The clock started ticking for Nobel Peace laureate Professor Muhammad Yunus in 2007. That was the year the celebrated economist and microcredit guru made a brief foray into Bangladeshi politics. Two squabbling political parties have run the country throughout its history, but in 2007 a military caretaker government was in charge. Yunus launched the "Citizens' Power" party, billing itself as a clean, efficient alternative to political unrest. Instead, the move opened the door to political attacks. In March 2007, Awami League politician A.M.A. Muhith told a reporter for the Christian Science Monitor: "The fact that Yunus is being able to carry on political activities when all the other parties are straitjacketed by the state of emergency implies a tacit endorsement by the current regime."
His party never took off. In 2009 elections, the Awami League won national elections, returning its leader, Sheik Hasina, to power and putting Yunus and the Grameen Bank, the microlending bank that he founded in 1983, back under scrutiny. In November 2010, a Norwegian television documentary accused Yunus and Grameen of improperly moving funds donated by the Norwegian government. The Nobel laureate was subsequently vilified in the Bangladeshi media and faced an investigation in Norway. Oslo cleared Yunus and Grameen of any financial impropriety, but the damage was done. Prime Minister Sheikh Hasina branded Yunus a "blood-sucker of the poor" and pushed for his removal from the helm of Grameen. Muhith, who is now finance minister, has called for him to "stay away" from the bank. On Wednesday afternoon, the government fired the 70-year-old Yunus from the institution he'd founded. (See pictures of Yunus' career.)
"Muhammad Yunus has been removed from the post of managing director of Grameen Bank," A F M Asaduzzaman, deputy general manager of the country's central bank, told reporters in Dhaka. The central bank declared that Yunus had violated the country's retirement laws by staying on as Grameen's head long past the mandatory retirement age of 60.
But the real drama began an hour later, when Jannat-E-Quanine, the spokesperson for Grameen Bank, stoutly defended its founder, announcing that Yunus will remain in charge and denying that he has violated any laws. The bank said in a statement: "Grameen Bank has been duly complying with all applicable laws. It has also complied with the law in respect of appointment of the Managing Director." A spokesperson for Yunus said he declined to make any further comment about the charges against him. (Watch "10 Questions for Muhammad Yunus.")
But Khondaker Muzammel Huq, the government-appointed chairman of Grameen Bank, told TIME that Yunus had been relieved of his duties for failing to get the mandatory clearance from the central bank when he was appointed managing director in 1999. "In the by-laws of Grameen Bank, it is clearly stated that the managing director should be appointed by the board with the prior approval of the Bangladesh Bank," Huq said. "That was not done. So he has been relinquished of his duties. We have sent a letter accordingly to Grameen bank."
Sheikh Hasina's government, meanwhile, is working overtime to convince the international community that their move was not illegal. On Monday, U.S. Ambassador James F. Moriarty met Muhith to express his concerns. Muhith is expected to meet ambassadors of various countries and representatives of World Bank, International Monetary Fund and Asian Development Bank to clarify the government's decision on Yunus today. He told AFP, "We'll deal with it gracefully." (Comment on this story.)
The Friends of Grameen, a group of charities led by former Irish President Mary Robinson, last month alleged that Yunus was being subjected to "politically orchestrated vilification." Yunus, too, has called the charges against him politically motivated in the past. But his widespread support abroad has fueled criticism of him at home as someone caught up in his own fame. "The government seems to be legally right, but this is surely a politically incorrect move, now that some international celebrities, whose credibility you probably cannot question, are campaigning for Muhammad Yunus," says Toufique Imroze Khalidi, editor-in-chief of BDNEWS24. Khalidi says the government's role in helping to start Grameen Bank, in which it holds a small minority stake, has been ignored. "Professor Yunus simply outsmarts the government internationally with his superb PR skills."
The government in Dhaka has also capitalized on a wider disaffection with microfinance. The Grameen bank's micro-credit model is a "death-trap for the poor," says Professor Anu Mohammed, a leading Bangladeshi economist. "Their programs are such that do not reduce but reproduce poverty." Those same criticisms have hit microfinance lenders from Latin America to Africa to India, and Bangladesh is no exception. A five-member review committee on Grameen Bank was constituted on Jan. 11 to conduct a special audit of the bank, focusing on the rates of interest at which it borrows money and then lends to the poor. Defenders of microcredit acknowledge that the model cannot do much to help the poorest of the poor, but says it does serve an important function. As an editorial in the Financial Times put it: "Microfinance may not on its own lift people out of poverty, but it does enhance financial inclusion, letting poor borrowers smooth their incomes so they can cope with illness or other temporary shocks."
Grameen, too, has begun to expand its model beyond just microfinance, into savings programs and "social businesses" that might do more to directly ease poverty. But for now, those efforts will be on hold. Yunus will likely be spending much of his time in court in the coming months, fighting what looks set to be a long legal battle.
Sumon K Chakrabarti is the Chief National Correspondent of CNN-IBN
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