arch competitors of the large multinationals and financial institutions based in the major donor countries funding the WB. Further, the social business model of Dr. Yunus could only mean stiffer competition and lower profits for the multinationals and big businesses in those countries. Thus, the Dr. Yunus revenge theory lacks a defensible foundation and of course tangible evidence.

To conclude, it is hoped very much that the above pitfalls in managing the PB loan crisis that led to the nearly fatal stalemate will be avoided in the days to come now that the WB has revived the PB financing deal.

The writer is a Professor of Practice in Finance at McGill University, Montreal, Canada. Email: mo.chaudhury@mcgill.ca

Solution for Governance Problem in Bangladesh

http://www.thefinancialexpress-bd.com/more.php?news_id=142652&date=2012-09-08
How to establish clean governance
Mo Chaudhury

Since Bangladesh emerged as a new nation in 1971, it has made enormous strides in terms of economic advancement during the last four decades. This feat is rather impressive given that political violence and instability gripped the country for most of this period and show no sign of abatement anytime soon. Unfortunately, a very poor record of corruption, violence and human rights abuses continues to tarnish the image of Bangladesh and poses a significant risk to harnessing the country's explosive development potentials. While a multitude of toxic factors, including some external ones, might be interacting to result in such degradation, by far the most recognised and detrimental one is the widespread and chronic failure in state governance perpetuated by severe moral decadence across the entire spectrum of citizenship, but more fatally across the hierarchy of political parties.

Undeniably moral decadence and the resultant governance failures also permeate the critical machineries of public administration, law enforcement and judicial system. But in the end, the buck stops at the top in a democracy, it is the senior leadership of the political parties that set the de facto moral standards for the country as a whole. The probing question is what is it they can do to turn around the situation.

Bangladesh is not suffering from a dearth of civil and criminal laws; it is the rampant violation and politically motivated abuse of those laws without sufficiently adverse legal consequence that is handicapping the country. It stands to reason that the foremost thing that any ruling party can do is to eradicate the culture of influencing the actions of the law enforcement forces and the courts. The problem, however, is that the competing parties may not follow the same clean route if and when they come to power. This is because there is little legal downside, if at all, to unduly influencing the law enforcement forces and the courts. Based on historical experience, there does not seem to be any longer term electoral punishment either, as the resources garnered and the influences bought during the ruling time appear to be mighty enough to outweigh the negativity of the transgressions. In fact, arguably, in the absence of credible commitment from the competing parties, transgression could be even optimal to compete effectively in the future electoral cycles and to withstand politically motivated prosecution, legal or otherwise, in case of electoral loss. To make things worse, Bangladesh regimes, democratically instituted or not, are prone to making constitutional amendments for the sake of political expediency, in some cases only to be reversed or declared illegitimate by another regime. The prospect of such constitutional piracy greatly adds to uncertainty about the constitutional environment within which a party, if dethroned, would have to reposition itself in future.

To summarise, the crux of the clean governance problem is that currently there is no credible mechanism for the political parties, ruling and opposition, to commit to clean governance. Any such mechanism should be such that both the ruling and the opposition parties find it credible in the sense that future transgression by the competitor, when ruling, appears impracticable or at least very unlikely.

One such mechanism to consider is for the ruling party (alliance) to legislate an act akin to the following.

Clean Governance Bangladesh (CGB) Act

A. Make a constitutional provision that the Home and Justice Ministries will be led by elected members of the main opposition party in the legislature.

B. Make a constitutional provision that the constitution can be amended only through 60 per cent+ support in a referendum that must have participation rate of 60 per cent+.

C. Make a constitutional provision that only democratically elected parliamentary governments can call for referendums on constitutional amendments.

Once the ruling party enacts CGB, by virtue of Part A, both ruling and opposition parties know that the next electoral defeat would place them in control of the key ministries of home and justice that the winner cannot rely upon any more to get away with influence peddling and corrupt practices in general. The defeated party, that is, the post-election opposition party would now enjoy better protection against political prosecution by the ruling party, and may even try to engage in influence peddling while in opposition. This latter prospect, however, does not seem promising for the opposition since all other (than home and justice) ministries and the legislature will be controlled by the ruling party, and these ministries offer the vast majority of financially and politically rewarding opportunities for influence peddling. On the downside, administrative stalemates may ensue if the ruling party passes laws that the opposition refuses to enforce and the courts are reluctant to uphold. But if the passed laws are favoured by the electorate at large, this downside should be limited since the opposition would clearly be held accountable for not respecting the wishes of the electorate.

An unpleasant and challenging problem may arise if the opposition decides to use the home and justice ministries to initiate new and/or to restart previously stalled investigation and prosecution of alleged malpractices undertaken by the ruling party prior to the CGB Act. To address this problem, the CGB Act may be extended to include a temporary clause that would constitute a special investigation committee of non-active law enforcement officials and a bench of retired judges, agreed upon by both the ruling and the opposition parties, to handle the alleged infractions committed by either party prior to the CGB Act. Along this line, some may argue for replacing Part A of the proposed CGB Act with a Caretaker Government (CTG)-style alternative, albeit with a very limited scope, whereby the home and justice ministries are headed by non-elected and non-partisan ministers that are acceptable to both parties. But such a CTG-style alternative to Part A seems problematic in several ways. It is not in the tradition of parliamentary democracies where the ministers are members of the parliament, the chosen non-elected ministers will not be politically accountable to the electorate, and it is extremely difficult to find ex-ante non-partisan (and competent) persons, acceptable to fiercely contestant parties, for the said ministerial positions, and then to assure non-partisan performance on a continued basis.

Part B of the CGB Act is intended to ensure that, once CGB is enacted, ruling parties cannot grab back the critical home and justice ministries and make other constitutional amendments that easily in future. In addition, Part C will not permit non-elected regimes to change the form of government away from parliamentary democracy and thereby assume sweeping powers. The two 60 per cent+ thresholds would make sure that any constitutional amendment is based on a referendum where significantly more than half of the electorate voice their view and a significant majority of the participating electorate is in favor of the proposed amendment. There is nothing magical about the number 60 except that it seems reasonable to use thresholds that are greater than 50 but are not too high such as to make constitutional changes practically impossible or irreversible.

Together Parts A, B and C of the proposed CGB Act provide a very clear and concise framework whereby the contesting political parties (or alliances) can credibly commit to stopping the cycle of governance malpractices that is destroying the moral fabric of the nation and holding back the attainment of its fullest advancement potential. This framework is not perfect - no framework is - but at the very least it could be the basis of a permanent or long-term solution to the fatal governance illness Bangladesh is suffocating from.

One last impediment to this solution is the lack of incentive for a ruling party to enact the CGB if it foresees winning the next electoral contest since in that case it can continue to use governance malpractices to its advantage at least until toward the end of the projected mandate.

This suggests that, failing a yet-to-be-seen overarching conviction to fix the governance problem, realistically the best prospect for enactment of a CGB-like act is a situation where the ruling party is not quite confident about winning the next contest and/or foresees turmoil that could once again derail Bangladesh from the trajectory of parliamentary democracy. Only time will tell how long the people of Bangladesh will have to suffer before that moment arrives.

The writer is a Professor of Practice in Finance at McGill University, Montreal, Canada. mo.chaudhury@mcgill.ca 

The Grameen Bank's Unique Organizational Form

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Errata: "GB could sell part or most of the 60 per cent remaining (after the GoB's 40 per cent) ownership stake .."

It should be: "GB could sell part or most of the 40 per cent remaining (after the GoB's 60 per cent) ownership stake .."

http://www.thefinancialexpress-bd.com/more.php?news_id=141943&date=2012-09-02

The Grameen Bank's unique organisational form

Mo Chaudhury

A recent ordinance of the Government of Bangladesh (GoB) to gain more control over the appointment of the Managing Director of the Grameen Bank (GB) has set off a furious worldwide debate about the legitimacy and the implications of the move for the future of the Nobel winning institution. The control move has assumed much importance since it is preceded by the removal of GB's Nobel-winning founder and long time Managing Director Dr Muhammad Yunus using a retirement rule that existed for long but was not applied until now. At the heart of the debate is the unique organisational form of GB and the role this uniqueness played in its widely admired achievements. A short digression in this regard is therefore very useful.

Is GB a government institution (not seeking profit) like the Bangladesh Bank (BB)? Is it a government-owned corporation (not seeking profit) like the Investment Corporation of Bangladesh (ICB)? Is it a public enterprise (government owned but profit seeking) like the nationalised banks? Is it a shareholder-owned (seeking profit, shares may or may not be listed for trading) corporation like the private sector banks? Is it a non-profit private sector organisation like the non-governmental organisation (NGO)-type microfinance institutions? Is it a cooperative bank? Is it a mutual bank?

The answer is none of the above. GB has a unique hybrid form that has elements of different types of organisations. GB is profit seeking and shareholder owned organisation like a public enterprise and the private sector banks, but the GoB has only 3.0 per cent ownership (unlike a public enterprise) and GB is not an incorporated business with limited liability for the shareholders (unlike the private sector banks). Like the cooperative and mutual banks, GB's member/borrowers are its main clients and depositors. But GB's profits are not normally passed on to the member/borrowers in the form of reduced borrowing rate or increased deposit rate or cash dividends (unlike a cooperative bank) and GB has non-member depositors and the GoB as part owner (unlike a mutual bank). In sharp contrast to the above profit-seeking corporate and membership-oriented cooperative/mutual character, GB shares a very important feature with government institutions like the BB and the ICB, namely, GB was created in 1983 by a special act (not under a general act) that conferred important governance and operational control rights to the GoB, much in excess of and unrelated to its ownership proportion.

It is worthwhile to explore at this point the implications of the unique hybrid form of GB as an organisation. The cooperative/mutual/NGO like features of GB kept the central focus of GB activities on the interests of the member/borrowers rather than profit maximising non-client shareholders. However, to do this with no initial deposit and capital contribution by the member/borrowers, to expand the membership significantly, and to offer more and better services, GB needed to raise a large amount of funds at a low cost of funding during the early years. This is where the special nature of the GoB sponsorship and GB's corporation like ownership structure played a vital role. In 1983, when GB was formed, the GoB injected equity capital in exchange for about 60 per cent ownership with the remaining 40 per cent allocated to the member/borrowers. The nationalised banks were instructed to provide loans to GB, and GB raised additional funds from international sources primarily in the form of loans, all at low interest rates as the 1983 GB Act essentially offered guarantee for GB liabilities by the GoB. It is to be noted that as of 1983 it was not yet proven that the microfinance model of Dr Yunus would be viable with a large number of member/borrowers with no collateral and equity of their own. The principal asset in the balance sheet of GB was the loans to its member/borrowers that are of poor quality by normal credit standards and as such the credit worthiness of GB to raise funds was of poor quality as well.

In other words, absent the GOB's partial ownership and its guarantee to backup GB loans, it is quite doubtful that GB could raise at the time the necessary funds at a low cost, the low cost being necessary to cover the high administrative costs of the microfinance model while keeping the interest rate at reasonable level for loans to the member/borrowers. While GB could sell part or most of the 60 per cent remaining (after the GoB's 40 per cent) ownership stake to local and foreign institutional investors, such an action would have taken away the majority representation of the member/borrowers in the Board of Directors and hence overall management of GB, very importantly including the selection of the Managing Director of GB. Without the majority representation by the member/borrowers and the selection of the Managing Director by the Board of Directors and not the Chairman, as is typical in a private corporation, one has to wonder whether GB's visionary founder-leader Dr Yunus could have continued as the Managing Director for as long as he did and as such whether GB would have turned into one of the most successful financial institution in the history of banking as it admirably did.

In this context, it is very important to recognise the very positive role the various regimes of the GoB have played, until now of course, in the governance of GB. Interestingly, the positivity comes from a historically passive, but facilitating, role of the GoB. By and large, successive regimes of the GoB have accommodated the various statutory changes requested by GB, including the crucial one that allowed GB to become a depository institution that can accept deposits from non-members as well. On the operations side, the GoB regimes permitted GB to expand its portfolio of services and investments without much of a hitch. In a nut shell, the GoB regimes awarded Dr Yunus utmost flexibility in building the world acclaimed institution that GB is today. Importantly, this flexibility included the continuation of Dr Yunus as the Managing Director beyond the stipulated retirement age for public employees although it remains controversial whether Dr Yunus was legally a public employee. In fact, the historical role of the GoB in the development of GB constitutes an exemplary case of optimal level and manner of government intervention in an otherwise free enterprise system. It has indeed been a virtuous trinity for socio-economic development, a path breaking concept of enterprise, a visionary leader and successive government regimes that passively facilitated the development of the enterprise, as and when needed, instead of actively governing or managing it.

In the backdrop of this history-making virtuous trinity and with the enforced departure of GB's visionary leader, the latest ordinance of the GoB to empower the government appointed Chairman of GB (instead of the Board of Directors) to select its Managing Director can only loom monstrous. Not only the move disenfranchises the 8.3 million poor and mostly female members of GB who now owns 97 per cent of GB, it represents a radical departure from the historical passive and facilitating role of the GoB in the management and governance of GB. Inevitably someday someone had to step into the shoes of Dr Yunus, and it is also entirely possible that the next GoB (via the Chairman) selected Managing Director will be the best qualified leader available, and both the GoB and the new Managing Director would have the wisdom of not toying with the proven and time tested business model of GB. But that possibility is just that, not a guarantee, nor even a reasonable expectation.

This is because the unique form of GB has been changed drastically by the latest ordinance since the GoB has effectively assumed operational control of GB as in the case of the public enterprises. As worldwide history would have it, enterprises operated by governments are rarely the most successful ones. Considering the dismal record of the GoB operated enterprises in particular, all well-wishers of GB, especially the vast army of member/borrowers, have good reasons to be terrified about the future of GB. Even greater than the risk of poor management by the GoB is the risk of instability in the GoB management goals, principles and priorities as the GoB regimes change or the preferences of the same regime shift. As a matter of fact, the latest ordinance itself demonstrates how the preferences of the same GoB regime can change abruptly and dramatically.

In this context, one argument to justify the assumption of operational control by the GoB is that, in the absence of Dr Yunus, the nine representatives of the member/borrowers (in the thirteen-member Board of Directors including the GoB appointed Chairman) do not have the necessary qualification and wisdom of making important decisions such as the selection of the Managing Director. And this could indeed be the case with a specific set of the nine representatives. However, such possibilities always exist in any shareholder owned corporation anywhere in the world where the Directors are elected by the shareholders. If at all, the representatives of the GB member/borrowers perhaps command more direct experience and knowledge of the micro level challenges and prospects of the microfinance bank than the elected directors in a typical corporation. Further, in countries with poor literacy rate like that of Bangladesh, democratic governments are elected by the popular support of voters who do not have any more qualification and wisdom than the member/borrowers of GB.

Shouldn't this be taken to mean that the collective wisdom of a large body of electorate, albeit of questionable wisdom at the individual level, is a better choice than the greater individual wisdom of a select few?

To conclude, the unique institution of GB is no more. The member/borrowers and the people of Bangladesh are left helplessly pondering if their prized institution could remain the pride of the nation and for how long.

Mo Chaudhury is Professor of Practice in Finance at McGill University, Montreal, Canada. His 27-year experience includes teaching and research in finance at reputable universities in Canada and USA and financial risk management of two large financial institutions based in USA.

mo.chaudhury@mcgill.ca

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Is the Grameen Bank's Interest Rate Too High?

http://www.thefinancialexpress-bd.com/more.php?news_id=141336&date=2012-08-28

Is the Grameen Bank’s interest cost too high?

Mo Chaudhury

 

The Nobel-winning microcredit institution Grameen Bank (GB) and its founder Dr Muhammad Yunus have of late been the subject of controversial moves by the government of Bangladesh (GoB) intended to gain governmental control of the acclaimed institution that is free from any formal influence of Dr Yunus. During a recent BBC interview, Sheikh Hasina, the Prime Minister of Bangladesh, made the rather thinly clad allegation that GB under Dr Yunus had been charging its (poor) member/borrowers such high interest rates that the practice borders exploitation by GB. Some simple arguments below show that this particular allegation lacks merit.

While GB provides several types of loans, we will consider here its bread and butter basic loan in a stylised manner. For a Bangladesh Taka (BDT) 1,000 (about 12.5 USD) basic loan, GB typically charges an annual interest of BDT 100. With 52 weekly equal installments of both the principal and the annual interest, each installment is BDT 21.15 in total (=19.23 principal + 1.92 interest). Consequently, the weekly financing cost in percentage annualised term starts at 10 per cent for the first week, but rises to very high levels toward the end. The exact calculation shows that the effective interest cost is 20 per cent per annum as intuition would suggest. Considering other loan features, the all-in effective interest cost could near the 27 per cent range. While some critics, including the Prime Minster of Bangladesh, have casually placed this cost to be even higher, exceeding 30 per cent or 40 per cent, the financial basis of such cost figures are not known that well.

Supposing the effective cost is about 27 per cent, the critical question is whether such a cost is too high. There are several ways to look at this issue. First, let us compare GB loans to loans from the scheduled banks and other financial institutions of Bangladesh, and for this purpose, we abstract from other loan features as they are difficult to compare. Data from the country's central bank (http://www.bangladesh-bank.org/fnansys/interestlending.php) indicates that, as of July 2012, the scheduled banks' lending rate was around 15 per cent on term loans and working capital loans to small, medium and large-scale industries, around 16 per cent on housing loans, and about 17 per cent on consumer credit. The April-June, 2012 lending rates at other financial institutions were in the neighbourhood of 20 per cent for trading commerce, agricultural projects, loans to industry, and housing schemes (http://www.bangladesh-bank.org/econdata/openpdf.php?i=4).

Granted that these lending rates represent a snap shot rather than historical averages, but they still provide useful benchmarks for GB loans. It seems that, the 20 per cent cost of GB loan is rather on the low side, considering that GB loans are not collateralised by any asset and the GB member/borrowers have very little equity, if at all. It is to be noted that the rate of interest on the outstanding amount of loans against credit cards, the closest to non-collateralised loans from the scheduled banks, is about 24 per cent, not too far from GB's 27 per cent.

Second, in the absence of GB loan and microcredit in general, the member/borrowers would have to seek formal credit from the scheduled banks and other financial institutions or informal credit from the local private money lenders. It is well recognised that a typical GB member/borrower has virtually no access to formal credit, an outcome similar to an exorbitantly high interest cost at which the loan will not be sought. It is also widely accepted that the cost of loans from local private money lenders is substantially higher than 27 per cent, aside from the personally abusive nature of such loans.

Third, for solely income generating use of GB loan, the 27 per cent effective interest rate does not appear burdensome. To see this, pretend that the stated interest rate is 13.5 per cent and ignore other loan features, thus leading to an effective interest cost of 27 per cent. For every BDT 1,000 initial loan, the business income requirement is BDT 94.58 (=BDT 1,135/12) or 9.46 per cent gross return on asset (excluding own labor) per month to pay the weekly loan installments summed over a typical month. With such income, the borrower should in fact be left with the business assets she acquired using the initial BDT 1,000 loan even after paying an effective interest cost of 27 per cent. Any income in excess of BDT 94.58 per month would of course augment her capital accumulation and as such expedite the process of moving out of poverty.

Now say the member/borrower simply decides to hold the BDT 1,000 loan in cash and then work as a domestic helper at the very low wage rate of BDT 500 per month to generate the required business income of BDT 94.58 per month. This means that if she works 5.68 days per month (=94.58/500 x 30), she would have a saving (and capital) of BDT 1,000 in cash after paying off the loan and bearing the effective interest cost of 27 per cent. Such a plan is quite feasible, especially working on a part-time basis, for the typical female GB member/borrower and does not appear financially burdensome at all. In this illustrative plan, the part-time work is truly the source of savings and capital accumulation since the loan money was not invested in any asset or business with income and/or capital gain potential. To the extent such investments are made with prudence, the member/borrower's savings and capital accumulation would obviously be augmented.

Now consider the case where the member/borrower simply spends the loan money for temporary consumption. In this case, she needs to work every month as a domestic helper just to meet the loan installments and would have little prospect of moving out of poverty. This is what the critics claim as the curse of GB loans or microcredit in general. GB, on the other hand, argues that it has managed to keep the incidence of such perils for the member/borrowers at a very low level, primarily due to its proven system of regular and frequent advisory and monitoring at the grassroots level.

Lastly, given GB's business model of grassroots surveillance and advisory, the administrative cost of GB is rather high and accounts for much of the 27 per cent effective interest cost paid by the borrowers. GB is left with profitability that is modest, or at least is not higher than that earned by regular banks and financial institutions. In 2010, the return on equity (RoE) was 17 per cent t0 21 per cent for regular banks (http://www.thefinancialexpress-bd.com/more.php? news_id=123291&date=2012-03-

13) and 10.74 per cent for GB (http://www.grameen-info.org/index.php?option=com_content&task=view&id=632&Itemid=664). This lends support to the premise that the 27 per cent effective interest cost of GB loans is there not to maximise GB's profitability, instead it is a necessity to keep the programme on a financially viable growth path that in turn should help an increasing number of member/borrowers to gradually move out of poverty.

To conclude, the effective interest cost charged by GB does not seem burdensome for the member/borrowers or excessive in the sense of maximising GB profitability at the expense of the member/borrowers. It may, however, be worthwhile to explore ways to reduce the effective rate of interest further.

Mo Chaudhury, PhD, is Professor of Practice in Finance at McGill University, Montreal, Canada. His 27-year experience includes teaching and research in finance at reputable universities in Canada and USA and financial risk management of two large financial institutions based in USA.

mo.chaudhury@mcgill.ca, mochaudhury@gmail.com