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TRANSCRIPT
Contributed By:
Research Team
Research & Development Division
Reviewed and Validated By:
Centre for Corporate Governance and Finance Studies
University of Dhaka
October 2012
BRAC Bank Limited
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IMPACT OF CREDIT ON THE SUSTAINABILITY OF SME BORROWERS OF BRAC BANK:
A FOLLOW UP STUDY
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IMPACT OF CREDIT ON THE SUSTAINABILITY OF SME BORROWERS OF BRAC BANK:
A FOLLOW UP STUDY
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Final Report
Do not Quote
Research Team of Research & Development Division, BRAC Bank Limited:
S. M. Anisuzzaman, Head of Research & Development Division
Ashique Iqbal, Manager, Product Development
Tanvir Omar Chowdhury, Associate Manager, Consumer Insights
Md. Masud Rana, Associate Manager, Decision Support System
Review and Validation Expert on behalf of Center for Corporate Governance and Finance Studies, University of Dhaka: Professor M. A. Baqui Khalily, PhD, Chairman, Center for Corporate Governance and Finance Studies, University of Dhaka
[Copyright of this publication for any form of publication and commercial dissemination belongs
to BRAC Bank Limited, 1 Gulshan Avenue, Dhaka 1212, Bangladesh, or its authorized
representative in this regard.]
[Correspondence on this publication may be sent to S. M. Anisuzzaman, Head of Research &
Development, BRAC Bank Limited, at email: [email protected]]
TABLE OF CONTENTS
EXECUTIVE SUMMARY _____________________________________________________________ I
CHAPTER I: STUDY BACKGROUND __________________________________________________ 1
CHAPTER II: MISSING MIDDLE – ENGINE OF INDUSTRIAL DEVELOPMENT _________ 3
SME’s Contribution to economic development __________________________________________ 3
Size and Composition of SMEs _______________________________________________________ 4
Constrains for SME development _____________________________________________________ 5
CHAPTER III: BRAC BANK – A CATALYST FOR SME DEVELOPMENT __________________ 6
CHAPTER IV: IMPACT ASSESSMENT FRAMEWORK: DEVELOPMENT OF INDICATORS _ 8
CHAPTER V: THE METHODOLOGY _________________________________________________ 10
Description of Indicators ____________________________________________________________ 10
Selection of Unit Offices ____________________________________________________________ 12
Data _____________________________________________________________________________ 12
Methods of analysis ________________________________________________________________ 15
Mean difference testing: _____________________________________________________________ 17
Measuring Impact by Difference –in-Difference (DID) ___________________________________ 18
Propensity Score Matching __________________________________________________________ 19
Effects of the Treatment on the Treated________________________________________________ 19
In brief, the Indicator Validation Approach: ____________________________________________20
CHAPTER VI: ANALYSIS OF THE FINDINGS _________________________________________ 21
Borrowers and enterprises demography ________________________________________________ 21
Analysis of Indicators: Impact Evidences ______________________________________________26
Financial indicators ________________________________________________________________26
Accumulation of asset: ______________________________________________________________26
Utilization of resources: _____________________________________________________________27
Profitability:_____________________________________________________________________30
Capital structure: _________________________________________________________________31
Economic indicators _______________________________________________________________32
Employment creation: ______________________________________________________________32
Savings generation: ________________________________________________________________33
Environmental indicators ___________________________________________________________34
Social Indicators __________________________________________________________________36
Impact of Credit on Market Development ______________________________________________38
Effectiveness indicators of BRAC Bank ________________________________________________39
CHAPTER VII: DISCUSSION AND CONCLUSION _____________________________________ 41
REFERENCES _____________________________________________________________________43
APPENDIX_________________________________________________________________________47
FARMEWORK OF MEASUREMENT INDICATORS __________________________________47
MEAN DIFFERENCE AND DiD OUTPUT ___________________________________________52
FACTOR ANALYSIS _______________________________________________________________53
LIST OF TABLES
Table 1: Statistically significant Indicators............................................................................................................. III
Table 2: Bangladesh Bank’s Definition of SME ...................................................................................................... 4
Table 3: SME Products offered by BRAC Bank ..................................................................................................... 6
Table 4: Matrix of Broad Indicators ........................................................................................................................ 10
Table 5: Location of Unit offices ............................................................................................................................. 12
Table 6: Sample distribution of current study ....................................................................................................... 13
Table 7: Current Status of the panel borrowers .................................................................................................... 13
Table 8: Pan-bank control – treated (repeat) – treated (dropout) borrower composition ............................. 13
Table 9: Type of enterprises and borrowers .......................................................................................................... 22
Table 10: Times loan availed by treated (repeat) and treated (dropout) borrowers ........................................ 22
Table 11: General characteristics of the borrowers .............................................................................................. 23
Table 12: Average distance (in kilometer) of the location of the enterprises from some business friendly
institutions ................................................................................................................................................................... 24
Table 13: Average distance (in kilometer) of the enterprises or borrowers’ home from BRAC Bank and
other banks .................................................................................................................................................................. 25
Table 14: Accumulation of Assets of enterprises .................................................................................................. 26
Table 15: Utilization of resources of enterprises ................................................................................................... 28
Table 16: Sales Performance of enterprises ........................................................................................................... 29
Table 17: Profitability of enterprises ....................................................................................................................... 31
Table 18: Capital Structure of enterprises .............................................................................................................. 31
Table 19: Employment Generation ......................................................................................................................... 33
Table 20: Reflection of perceptions about different Economic indicators (percent) ..................................... 33
Table 21: Enterprises’ responsiveness towards various Environmental Issues ............................................... 34
Table 22: Environmental impact of enterprises .................................................................................................... 35
Table 23: Frequency Distribution of Pollutants .................................................................................................... 35
Table 24: Impact on Environmental and Health by the enterprises .................................................................. 36
Table 25: Frequency distribution of engagement in social activities .................................................................. 37
Table 26: Frequency distribution of BRAC Bank’s loan impact on borrowers’ social life (Based on
borrowers’ perception) .............................................................................................................................................. 37
Table 27: Matrix of Social Employment, Education and other social indicators ............................................ 38
Table 28: Matrix of Market Development Indicators .......................................................................................... 39
Table 29: How borrowers learn about BRAC Bank’s operation? ...................................................................... 39
Table 30: Why borrowers had availed loan from BRAC Bank? ......................................................................... 40
Table 31: Matrix of Financial Indicators ................................................................................................................ 47
Table 32: Matrix of Economic Indicators .............................................................................................................. 48
Table 33: Matrix of Environmental Indicators ...................................................................................................... 49
Table 34: Matrix of Social Indicators ...................................................................................................................... 50
Table 35: Matrix of Effectiveness Indicators of BRAC Bank............................................................................. 51
Table 36: Statistically Significant Indicators in Mean Difference test ................................................................ 52
Table 37: Factor analysis of Measurement Indicators .......................................................................................... 53
Table 38: Factor Loading (Pattern Matrix) and unique variances ...................................................................... 55
Table 39: Type of enterprises and borrowers including Treated (Dropout) .................................................... 56
Table 40: General characteristics of the borrowers including Treated (Dropout) .......................................... 56
Table 41: Average distance (in kilometer) of the location of the enterprises from some business friendly
institutions including Treated (Dropout) ............................................................................................................... 56
Table 42: Average distance (in kilometer) of the enterprises or borrowers’ home from BRAC Bank and
other banks institutions including Treated (Dropout) ......................................................................................... 57
Table 43: Accumulation of Assets including Treated (Dropout) ....................................................................... 57
Table 44: Utilization of resources including Treated (Dropout) ........................................................................ 58
Table 45: Sales Performance including Treated (Dropout) ................................................................................. 59
Table 46: Profitability including Treated (Dropout) ............................................................................................. 59
Table 47: Capital Structure including Treated (Dropout) .................................................................................... 60
Table 48: Comparison of Financial and Economic Indicators based on borrowers’ loan availing frequency
....................................................................................................................................................................................... 60
Table 49: Comparison of Financial and Economic Indicators between Regular vis-à-vis Defaulter
borrowers ..................................................................................................................................................................... 61
Table 50: Matrix of Economic Indicators including Treated (Dropout) .......................................................... 61
Table 51: Matrix of Economic Indicators: reflection of perceptions (percent) including Treated (Dropout)
....................................................................................................................................................................................... 61
Table 52: Types of Enterprises affecting Environment ....................................................................................... 62
Table 53: Frequency distribution of engagement in social activities including Treated (Dropout) .............. 63
Table 54: Frequency distribution of BRAC Bank’s loan impact on borrowers’ social life including Treated
(Dropout) (Based on borrowers’ perception) ........................................................................................................ 63
Table 55: Matrix of Social Employment, Education and other social indicators including Treated
(Dropout) ..................................................................................................................................................................... 64
Table 56: How borrowers learn about BRAC Bank’s operation? Including Treated (Dropout) .................. 64
Table 57: Why borrowers had availed loan from BRAC Bank? Including Treated (Dropout) ..................... 65
LIST OF FIGURES
Figure 1: Dimension of sustainability ....................................................................................................................... 1
Figure 2: Pyramid of Enterprises ............................................................................................................................... 3
Figure 3: Enterprises contribution in GDP ............................................................................................................. 3
Figure 4: Enterprises contribution in GDP ............................................................................................................. 4
Figure 5: Asset composition of BRAC Bank ........................................................................................................... 6
Figure 6: Relationship between credit and impact outcomes ................................................................................ 8
Figure 7: Broad impact indicators .............................................................................................................................. 9
Figure 8: Transition of Borrowing Status since baseline study ........................................................................... 14
Figure 9: Difference in Difference (DiD) curves .................................................................................................. 19
Figure 10: Growth of Total Asset at Cost as times loan availed advances ....................................................... 27
Figure 11: Growth of Fixed Asset at Cost as times loan availed advances ....................................................... 28
Figure 12: Growth of Fixed Asset at Market Price as times loan availed advances ........................................ 28
Figure 13: Growth of Sales as times loan availed advances................................................................................. 29
Figure 14: Growth of Profit as times loan availed advances ............................................................................... 30
Figure 15: Scree plot of eigenvalues after factor ................................................................................................... 54
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EXECUTIVE SUMMARY
It is about only 11 years journey. Within this short time span, BRAC Bank has acquired one of the largest SME asset portfolios of Bangladesh. This is in fact coinciding with the bank’s vision that spins around sustainable development of the Small and Medium Enterprises (SMEs). From its inception, bank’s objective is to work as catalyst for the ‘missing middle in the ‘customer pyramid’ that is mostly unbanked. The bank firmly believes that SME is the ultimate growth engine of the country. Although BRAC Bank has demonstrated its core values and ethics on banking business, it has never been known to the professionals about the kind of impact that the bank has created at the enterprise level. As such, BRAC bank had undertaken an initiate to assess the impact of credit on SME back in 2010. That was the baseline study carried out by Centre for Corporate Governance and Finance Studies of University of Dhaka. At that time, an impact measurement matrix framework was proposed and survey was conducted on the basis of that framework. Since impact has to be measured on regular basis, again in 2011, we internally conducted a follow up study to observe the changes of impact variables on the same sample of earlier study (i.e., 525 SME borrowers of 21 unit offices of the bank) plus 63 new inclusions using the same questionnaire. The objective of the baseline study was to develop and validate a set of indicators with an eye to the Triple Bottom-line approach of sustainability – financial, economic, social and environmental sustainability through conducting semi-structured interview on the sample borrowers. These selected samples represent six divisions of Bangladesh. This was essential for minimizing the scope of selection bias. Baseline study was designed as quasi-experimental one to assess the effects of the treatment on the treated. Borrowers were grouped into control (first time) and treated (repeat) where control borrowers were treated as a proxy for non-participants while repeat borrowers were treated as continuous participants. First time borrowers were basically treated as non-participant mainly for two presumed reasons, i.e., firstly, difficulties to locate the eligible non-participants within the study centers given the time constraint, and secondly, it was questionable on how much willing the eligible entrepreneurs will be to participate in this extended study. Since first time borrowers’ borrowing relationship with the bank is substantially lower than the repeat borrowers, this borrowers’ segment was treated as control as an alternate of non-participant and repeat borrowers were as Treated. In addition to that, information of dropout borrowers was collected in the baseline. By definition, dropout borrowers are those borrowers who had completed their debt with the bank successfully; afterwards, they did not apply or bank did not sanctioned further financing. The argument of not including the dropout borrowers in analyses was - majority respondents’ of this group were unwilling to be a respondent in that study. Therefore, data collected from this group was not statistically representative. One major improvement in this follow up study over the baseline is that this time we are able to cover the dropouts along with the control and treated (repeat) borrowers. Therefore, we have redesigned the analysis plan; borrowers are broadly clubbed into two categories, i.e., participant and non-participant. First time borrowers are treated as non-participant (hereinafter referred as “Control”) while participants are segmented further in two groups, i.e., repeat (hereinafter referred as “Treated (repeat)”) and dropout (hereinafter referred as “Treated (dropout)”). The reasons for including the later groups in the analyses of this study is to answer the questions like: “how better are the dropouts after their voluntary retreatment from the bank’s financing net than the continuing borrowers?, what is the optimum number of repeat financing?, Did BRAC Bank’s credit program improve their financial and socio-economic life in real terms than that of prior to loan availing from the bank?”. Therefore all the analyses of this report are carried on between control vis-à-vis treated (repeat) or control vis-à-vis treated (dropout) or treated (repeat) vis-à-vis treated (dropout). Reasonably, impact of BRAC Bank’s credit on control would be less than treated (repeat) and treated (dropout) groups since earlier group got financing from the bank for once only. Not only that, financial and economic condition of even those treated (dropout) borrowers who left the bank voluntarily after availing first financing is in superior state than the continuing control borrowers. In broader sense, BRAC Bank’s credit program has significant impact on borrower’s paradigm changes. Control group may be impacted by BRAC Bank credit but to measure the impact of these borrowers, they need to pass substantial time after availing loan. It is possible, but given such limitation, impact may be under-estimated.
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Cross-sectional data set is used for most of the indicators while data of three periods are used for some selected indicators. In case of panel data set, Difference-in-Difference (DiD) technique was used as it nets out effects of the unobserved characteristics of comparison groups. Given the characteristics of control, treated (repeat) and treated (dropout) borrowers, it is difficult to observe any substantial and statistically significant impact of BRAC Bank credit in shorter duration. Because of such limitation in panel dataset, propensity score matching (PSM) technique was used to evaluate impact of BRAC Bank credit and value creation of BRAC Bank for cross-sectional dataset. The results of PSM are quite consistent and statistically significant. First, financial indicators are validated. The results indicated that treated (dropout) borrowers are even better off than control and treated groups. They are better off in sales and profit volume, growth in sales, total capital, total asset at market price and growth of total asset. Second, despite the fact that economic impact of BRAC Bank credit on the borrowers who have availed repeated financing both continuing and discontinued borrowers (dropout) is not found significant, more full time male employment is created by the treated (dropout) and treated (repeat) borrowers compared to earlier study. This has positive correlation with increasing total asset and sales volume. Though descriptive statistics suggest BRAC Bank credit has positively impacted similar business expansion, forward and backward expansion, no significant evidence could be found for its impact on business expansion, forward or backward through inferential statistics. It is explainable; since it’s a market level impact, this may differ at individual level. Third, it is very difficult to find out impact of credit at the societal level. Although wives’ involvement increased in decision making in later study than the baseline, the difference is not statistically significant. But borrowers’ interaction with the society has increased substantially. Fourth, though treated borrowers’ average usage of child labor is increased by 0.63 (however not statistically significant), tendency of child labor usage by treated (dropout) borrowers is gradually diminishing; at the same time, control (first-time) borrowers are completely free of child labor. However this is the area where BRAC Bank has to emphasize more through adopting of a policy statement embedded in credit appraisal process and strengthening field level monitoring. On the other hand, with the improvement of financial position, treated borrowers are now participating more in social activities. Credit program also helped treated group to spend more for health, education of the children and housing in addition to increasing interaction at the community level. Fifth, maximum four-time repeat financing is found to be sufficient enough for an entrepreneur to stand on his own feet as indicated by the research findings. This follow up study findings suggest that borrowers who have left the bank after availing loan for fourth times are holding the maximum assets with lesser debt participation indicating that these borrowers’ dependency on debt is squeezing as time progresses. Sixth, regular borrowers are found to be in improved condition than the defaulters. This is reasonably acceptable. This finding indicates two major aspects - adverse selection and moral hazard. Taking lesson from this, to minimize adverse selection BRAC Bank should maintain cluster specific database which has to be updated periodically. Prior to making financing decision, not only the borrowers’ financial position but also the condition of the cluster where the borrower belongs should be considered by credit appraisers of the bank. To keep the default rate at tolerable limit, during the debt servicing, bank staff should increase borrower interaction to know their business pulse. This is in fact indicating to strengthen existing credit administration and recovery process of the bank. Seventh, BRAC Bank credit has made enormous impact at environment level. More than 87 percent of the borrower-enterprises are found to be environment friendly which is higher than baseline study. Treated groups are becoming more-aware of environment pollution than the control. Usage of polythene is decreasing; this is one of the positive sights. However, usage of chemical, and generation of ash, dark smoke and chemical wastage have been increased than the baseline. BRAC Bank can downsize this overall percentage further through adopting “Green financing” friendly lending policy; however, the bank has little to do in this case until the borrowers realize the importance of pollution-free environment.
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Both treated and control borrowers have commonly perceived that BRAC Bank credit has made significant impact on savings, income, expansion of own business, development of similar business in the market, helped to avail better treatment facility, now they can spend more for children’s education and usage of entertainment media is increasing. They are also reinvesting profit more for business expansion. In addition to that, this positivity has propelled at household and community level. However, these results are not found statistically significant. While majority borrowers get to know about the bank from bank’s staff, treated (repeat) borrowers are also playing pivotal role in promoting the bank, treated (dropout) borrowers are relatively more communicated by the staffs. Proximity of branch premises has significant role in financing decision making. Borrowers prefer convenient access to the unit offices precisely from the business centers. Majority borrowers perceived that documentation and lending process is quick, easy and hassle free here. Averagely, bank staffs require four times visit at borrowers’ place to convenience them for availing loan from the bank and in almost all of these cases bank staffs have provided correct information. Indicators quoted in the framework are statistically validated using mean difference, DiD and PSM. We have a note of caution for the readers and policymakers. Because of the shorter duration of the control and treated borrowers, we did not find any significant results using DiD technique. However, PSM provided us with significant results; almost 28 indicators are found significant. Table-1 encapsulates the indicators that are found significant in PSM. Since cross-sectional PSM is basically mean difference of two groups, i.e., control and treatment, therefore, results in PSM necessarily coincide with the outcomes of mean difference test. Hence, mean difference outcomes are not presented here while DiD results are missing as results are found not significant. Blank cells of each indicator reports that outcome of respective comparing groups are not statistically significant (P<=0.05).
Table 1: Statistically significant Indicators
Measurement Indicators
Difference as % of Control
Control- Treated (Repeat)
Control- Treated(Dropout)
Treated(Repeat)-Treated(Dropout)
Total asset at market price 77.3677.3677.3677.362222
Growth of total asset at market price 175.56175.56175.56175.562222
Growth of fixed asset at cost
323.41323.41323.41323.411111
Growth of fixed asset at market price 167.20167.20167.20167.202222 126.29126.29126.29126.292222
Ratio of fixed asset to total asset at market price (30.03)(30.03)(30.03)(30.03)1111 (35.30)(35.30)(35.30)(35.30)1111
Sales 134.34134.34134.34134.342222
Growth Sales
90.2390.2390.2390.232222
Ratio of sales to fixed asset 549.05549.05549.05549.051111 991.61991.61991.61991.611111 833.41833.41833.41833.411111
Profit 90.6290.6290.6290.621111 77.7677.7677.7677.762222 74.8474.8474.8474.842222
ROA
124.11124.11124.11124.111111 137.29137.29137.29137.292222
Total capital 106.76106.76106.76106.761111
Total debt 36.5836.5836.5836.582222
Equity capital 108.86108.86108.86108.862222
Generation of savings (66.97)(66.97)(66.97)(66.97)2222
Income enhancement
(23.17)(23.17)(23.17)(23.17)2222
Business expansion
(37.49)(37.49)(37.49)(37.49)1111
Note: 1indicates significant at 1 percent level; 2indicates significant at 5 percent level As stated earlier, 28 indicators are statistically significant. This does not necessarily suggest that all these indicators are independent and mutually exclusive. Some of these indicators may be correlated. Therefore, it is plausible to reduce number of indicators representing different dimensions. Keeping this in view, we employed Factor Analysis technique. Through this technique, financial and economic indicators are validated and reduced. Based on factor loading, we found that 13 indicators representing three dimensions can explain borrowers’ performance. Three dimensions are assets, sales and capital structure
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of the enterprises. These are the most significant dimensions of the borrowers’ financial sustainability. Within asset dimension, total and fixed assets’ size and growth both at cost and market price found most significant indicators. Growth of sales and sales to fixed asset explain the sales performance of the borrowers most while capital structure is explained precisely by total capital, debt and equity, credit to asset and BRAC Bank’s credit to fixed asset ratios. We find it, however, difficult to accept the fact that the correlation among the indicators may have been weaken in many cases because of sufficient variation due to shorter duration. As such we feel more comfortable with the set of indicators that we have identified. They are easily replicable and are applicable in all types of banking business throughout the globe, we have stated this in baseline study which is in fact tested and proven once again in this follow up study. Based on the results, we can conclude that BRAC Bank has created values to the entrepreneurs. Their SME credit has contributed positively to different outcomes for the borrowers. Their financed enterprises have positively impacted at the social and environmental sustainability level. However, two areas require improvement. They are usage of child labor and chemical (though both of these negative aspects show sign of improvement in this follow up), in business. These issues can be addressed through adopting a policy statement specifically in credit policy guidelines that will make the bank’s ethical position stronger than before. Finally the outcomes of this report can be described in a single sentence, i.e., “BRAC Bank’s credit program has positively and significantly impacted in its SME borrowers’ financial, environmental and socio-economic life”.
CHAPTER I: STUDY BACKGROUND
Sustainability is now gradually acknowledged as the nucleus to Though the financial sector has been late to respond to this trendSustainable banking not only promotes also creates a new landscape of business opportunity.that operate in developing countriesimpact along with financial impacts i ‘Sustainable banking’ is a banking practice which is concerned with the social, economic and environmental impacts of lending on the borrowers in addition to financial impacts. Sustainability is an important concernthe borrowers and the lenders of a society, is about long-term business success while contributing toward economic and social development, a healthy environment, and a stable society (IFC, 2007). Sustainable banking ensures that the broader interest of the society is protected and an inclusive growth is sustained in the long run. If the society breaks down, banks have no business. The global financial crisis of 2007-08 reminds us what ‘unsustainable banking’ is and the significance of sustainable socioeconomic development. Banks contribute to sustainable development through financing the appropriate economic and developmental activities. Four dimensions of sustainability are illustrated through Figure Financial sustainability refers to financial stability of the financial institutions and teconomic sustainability refers to the projects and companies financed by the financial institutions; environmental sustainability focuses on protection of natural resources and social sustainability thrives for welfare of communities (IFC, 2007). These dimensions of sustainability are not only emphasized in evaluating development projects financed by banks, but are also equally important in assessing effectiveness of banks. Integration of sustainability helps the bank’s reputation as wavenues of business. Two frameworks already exist for understanding the bottom-line’ approach which emphasizes on financial and social goals; whereas theeconomic environmental (natural) and social goals. Based on these approaches, different indicators have been developed to assess organizational sustainability (e.g., HuInitiative; IRIS; United Nations Commission on Sustainable Development; Bohringer and Jochem). In spite of being the youngest bank inationwide. Considering the kind of clientele group (SME)) it works with, achievement of the bank has been phenomenal. felt in both local and international arena. Both vertical and horizontal expansThe bank is known for its corporate values and socially responsible behavior.Alliance for Banking on Values’ (with focus on SME development and, in particular, small enterprise development. Considering different dimensions of sustainability and sustainable development, the critical questions are: how has the BRAC Bank performed, and to what extent it has served interest of the stakeholdemanagement, employees, government and society at large. Whatever set of indicators that we have thrived to develop and test cannot be applicable in all countries; it can be, in particular, applicable for the
STUDY BACKGROUND
gradually acknowledged as the nucleus to the growth of emerging marknancial sector has been late to respond to this trend, now they are increasingly realizing that
Sustainable banking not only promotes demand for greater social and environmental responsibility business opportunity. In the banking sector, increasing number of banks
that operate in developing countries are adopting policies that adhere environment and sociot along with financial impacts in their business practices.
is a banking practice which is concerned with the social, economic and
of lending on the borrowers in addition to financial impacts. Sustainability is an important concern for both the borrowers and the lenders of a society, as it
term business success while contributing toward economic and social development, a healthy environment, and a stable society (IFC, 2007). Sustainable banking ensures that the broader interest of the society is
growth is sustained in the long run. If the society breaks down, banks have no business. The global financial crisis of
08 reminds us what ‘unsustainable banking’ is and the significance of sustainable socio-
Banks contribute to sustainable development through financing the appropriate economic and developmental activities. Four dimensions of sustainability are illustrated through Figure-1.
Financial sustainability refers to financial stability of the financial institutions and teconomic sustainability refers to the projects and companies financed by the financial institutions; environmental sustainability focuses on protection of natural resources and social sustainability thrives for
(IFC, 2007). These dimensions of sustainability are not only emphasized in evaluating development projects financed by banks, but are also equally important in assessing effectiveness of banks. Integration of sustainability helps the bank’s reputation as w
for understanding the sustainable development. First one is theapproach which emphasizes on business organizations amalgamating their economic or
al goals; whereas the ‘Triple bottom-line approach’ focuses on integratieconomic environmental (natural) and social goals. Based on these approaches, different indicators have been developed to assess organizational sustainability (e.g., Hutchins and Sutherland; Global Reporting Initiative; IRIS; United Nations Commission on Sustainable Development; Bohringer and Jochem).
In spite of being the youngest bank in Bangladesh, BRAC Bank Limited has flourished its operation ng the kind of clientele group ((more than 50% are Small &
) it works with, achievement of the bank has been phenomenal. BRAC Bank has made its presence felt in both local and international arena. Both vertical and horizontal expansions have been taken place. The bank is known for its corporate values and socially responsible behavior. Being a member of Alliance for Banking on Values’ (GABV), BRAC Bank strives to attain the goal of sustainable banking
pment and, in particular, small enterprise development. Considering different dimensions of sustainability and sustainable development, the critical questions are: how has the BRAC Bank performed, and to what extent it has served interest of the stakeholders – depositors, borrowers, management, employees, government and society at large. Whatever set of indicators that we have thrived to develop and test cannot be applicable in all countries; it can be, in particular, applicable for the
Dimension of
Sustainability
Social
Economic
Financial
Figure 1: Dimension of sustainability
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the growth of emerging market economies. , now they are increasingly realizing that
environmental responsibility but increasing number of banks
environment and socio-economic
Financial sustainability refers to financial stability of the financial institutions and their clients where as economic sustainability refers to the projects and companies financed by the financial institutions; environmental sustainability focuses on protection of natural resources and social sustainability thrives for
(IFC, 2007). These dimensions of sustainability are not only emphasized in evaluating development projects financed by banks, but are also equally important in assessing effectiveness of banks. Integration of sustainability helps the bank’s reputation as well as expands new
sustainable development. First one is the ‘Double business organizations amalgamating their economic or
focuses on integration of attaining economic environmental (natural) and social goals. Based on these approaches, different indicators have
tchins and Sutherland; Global Reporting Initiative; IRIS; United Nations Commission on Sustainable Development; Bohringer and Jochem).
has flourished its operation mall &Medium Enterprises
has made its presence have been taken place.
Being a member of ‘Global strives to attain the goal of sustainable banking
pment and, in particular, small enterprise development. Considering different dimensions of sustainability and sustainable development, the critical questions are: how has the BRAC
depositors, borrowers, management, employees, government and society at large. Whatever set of indicators that we have thrived to develop and test cannot be applicable in all countries; it can be, in particular, applicable for the
Dimension of
Sustainability
Social
Environmental
Economic
: Dimension of sustainability
Page | 2
financial institutions in the developing countries. The underlying objective of developing the indicators is to monitor the progress towards sustainable development with either the ‘Double Bottom Line’ or the ‘Triple Bottom Line’ approach. Despite the progress on the development of indicators, the search for globally acceptable set of indicators with ease in application is still underway. It is more of a challenge to find out a set of indicators for organizations in developing countries where diversity in socio-economic and environment cultures exists. When it comes to Bangladesh, BRAC Bank is continuously engaged in the process to develop and test a set of impact measurement indicators which can be applicable globally. This study is a follow up of the previous one which was conducted by the ‘Centre for Corporate Governance and Finance Studies, University of Dhaka’ during the period November 2010 - January 2011. Some of the key findings of that study were:
• Treated (Repeat) borrowers were better off than the control group (first time borrowers) in profit volume, and growth in profit, sales, total assets and total capital
• Full time male employment was created by the treated (repeat) borrowers as a result of increase in total assets and sales volume
• Treated (Repeat) borrowers had higher tendency to involve their spouses in business decisions • Community level interaction of the treated (repeat) borrowers increased • Use of child labor in the enterprises of treated (repeat) borrowers increased • Chemical use and chemical waste disposal or use of polythene were higher for the treated (repeat)
borrowers • Four dimensions - financial, economic, social and environmental sustainability were found to be
valid • Finally enterprise performances of the borrowers were better explained by the firm size defined
in terms of assets structure, amount of assets, debt-equity ratio, and profitability ratios The study recommended that (i) some development indices be developed in course of further research, (ii) the validated indicators to be implemented in BRAC Bank existing process and finally (iii) the experience to be replicated across the globe. Considering the following objectives in mind, this study is conducted by R&D Division of BRAC Bank using their internal resources and the previous study as baseline:
• To revalidate the already identified indicators of sustainability • To investigate the impact of BRAC Bank credit at the small enterprise level • To assess the financial, economic, environmental and social sustainability of firms as a result of
repeat borrowing than the first time borrowing • Tracking the performance of already assessed borrowers plus newly added borrowers with similar
set of indicators
CHAPTER II: MISSING DEVELOPMENT
Industrialization is the engine of econindustrialization is very important and necessary for the economic development of Bangladesh. For booming industrial sector, appropriate and available financing is essential. In Bangladesh and non-banking financial institutions (NBFIs)basically finance multinational corporations (MNCs) and local large and medium conglomerates. Low and very low are being financed by micro credit institutions. Hence, SME remain the left over group. Thaverage required loan size of SME is BDT 650,000 (Ferrari 2006). Most banks and NBFIextend access to finance to this sector due to high transaction cost and lack of collateral. As a result, the expected role of SME in industrial
development could not be achieved. On that scenario, sector. It is playing a vital role in SME development. It has targeted this sector by understanding the positive relationship between SME development and economic growth, andsector with appropriate financing strategy. small entrepreneurs in rural areas who have little or no access to formal credit market.
SME’s Contribution to economic develo
There is no precise estimate of the contribution of SME to GDP. Serder (2000) reported around 20 percent whereas Daniels (2003) estimated (based on survey) 25 percent as SME’s contribution to GDP in Bangladesh. Such contribution is expected to grow further with the expansion of size of micro enterprises and small business. Although, we do not have information on the extent of contribution of SME to GDP, some information is available
on the contribution of small and cottage industries to GDP. It is sprofoundly contributed to employment creation percent of total industrial employment.
It is stated in a report of World Business Council for Sustainable Development (WBCSDimportant for the economy, government, large enterprises, and communities. SMEemployment and wealth. They contributeby reducing black market scenario. Localprovision to the large enterprises of both national and internationals. SME can enjoy the huge unexplored market in the developing countries, where large corporatefor communities. Through employment creation and growth,
CHAPTER II: MISSING MIDDLE – ENGINE OF INDUSTRIAL
Industrialization is the engine of economic growth. A balanced growth of both agriculture and industrialization is very important and necessary for the economic development of Bangladesh. For booming industrial sector, appropriate and
ng is essential. In Bangladesh banks banking financial institutions (NBFIs)
basically finance multinational corporations (MNCs) and local large and medium
Low and very low income groups are being financed by micro credit institutions.
SME remain the left over group. The average required loan size of SME is BDT 650,000 (Ferrari 2006). Most banks and NBFIs do not extend access to finance to this sector due to high transaction cost and lack of collateral. As a result, the expected role of SME in industrial
d not be achieved. On that scenario, BRAC Bank has emerged to cater this unbanked sector. It is playing a vital role in SME development. It has targeted this sector by understanding the positive relationship between SME development and economic growth, and the need for promoting the sector with appropriate financing strategy. BRAC Bank has been operating mostly with the emerging small entrepreneurs in rural areas who have little or no access to formal credit market.
SME’s Contribution to economic development
on the contribution of small and cottage industries to GDP. It is shown in Figureprofoundly contributed to employment creation - around 23 percent of civil labor force and around 85 percent of total industrial employment.
It is stated in a report of World Business Council for Sustainable Development (WBCSDimportant for the economy, government, large enterprises, and communities. SME
They contribute to the general tax revenue and improving social stability system by reducing black market scenario. Local SMEs can work as an important source of supply and service provision to the large enterprises of both national and internationals. SME can enjoy the huge unexplored market in the developing countries, where large corporates have difficulties in access. SMfor communities. Through employment creation and growth, they improve the standard of living of the
MNC &
Large Corporate
Small & Medium
Enterprise
Low and Very low income group
Figure 2: Pyramid of E
Figure 3: Enterprises contribution in GDP
Page | 3
ENGINE OF INDUSTRIAL
omic growth. A balanced growth of both agriculture and
emerged to cater this unbanked sector. It is playing a vital role in SME development. It has targeted this sector by understanding the
the need for promoting the has been operating mostly with the emerging
small entrepreneurs in rural areas who have little or no access to formal credit market.
hown in Figure-3. SMEs have around 23 percent of civil labor force and around 85
It is stated in a report of World Business Council for Sustainable Development (WBCSD) that SMEs are important for the economy, government, large enterprises, and communities. SMEs are a source of
to the general tax revenue and improving social stability system can work as an important source of supply and service
provision to the large enterprises of both national and internationals. SME can enjoy the huge unexplored have difficulties in access. SMEs are also good
the standard of living of the
Large Corporate
Small & Medium
Enterprise
Low and Very low income group
: Pyramid of Enterprises
: Enterprises contribution in GDP
communities. In a report of SEAF regarding development impact of SMEs, they focused on the SME development is also often seen as a critical
• SMEs generate many new jobs in the economy. Since many of these jobs are suitable for semiskilled or unskilled workers, they can be taken up by the poor.
• SMEs introduce business methods, products, and services thsectors or other uncompetitive transition economies, thereby absorbing labor that would otherwise drop into the ranks of the poor.
• SMEs help spread the benefits of economic growth by engaging lowdevelopment.
Size and Composition of SME
Due to definition problem, it is not so easy to draw the market size of SMEAgain with the increase in the number of industrial undertakings and employment, there have been changes in the structure of industries. Changes in the structure of industries are defined in terms of number of employment. While conducting enterprises census in 1986 and 2001/03, SMEs are defined as the enterprises with employment between 10 and 99. Below 10 employment is considered to be as Micro, 11-50 is considered as Small, 51-99 as Medium and 100 and above as Large. This definition was changed by Bangladesh Bank in June 2011 which is avowed in T
Table
ManufacturingSize of fixed asset including land and building OR
>BDT 100 million < BDT 300 million
Employee size 100-250
Size of fixed asset including land and building OR
BDT 5 million to BDT 100 million
Employee size 25-99 As per 1986 census there are 2.2 million enterprises. In 200enterprises. Figure-4, illustrates the share of Micro, SME and Large industries in 1986 and 2001/03. Figure-4 also illustrates that SME’s growth rate is lower than large. One the key reason is access to finance is much more wide open for Large limitations. The census information does not provide any indication of fixed assets of the enterprises. Hence, based on the number of employees if SME size is drawn it wprovided by Bangladesh Bank.
As per the national private sector survey of Bangladesh carried out by International Consulting Group (ICG) and Micro Industries Development Assistance and Services (MIDAS) refers that theMicro, Small and Medium Enterprises (MSMEindustrial structure of the MSME sector in Bangladesh consists of primarily wholesale and retail trade and repairs (40%), production and sale of
In a report of SEAF regarding development impact of SMEs, they focused on the SME development is also often seen as a critical component of pro-poor growth strategies:
generate many new jobs in the economy. Since many of these jobs are suitable for semiskilled or unskilled workers, they can be taken up by the poor.
introduce business methods, products, and services that help restructure weak agricultural sectors or other uncompetitive transition economies, thereby absorbing labor that would otherwise drop into the ranks of the poor.
help spread the benefits of economic growth by engaging low-income groups in natio
Size and Composition of SMEs
Due to definition problem, it is not so easy to draw the market size of SMEs. Again with the increase in the number of industrial undertakings and employment, there have been changes
ustries. Changes in the structure of industries are defined in terms of number of employment. While conducting enterprises census in 1986 and
are defined as the enterprises with employment between 10 and 99. Below 10 employment is
50 is 99 as Medium and 100 and above as Large. This definition was changed by
n June 2011 which is avowed in Table-2.
Table 2: Bangladesh Bank’s Definition of SME
Medium Industry
Manufacturing Service
>BDT 100 million < BDT 300 million
BDT 10 million to BDT 150 million
BDT 10 million to BDT 150 million
250 50-100 50-Small Industry
BDT 5 million to BDT 100 million
BDT 0.5 million – BDT 10 million
BDT 0.5 million 10 million
10-25 10-
As per 1986 census there are 2.2 million enterprises. In 2001/03 census it is reported as 3.7 million 4, illustrates the share of Micro, SME and Large industries in 1986 and 2001/03.
4 also illustrates that SME’s growth rate is lower than large. One the key reason is access to much more wide open for Large Corporates than SMEs. These census data have some major
limitations. The census information does not provide any indication of fixed assets of the enterprises. Hence, based on the number of employees if SME size is drawn it will not match with current definition
As per the national private sector survey of Bangladesh carried out by International Consulting Group (ICG) and Micro Industries Development Assistance and Services (MIDAS) refers that the
nterprises (MSMEs). About 31 million people are employed in MSMEs. The industrial structure of the MSME sector in Bangladesh consists of primarily wholesale and retail trade and repairs (40%), production and sale of agricultural goods (22%), services (15%), and manufacturing (14%).
Figure 4: Enterprises contribution in GDP
Page | 4
In a report of SEAF regarding development impact of SMEs, they focused on the SME poor growth strategies:
generate many new jobs in the economy. Since many of these jobs are suitable for semi-
at help restructure weak agricultural sectors or other uncompetitive transition economies, thereby absorbing labor that would
income groups in national
99 as Medium and 100 and above as Large. This definition was changed by
Business
BDT 10 million to BDT 150 million
-100
BDT 0.5 million – BDT 10 million
-25
1/03 census it is reported as 3.7 million 4, illustrates the share of Micro, SME and Large industries in 1986 and 2001/03.
4 also illustrates that SME’s growth rate is lower than large. One the key reason is access to . These census data have some major
limitations. The census information does not provide any indication of fixed assets of the enterprises. ill not match with current definition
As per the national private sector survey of Bangladesh carried out by International Consulting Group (ICG) and Micro Industries Development Assistance and Services (MIDAS) refers that there 6.0 million
). About 31 million people are employed in MSMEs. The industrial structure of the MSME sector in Bangladesh consists of primarily wholesale and retail trade and
agricultural goods (22%), services (15%), and manufacturing (14%).
: Enterprises contribution in GDP
Page | 5
As expected, however, a much larger proportion of enterprises in the rural areas are involved in the sale of agricultural goods and a much larger proportion of enterprises in urban areas are engaged in trade and service.
In the report “Increasing Access to Rural Finance in Bangladesh” (Ferrari 2006), market size estimated in the following manner:
• An estimated 5.9 million micro, small, and medium-size enterprises in 2003—which, based on population growth, suggests 6.8 million such businesses in 2006.
• Survey findings indicate that 84 percent of enterprises want to borrow. Of these, only about half will be both willing and able to borrow at a given time (based on the assumption that 70 percent of firms that want to borrow are creditworthy and that 70 percent of these are borrowing at the same time.
• This means that 1 million micro, small, and medium-size enterprises are potential borrowers. • About 78 percent of these enterprises are micro, 17 percent small, and 5 percent medium-size.
Expected loan requirement for Micro farms is BDT 175,000. Whereas for Small and medium enterprises loan requirement are respectively BDT 650,000 and BDT 3,00,0000. It is estimated SME loan demand is around BDT 255 billion (Ferrari 2006). Yet the big question remains is the need satisfied!
Constrains for SME development
In a proposal for SME development prepared Asian Development Bank (ADB) they have identified five (5) major constrains for SME development in Bangladesh which are
• Assess to finance • Enabling environment • Connectivity to Markets • Physical Infrastructure Constraint • Disadvantaged Women Entrepreneurs
The overall demand supply gap for SME credit is estimated at BDT 165 billion (Ferarri 2006). The demand and supply gap is mainly large due failure of Bangladesh Krishi Bank (BKB) and Rajshahi Krishi Unnayan Bank (RAKUB). BKB and RAKUB are the largest providers of financial services in rural areas. Both banks suffer from increasingly severe liquidity constraints. The banks’ financial distress is driven by politically influenced governance and weak internal operating, accounting, and control systems. High transaction cost and lack of collateral are the key restrictions for Private Commercial Banks to invest in this segment. To profitably serve MSMEs , banks need to generate a large number of high-quality loans. With small profit margins, banks need to increase revenue by making many loans which requires extensive operation. As a result, transaction cost becomes higher. Beside these reasons, legal and regulatory framework (especially rules on provisioning, credit bureau reporting, and movable collateral) make this market segment expensive to serve. When lending, banks make little or no distinction between large corporations and smaller enterprises in terms of the products they offer or the demands and procedures they apply. Banks do not segment MSMEs. Besides banks do not have organizational structure and monitoring tools to achieve high efficiency to cater this segment.
Limited credit information also hinders financing to the promising SME market. Credit information in Bangladesh is inadequate and unreliable, particularly to nonmetropolitan SMEs. Small and Medium entrepreneurs typically have little land to offer as collateral, but they have movable property ranging from equipment to inventory to receivables. The lack of a functional legal system of registered movable property, other than for public limited companies, is constraining the use of movable collateral. Linked to this is the lack of a central registry to ensure the integrity of such collateral. Market linkages, transport, telecommunications, financial, technological, and information exchange are vital for the growth of peri-urban, small town, and village areas. In Bangladesh, such infrastructure is difficult to find. Women entrepreneurs are less educated and have significantly less access to enterprise finance. The rates of women entrepreneurship are lower among rural nonfarm enterprises compared with metropolitan firms. Nonmetropolitan enterprises owned by women are smaller, younger, more likely to be informal, and home-based.
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46.4
21.4
32.2
Asset Composition of BRAC Bank
SME Retail Corporate
CHAPTER III: BRAC BANK – A CATALYST FOR SME DEVELOPMENT
Considering SMEs are labor intensive industries and can play a vital role in manpower recruitment, Bangladesh Government is continuously focusing on SME development. The Government has constituted a National Taskforce on SME Development to draw up a realistic strategy for promoting rapid growth and vigorous competitiveness among SMEs in Bangladesh in the interest of accelerating the growth of the economy and reduction of poverty in the country. SME advisory and SME Foundation was other initiative of government to expedite this sector. Bangladesh Bank has also developed financing and refinancing scheme and has provided guidelines how to serve this sector effectively. Yet the Private Commercial banks are hesitating to serve this sector. In this backdrop, BRAC Bank initiated SMEs lending in 2001, right from its inception. BRAC Bank has emerged through a process of learning. BRAC, a leading development agency in Bangladesh and the parent organization of BRAC Bank, had perhaps concluded from their long experience in micro finance and broad understanding of poverty and the process of alleviation that besides social and development interventions, development of micro and small enterprise development is critical to economic growth and development. Small enterprises were the missing ones in formal credit market of commercial and development banks. The experience of BRAC has perhaps shaped the policies of BRAC Bank. Its core mission is to attain sustainable growth in SME sector. Establishment of BRAC Bank with such mission provides a specialized window for the SMEs, in particular small scale enterprises.
Since the inception, BRAC Bank has disbursed over 150 billion taka as SME loans to almost 3.5 Lac SME clients. The following figure-5 illustrates the composition of BRAC Bank’s business focus on SME. Considering the SME development constraints BRAC Bank has focused developing infrastructure to cater this segment effective. So far to serve these SME customers 397 SME unit offices are in operation where standalone unit offices are 309, SME service centers are 70 and rest 18 are attached with the branches. Again it has successfully segmented its customers based on their need for finance. Basis on their needs BRAC Bank has come up with different types of products for SME which are illustrated in Table-3.
Table 3: SME Products offered by BRAC Bank
Product Name Description Loan ceiling Interest rate
Anonno Term loan for small scaled business
Between US$4000 and US$14000
• 10% for agro processing
• 19.75% for new loan but less for repeat
Prothoma Term loan for small scaled business operated by women entrepreneur
Between US$4000 and US$14,000.
10%
Shokti Term loan facility for all types business who have healthy bank transactions
Between US$14,000 and US$70,000
19.5%
Somridhhi Composite facility for small and Between US$1500 and 17%
Figure 5: Asset composition of BRAC Bank
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Product Name Description Loan ceiling Interest rate
medium sized import-oriented businesses to meet their trade finance requirements
US$40,000
Sompod
A loan facility for SME entrepreneurs to meet their short or long term cash flow requirements or bridge the fund flow gaps
Between US$15,000 and US$50,000
16%
Apurbo A term loan for medium size business
US$14,000 to US$70,000
• 18% p.a. for loan draft
• 17% p.a. for overdraft
Secured Loan Bullet Payment
Loan against FDR, DPS and WEDB purchased from BRAC Bank for small & medium size business
Minimum US$3,000 and no upper limit
• Current rate of special FDR for 360 days + 3% spread
Durjoy
S&M sized manufacturing, trading, service, agriculture, agro-based industries, etc. through SME unit offices, which are in same jurisdiction of BRAC Bank branches or SME service centers
Varies 19.75%
Shamolima Loan for biogas refinancing and Krishok card
Krishok card: US$135-175
• 9.99% for biogas refinancing
• 13% for Krishok card
Average size of BRAC Bank loan is about USD $6100 million. The question remains: why has BRAC Bank focused on such small sized borrowers? The rationales are the followings from the perspective of small sized borrowers:
• Left out in the credit market. • Marginally above the poverty line • Potentials to grow with backward and forward linkages. • Effective agents of change at the community level. • Finally, promoting small enterprises will in fact help others with homogeneous characteristics to
learn from the experiences of these arguably successful entrepreneurs. Micro finance is acclaimed internationally as an effective vehicle to create economic opportunities for the poor households. In Bangladesh, around 1000 micro finance institutions have been offering financial services to some 35 million poor members or some 20 million poor households. Over the past 25 years, achievement has been enormous. Some members have graduated from micro enterprises to small enterprises. This is likely to be around 14 percent of the total members, with most focused on traditional economic activities. There is a problem of asymmetric information. MFIs have been less focused in promoting small enterprises with provision of required information from the discussion above.
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Impact of BRAC Bank
Credit
Financial Sustainability
Economic Sustainability
Environmental Sustainability
Social Sustainability
CHAPTER IV: IMPACT ASSESSMENT FRAMEWORK: DEVELOPMENT OF INDICATORS
We have outlined a framework for identification of indicators based on the nature of financial services provided by BRAC Bank. Essentially indicators not only reflect impact assessment indicators of credit but also reflect the three bottom-line approaches. BRAC Bank is a financial institution. It provides, as we discussed earlier, deposit and loan services. Our concern is about indicator based impact assessment of BRAC Bank credit. We have argued that BRAC Bank essentially targets small enterprises. Credit is a multi-impact based intervention. It impacts:
• growth and development of small enterprises • household level outcomes of the borrowers through income and profit enhancement • market development or industrial development through backward and forward linkages • societal level through participation of the borrowers at the community level and • Finally, environment level through impacting behavior of the enterprises.
We have schematically presented the relationship between credit and different impact outcomes as follows:
Considering the relationship between credit and different outcomes, we have broadly identified impact indicators. We have expressed the relationships or the impacts in generic term so that this can have application in other countries. The board based indicators are illustrated in the next page:
Figure 6: Relationship between credit and impact outcomes
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Figure 7: Broad impact indicators
Access to
BRAC Bank Finance
Direct EconomicImpacts
-Increase in output
-Expansion of firm size
-Creation of new employments
-Increase in financial profitability
-Increase in productivity
Indirect Economic Impacts
-Backward and forward linkages
-Horizontal development of the financed enterprises in the region
-Innovations and/or technological development
Social Impacts
-Women empowerment
-Promotion of female owned enterprises
-Education of the children
-Reduces vulnerability of the households
-Improve in socio-economic environment
-Philanthrophic activities conducted
- Amount spent on health and education
- proportion total loan going to the SMEs
- Salaries compared to the market
Environmental Impacts
- Environment Friendly Enterprises
- Discouragement of use of chemical
- Discouragement of creating health hazard
- Discouragement of use of poly bag
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CHAPTER V: THE METHODOLOGY
Description of Indicators
In the baseline, measurement indicators framework was developed following the Triple Bottom Line approach. The dimensions of indicators had been identified are: financial, economic, social and environmental sustainability. These dimensions were identified from the demand side since the objective of this study is to monitor and evaluate the impact of SME finance at the borrower level. Besides, organizational sustainability of BRAC Bank was also measured in the light of few effectiveness indicators (Table-4). Since this is panel of earlier study, measurement framework has been kept unchanged. Within the board indicators, financial indicators cover asset accumulation, sales performance, profitability and capital structure. Table-32 rationalizes each of the indicators and specifies the measurements of the indicators. Economic indicators measure BRAC Bank’s credit impact in employment creation, savings generation, backward and forward linkages, business expansion and development (Table-33). In this category, number of employment created, nature of employment (i.e. full time or part time), type of employee (male, female and child) and their salaries/wages are captured. Environment-based indicators cover whether bank financed enterprises are environment-friendly, are they using chemical or anti-environmental objects like polythene bags in their business operations, whether their disposed wastage creates health hazard by and large (Table-34). Social indicators include major sub-indicators like interaction at the community level, women empowerment, children’s education, expenditure in family healthcare, usage of household durable items like Television, Freeze, Mobile set etc., access to entertainment, e.g. dish connection (Table-35). Table-36 describes effectiveness indicators of BRAC Bank’s communication at borrower level. This broad indicator is measured by awareness creation initiatives of the bank, cost of fund and borrowers’ accessibility to BRAC SME loan.
Table 4: Matrix of Broad Indicators
Broad Indicators Sub
Indicators Measurement Indicators
1. Financial Indicators
1.1. Loan repayment rate • Loan Recovery Ordering
• Intensity of difficulty in repayment
1.2. Accumulation of assets • Growth rate of total assets at cost
• Average asset at cost per firm
1.3. Value of all assets • Growth rate of total assets at market price
• Average asset at market price per firm
1.4. Utilization of resources
• Growth rate of fixed assets
• Growth rate of total assets
• Ratio of fixed assets and total assets Sales-fixed assets ratio
1.5. Long run earning potential • Growth in sales
1.6. Profitability
• Absolute profit per month
• Rate of return
• Return on assets
• Growth rate of profit
1.7. Financial structure • Debt-equity ratio
• BRAC Bank credit-assets ratio
• Credit-assets ratio
1.8. Financial impact of BRAC Bank credit • Business expansion Increase in profit
2. Economic Indicators 2.1. Employment creation • Full time employment – outside family
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Broad Indicators Sub
Indicators Measurement Indicators
• Part time employment – outside
• Full time employment – family
• part time employment – family
• Perceived impact of credit on employment
2.2. Generation of savings • Incremental savings due to BRAC Bank
credit
2.3. Income enhancement • Incremental income
• Incremental profit
2.4. Business expansion • Expansion in size
• Growth in total assets
2.5. Creation of competitive environment or business
• Number of new similar business enterprises developed.
• Percentage of similar business developed
2.6. Development of backward linkage enterprises
• Expansion in size of the backward linkage enterprises
2.7. Development of forward linkage enterprises
• Expansion in size of the forward linkage enterprises
2.8. Value chain development • Number of firms
3. Environmental Indicators
3.1. Environment friendly enterprises • The ratio of environment friendly enterprises
to total enterprises
3.2. Discouragement of business using chemical
• The ratio of the enterprises which do not use chemical in their business to total enterprises
3.3. Discouragement of business creating health hazard
• The ratio of the enterprises which do not create health hazard to total enterprises
3.4. Discouragement of using polythene bag
• The ratio of the enterprises which do not use polythene bag to total enterprises
4. Social Indicators
4.1. Women empowerment
• Women employment due to BRAC Bank credit, outside family
• Women employment from the family
• Participation in business decision
4.2. Use of child labor • Lesser employment of child labour
4.3. Education of children • Financing of child education
• Family Literacy rate
4.4. Interaction in the community • Enhancement in community interaction
4.5. Creating awareness • Communication by bank staff
• Bank advertisement
• BRAC Unit office
5. Effectiveness Indicators 5.1. Cost of fund • Low interest rate
5.2. Accessibility to BRAC Loan • Borrower-friendly flexible lending system
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The panel study is based on sample survey on 588 small enterprise borrowers of BRAC Bank selected from SME unit offices. Profile of the selected unit offices and detailed methodology of this study are described in subsequent sections.
Selection of Unit Offices
Unit office’s location has positive relationship with its business performance. Generally bank set up its unit offices in the commercial areas to cover maximum possible businesses. This set-up decision is also aligned with bank’s mission, vision and strategic business expansion plan. From its business network, one can learn about BRAC Bank’s area of operation as well as area of penetration. � Roughly 70 percent unit offices are located at rural areas while rest is situated at urban areas. This
suggests BRAC Bank focuses more on the development of rural and semi-urban areas.
Table 5: Location of Unit offices
Location % of Total
n=21
City Corporation 14
District head quarters 16
Upazila head quarters 52
Union 18
� About 53 percent of the unit offices are located in commercial centers, 38 percent in the general
market places and 10 percent in the residential areas. 56 percent borrowers of these unit offices are operating their businesses in commercial areas, 34 percent from market places and 9 percent from residential areas. This indicates BRAC Bank has targeted rural enterprises in growth centers.
� Both urban and rural unit offices have concentrated their operations in the areas where they are operating. Only 1 percent borrowers are operating in rural areas though they had availed from urban unit offices.
� Average distance from unit offices to borrowers' enterprises and residence are about 4 KM and 5 KM respectively. Unit offices presence closer to borrowers' enterprises made them more informed about the bank. 13 percent borrowers first get to know about the bank due to the closer proximity of unit office.
� 9 unit offices’ corresponding branches are other than BRAC Bank. Corresponding banks are PUBALI, RUPALI, KRISHI, JANATA and SONALI.
� 16 percent borrower perceived that there was no bank branch prior to BRAC Bank’s presence on that location.
� The unit office is generally a small field level office with an average of three employees. However, employee ratio differs from urban to rural, i.e., 7 : 4. The average education and experience of them are 16 and 4 years respectively. The objective of keeping the employee ratio at minimal level is to bring cost efficiency in the unit offices.
Data
Like the baseline study, this study is mainly based on primary data, collected solely from the small borrowers of 21 SME unit offices. These twenty one unit offices (about 7 percent of total which was 5 percent in baseline study) were selected randomly from the bank provided list in earlier study, and then 20 borrowers were picked up randomly from each unit offices maintaining appropriate combination of both first time (control) and repeat (treated) borrowers. At that time, overall about 35 percent borrowers are repeat ones. In addition, five borrowers were randomly chosen from each unit office from a list of enterprises with the criteria, borrowers who did not apply for repeat loan or rejected for the repeat loan. Thus, totally 525 enterprises were selected for the baseline survey. Above detailed the basis of the baseline study’s sampling technique. Since it’s a panel survey, we have intentionally kept the earlier sample intact. Meanwhile, we also considered the changing pan-bank scenario of “Control-Treated (repeat)-Treated (dropout)” borrowers’ composition. It was found that,
Page | 13
“Control-Treated (repeat)-Treated (dropout)” borrowers’ composition positioned at 5:54:41 at the end of December 2011. Allowing this factor, total sample size stood at 588 at 95 percent confidence interval and 4 percent tolerable error; therefore 63 more refreshment samples added to the earlier sample size, i.e. 525. Detail breakdown is as follows.
Table 6: Sample distribution of current study
Particulars No of Sample
Total Sample in the baseline Study 525
Refreshment samples in first follow up Study 63
Total Sample in first follow up Study 588
Borrowers’ Category
No of Sample % of Total
Control 56 9.52 Treated (Repeat) 288 48.98 Treated (Dropout) 244 41.50
Justifications for refreshment samples to existing samples are:
• Transition of panel borrower’s “borrowing status” Earlier sample borrowers’ status has been changed significantly after the baseline study. 36 percent control and treated (repeat) borrowers have been shifted to “Dropout” cluster while 22 percent control borrowers have availed repeat loan. Finally, Dropout and Existing borrower ratio in the sample stands at 46 (244 borrowers):54 (281 borrowers). Following table reported the latest status (as of December 2011) of the panel borrowers.
Table 7: Current Status of the panel borrowers
Borrower Category
Baseline Sample Composition
Baseline Sample Status as of December 2011
Control Treated (Repeat)
Treated (Dropout)
% of Dropout
Control 134 46 29 59 44.03
Treated (Repeat) 286 7 187 92 32.17
Treated (Dropout) 105 3 9 93 88.57
Total Sample 525 56 225 244
• Global “Control-Treated (repeat)-Treated (dropout)” composition changed Meanwhile, pan-bank Control-Treated (repeat)-Treated (dropout) composition also changed following the baseline study. In current sample size determination, this issue has also taken care of. As of December 2011, the composition stayed at:
Table 8: Pan-bank control – treated (repeat) – treated (dropout) borrower composition
Borrower Category
Pan-bank Status as of December 2011
No of Borrower
% of Total
% of Outstanding
Treated (Dropout) 88,320 41
Control 10,710
8
Treated (Repeat) 118,436 59 92
Total outstanding SME Borrower 129,146
Total SME Borrower as of Dec'11 217,466
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As of December 2011, BRAC Bank has provided SME loans to total 217,466 borrowers where 41 percent are dropout borrowers while 59 percent are continuing their financing relation with the bank. Amongst 59 percent outstanding borrowers (total 129,146 in numbers), 8 percent are control borrower while the rest already availed financing support more than once from the bank.
Dropout and existing borrower composition has been aligned in current sample size in line with pan-bank current ratio. Amongst 588 borrowers, 244 (41 percent of sample size) are treated (dropout) borrowers while the rest represents BRAC Bank’s existing borrowers. Point of attention is that, these 244 borrowers are the existing sample. As one of the objectives of this study is to track and measure the sustainability impact of the selected borrower for a considerable timeframe, therefore, these 244 borrowers’ contingent have been kept intact.
While to keep the pan-bank control vis-à-vis treated (repeat) borrower ratio (8:92) together, 63 more small enterprises were added to rest (i.e. 281) control and treated (repeat) panel borrowers. Hence in total 344 control and treated (repeat) borrowers were surveyed in current study, amongst which 16 percent are control while rest are the treated borrowers. However, this composition contradicts with pan-bank control to treated (repeat) borrower ratio; 8 percent more control borrowers were considered in this survey. Underlying reasons for not keeping pan-bank control to treated (repeat) borrower ratio (8:92) intact are:
���� Sample size would stand at 945 where total of control and treated (repeat) would be 701 and treated (dropout) would be as-it-is 244. Hence additional 357 borrowers would need to be surveyed.
���� Sample size per unit office would also increase to 45 from 28; additional 17 borrowers per unit office.
���� Data collection time and cost per unit office would shoot up substantially Considering all these factoids, finally we have added 3 control borrowers per unit offices; therefore total sample per unit offices stood at 28 which was 25 in the baseline study. Figure-8 shows all-in-all borrowers’ current position after the baseline study. Few minor corrections have been in effect in this study like 7 control borrowers were wrongly reported as “treated (repeat)” and 3 control borrowers were incorrectly reported as “Dropout”; these 10 borrowers have been shifted to their correct borrowing status. This change has limited/insignificant impact on overall impact since the number is too small to statistically justify.
2010(525)
t=1,v=1
First(134)
First(46)
Repeat(286)
Repeat(187)
Dropout(286)
Dropout(93)
Repeat-First(7)
Dropout-First
(3)
First-Repeat(29)
Dropout-Repeat
(9)
Repeat*(286)
* Refreshment Samples
First-Dropout
(59)Repeat-Dropout
(92)
First(56)
Repeat(288)
Dropout(244)
2011(588)
t=1, v=1
Year
Notes: Number of participants in parentheses; t = participation period; v = outcome measurement period
Figure 8: Transition of Borrowing Status since baseline study
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Data collection procedure was kept as-it-is following earlier study’s methodology. In order to capture broader impacts (economic, social and environmental) a semi-structured questionnaire survey was conducted on all the selected enterprises. We had followed the same questionnaire except one additional question which is “Did Bank staff provide inappropriate information about BRAC Bank’s loans?” The questionnaire contains financial, economic, social, environmental related questions related to the borrower. Like earlier study, both quantitative and qualitative information about these factors were collected to complement the quantitative survey. It is to be noted that this questionnaire contains data for the three periods of the business: while starting the business, before borrowing from BRAC Bank for the first time and while the survey was conducting (here cutoff period was December 2011). The survey was conducted during the period January 2011 – February, 2011. To bring data capturing efficiency and bring down data entry errors at minimal level, enumerators’ filled up ICR (Intelligent Character recognition) compatible questionnaire. This initiative has significantly improved the data quality (±5 percent error in dataset) and minimizes total study duration. Data was processed and edited using Ms Access and analyzed using the STATA and SPSS.
Methods of analysis
In analysing quantitative data we have used both bivariate and multivariate tools to analyse the data. In bivariate analysis, mean difference or proportional difference of the impact indicators mentioned in Table 31 – 35 was compared between control and treated (repeat) borrowers in baseline study, dropout analysis was missing since data captured from this group was not found significant. As this is panel study of the baseline, we have observed the impacts on both control and treated groups as well as included dropout in this analyses. Dropout borrowers are here reported as treated (dropout). The objective of taking in dropout borrowers is to assess how well they are in their financial and socio-economic life following their voluntary exit from bank’s financing net. As a whole comparing groups in this study are: control vis-à-vis treated (repeat) or control vis-à-vis treated (dropout) or treated (repeat) vis-à-vis treated (dropout). In order to estimate the actual impact of a loan scheme on its borrowers it is necessary to compare the observed outcomes (i.e., factual outcomes) with the outcome that would have occurred without program participation (i.e., the counterfactual outcomes). The differences between factual outcomes and counter-factual outcomes are actually program impacts. But only the factual outcomes can actually be observed. This is the major problem with assessing causal effects. Thus, for any program evaluation it is necessary to provide an estimate of the counterfactual outcomes. It is equally important to avoid selection bias in order to estimate impact outcomes precisely. Selection bias arises in program placement in areas and selection of participants. For example, selection of economically better off areas will have higher outcomes than when place in relatively less depressed region. Similarly, selection of qualified and enterprising participants will also generate higher level of outcomes. Therefore, an impact assessment will require not only estimation of counter-factual outcomes but also removal of all forms of selection bias. Accordingly, an appropriate estimation and evaluation technique has to be applied. Note that the evaluation methods of causal effects fall into two broad categories in empirical literature: randomized social experimental approach and non-experimental approaches. The randomized experimental approach is unanimously considered as the most robust evaluation approach because it holds a comparison (control) group which is a randomized subset of the eligible population. The most important aspect of the randomized experimental approach is that it can avoid the issue of selection bias since participation is randomly determined. Thus, it is claimed that a properly defined social experiment can avoid the missing-data problem of counter-factual group. However, its application is very limited in economics and other branches of social sciences (other than psychology). A large scale randomized design and experimentation is quite costly. Moreover, conclusions from a cross-sectional randomized experimental design may be misleading as it may not capture vulnerability and environmental factors which vary over time. A randomized experimental study should be conducted over a period of time in order to make the findings robust. This is when researchers are confronted with the questions of time, resources and ethics (when control households are forced not to have access to credit over time). Thus, researchers in economics and other branches of social science rely on non-experimental methods. A number of non-experimental estimation techniques have been developed by statisticians and
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econometricians to estimate the causal effects, such as difference in difference (DiD) estimator1 , instrumental variables estimation, selection estimator and matching estimator (Blundell and Dias, 2000). The first method falls into the ‘before and after’ estimation category and the latter three into the cross-section category. However, choice of an appropriate evaluation method for a program depends on some criteria, such as nature of the program, the nature of the research question and data availability. One should apply diff-in-diff method to measure causal effects if longitudinal or repeated cross section data are available because it can provide a more robust estimate of the impact of treatment. In the absence of longitudinal or repeated cross section data, researchers can use cross section data to deal with causal relationships. Estimating the effects conditional on participation in program is a widely used method in cross section data. In Bangladesh, a number of empirical studies (Pitt and Khandker, 1998; Nanda, 1999; Khandker and Faruqee, 2003) have used this method for assessing the impact of microcredit program. One of the major challenges of estimating the impact of a program using non-experimental data, conditioning on participation, is to deal with selection bias or endogeneity, which influences both the participation decision and outcome. Selection bias mainly arises because of the treatment group systematically possessing an ‘invisible’ attribute which the control group lacks (most commonly identified as entrepreneurial drive and ability). This problem has been tackled by using accepted ‘clients-to-be’ who have not yet received credit services as the control group in some microfinance literature (Hulme and Mosley 1996, chapter 4). Another challenge is the fungibility of the treatment (e.g.;when a loan is transferred from a borrower to someone else or when the loan is not used in the planned way). However, this is an intractable problem as ‘...no study has successfully controlled for the fungibility of resources between the household and the assisted enterprise’ (Gaile and Foster 1996:24). Following empirical literature on SME and microcredit (Pitt and Khandker, 1998; Nanda, 1999; Khandker and Faruqee, 2003; McPherson and Rous, 2010) we can consider a structural equation to estimate the outcomes of the interest. Note that the exact specification of the model (linear, probit, ordered probit or Tobit) depends on the nature of the outcome (), i.e., whether it is continuous, binary or ordered response.
ijijyijij AXy εδβ ++= (1)
ijy is the outcome of interest (e.g., expansion of business, participation in social activities, etc.) of
enterprise i in area (SME unit office) j. is a vector of observed characteristics of the enterprises (e.g., type of business, loan size, etc.). is a binary variable where =1 if enterprise of area participates in the loan scheme and = 0, otherwise. We have considered ‘treated (repeat) borrowers’ as a participants and ‘control borrowers’ or ‘dropout cases’ as ‘control’ following the concept used in microfinance literature. is the stochastic error term. The estimate of will give an unbiased estimate of the effect of loan scheme on the outcome if is an exogenous variable. In reduced form (participation) equation
ijijAijij ZXA µφβ ++= (2)
ijZ is a distinct set of enterprise or area characteristics that affect only participation in the scheme (ijA ),
but not outcome )( ijy conditional on ijA , and
ijµ is the stochastic error term.
In the absence of longitudinal or repeated cross section data, instrumental variable method and the propensity score matching method can be used in applied research to handle endogeneity in cross section data. Instrumental Variables (IV) is a standard, well established and popular approach in econometrics to deal with endogeneity at the individual level for the treatment group and comparison group. Under the IV method it is necessary to identify at least one variable that determines participation in BRAC Bank
1 It is sometimes known as ‘natural experiment’ approach.
ijy
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SME credit but not outcomes. This variable works as an ‘instrument’ to provide the required randomness in the assignment rule. In equation (2) are the identifying instruments. However, practically, it is hard to find instruments. The difficulty comes about because an instrument needs simultaneously to be the determinant of participation and non-determinant of the outcome of participation2. In many applications the price of the endogenous variable can be an instrument, as per demand theory, for predicting its demand. The price of access to a SME loan scheme is interest rate. But interest rate for a particular type of loan is same for all enterprises across the regions; hence there is no variation in prices among the members of each particular group. Accordingly, the argument for using price as an identifying instrument is not valid here. If there was any explicit eligibility criteria for participation in the scheme the sample could be constructed through a quasi-experimental design to resolve the endogeneity problem. It is worth mentioning that Pitt and Khandker (1998) used this type of survey design to resolve the endogeneity in participation of microcredit program in Bangladesh. But it is not possible to use the eligibility based instrumentation in this research as there are no explicitly ineligible enterprises because BRAC Bank loans are open to all the SMEs in the program areas. In a SME impact study in Indonesia, McPherson and Rous (2010) used title to land or a building as an instrument because this was used as collateral and was very important for qualifying loan. This instrument is not suitable in this research because BRAC SME does not require any collateral. Thus, in the absence of an identifying instrument, we have used PSM method in the multivariate analysis. Note that PSM has also become popular in evaluating the programs. Mean difference testing:
Hypothesis for testing mean difference is given bellow:
For testing the difference in means when the true standard deviation of both processes is known, we use the following formula to a standard normal distribution:
where is the true or expected difference. We can compare this to a standard normal distribution. Again, the true standard deviations typically are estimated. In this case we have to use the formula for the t-statistic. If the sample variances are equal, then we can achieve a better estimate of the true standard deviation by pooling the combined estimates. Then we just plug that pooled estimate into the above formula. Thus, if the variances are equal, we have:
and
If the variances are not equal, then use bellow formula except substitute the sample variance for the known variance:
2 This problem may not be solved even using lagged values of some determinants (if longitudinal or past data are available), which is commonly proposed to solve this problem, because they may be correlated with future values.
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and formula of degrees of freedom will be
Measuring Impact by Difference –in-Difference (DID)
In the context of the analysis of experimental data the simple comparison of the mean of the outcome in treatment and control groups (the ‘differences’ estimator) is justified on the grounds that the randomization guarantees they should not have any systematic differences in any other pre-treatment variable. This idea of trying to mimic an experiment suggests trying to find equivalents of ‘treatment’ and ‘control groups’ in which everything apart from the variable of interest (or other things that can be controlled for) are assumed to be the same. But this is often a very difficult claim to make as it is rarely possible to do this perfectly in which case observed differences between treatment and control groups may be the result of some other omitted factors. But, even if one might not be prepared to make the assumption that the treatment and control groups are the same in every respect apart from the treatment one might be prepared to make the assumption that, in the absence of treatment, the unobserved differences between treatment and control groups are the same over time. In this case one could use data on treatment and control group before the treatment to estimate the ‘normal’ difference between treatment and control group and then compare this with the difference after the receipt of treatment. Perhaps a graph will make the idea clearer If one just used data from the post-treatment period then one would estimate the treatment effect as the distance AB – this estimate being based on the assumption that the only reason for observing a difference in outcome between treatment and control group is the receipt of treatment. In contrast the ‘difference-in-difference’ estimator will take the ‘normal’ difference between the treatment and control group as the distance CB and estimate the treatment effect as the distance AC. Note that the validity of this is based on the assumption that the ‘trend’ in y is the same in both treatment and control group – if, for example, the trend was greater in the treatment group then AC would be an over-estimate of the treatment group. One can never test this identifying assumption of the same trend in the absence of treatment. But, if there are more than two observations on treatment and control group one can see whether in other periods the assumption of a common trend seems to be satisfied. Define µit to be the mean of the outcome in group i at time t. Define i=0 for the control group and i=1 for the treatment group. Define t=0 to be a pre-treatment period and t=1 to be the post-treatment period (though only the treatment group gets the treatment). The difference estimator we have discussed so far simply uses the difference in means between treatment and control group post-treatment as the estimate of the treatment effect i.e. it uses an estimate of (µ11 - µ01). However, this assumes that the treatment and control groups have no other differences apart from the treatment, a very strong assumption with non-experimental data. A weaker assumption is that any differences in the change in means between treatment and control groups is the result of the treatment i.e. to use an estimate of (µ11 - µ01)- (µ10 - µ00) as an estimate of the treatment effect – this is the differences-in-differences estimator.
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Propensity Score Matching
The PSM approach tries to capture the effects of different observed covariates X on participation in a single propensity score or index. Then, outcomes of participating and nonparticipating households with similar propensity scores are compared to obtain the program effect. Households for which no match is found are dropped because no basis exists for comparison. PSM constructs a statistical comparison group that is based on a model of the probability of participating in the treatment T conditional on observed characteristics X, or the propensity score: P(X ) = Pr(T = 1|X ). Rosenbaum and Rubin (1983) showed that, under certain assumptions, matching on P(X) is as good as matching on X. The necessary assumptions for identification of the program effect are (a) conditional independence and (b) presence of a common support.
The treatment effect of the program using these methods can either be represented as the average treatment effect (ATE) or the treatment effect on the treated (TOT). Typically, researchers and evaluators can ensure only internal as opposed to external validity of the sample, so only the TOT can be estimated. Weaker assumptions of conditional independence as well as common support apply to estimating the TOT. Assumption of Conditional Independence: Conditional independence states that given a set of observable covariates X that are not affected by treatment; potential outcomes Y is independent of treatment assignment. Assumption of Common Support: A second assumption is the common support or overlap condition: 0 < P(Ti = 1|Xi) < 1. This condition ensures that treatment observations have comparison observations “nearby” in the propensity score distribution (Heckman, LaLonde, and Smith 1999). Specifically, the effectiveness of PSM also depends on having a large and roughly equal number of participant and nonparticipant observations so that a substantial region of common support can be found. For estimating the TOT, this assumption can be relaxed to P (Ti = 1|Xi) < 1. Effects of the Treatment on the Treated
It is often difficult to assess impact of BRAC Bank at the enterprise level using quasi-experimental design if sample size is not sufficiently large to ensure that we have reasonable size of observations for each enterprise group. Homogeneity is a requirement. Considering the fact BRAC Bank finances different types of enterprises in different regions, it may be difficult to create homogenous group. In such a situation, we can assess the effects of the “treatment on the treated”. This implies that only the borrowers will constitute population. Since age of borrowing and nature of business along with borrower characteristics will be different, we will be able to assess impact by age of the business – new business versus old, less enterprising versus more enterprising borrowers, and so on. The incremental gain from the business will be measured by age of borrowing. Other characteristics may be introduced as well in the analysis. Being the largest SME bank of Bangladesh, BRAC Bank’s central focus is on the SMEs. However, it also provides other financial out activities and also incurs associated costs. Therefore, it is possible to provide information on loans productivity, cost efficiency and other relevant parameters.
Figure 9: Difference in Difference (DiD) curves
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In brief, the Indicator Validation Approach:
We have adopted several approaches to validate the indicators. Econometrically, we have used two techniques: Difference-in-difference (DiD) and test of differences. Since we have panel data of pre-and-post BRAC loan for both treated (repeat) and control borrowers; for some of the indicators, we have used DiD techniques. One of the major advantages of this technique is the controlling for unobserved characteristics that may generally influence outcome. However, DiD is not appropriate technique for those indicators that contains cross-sectional information. In these cases, mean or proportional differences test were used. In other sense, this technique was used for the growth-related variables that accounts for change in the outcomes from the base. Finally, Factor analysis technique was used to validate the indicators. Brief description and the results are reported in the appendix. It was found that not all the indicators are statistically significant as the frequency of data is for one year in most cases, therefore there was little data variation and age of the bank is just a decade. Thus, indicators that were found statistically insignificant necessarily not mean they are not validated. Despite this limitation, Factor Analysis identified a set of most leading factors or indicators. However, this does not necessarily reject less-loaded variables or indicators permanently.
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CHAPTER VI: ANALYSIS OF THE FINDINGS
This chapter describes and analyzes the outcomes of the indicators as a result of BRAC Bank’s SME credit program. First sub-section contains descriptive statistics of the enterprises participated in the panel study. While the later section focuses the outcomes as per the framework defined in methodology section. Descriptive statistics of the borrowers mainly explained demography of the borrowers and various centers’ distances from borrowers’ business place and their home. After this section main discussion has started. Discussion of this section has been progressed indicator-by-indictor. Relevant charts and tables are also plotted where applicable. Besides, in the appendix necessary tables containing findings including treated (dropout) borrowers are placed.
Borrowers and enterprises demography
In this panel study we interviewed in total 588 borrowers where 56 are control borrowers, 288 are treated (repeat) borrowers and 244 are treated (dropout) borrowers. 63 borrowers added to first study sample as a result of changed pan bank control-treated (repeat)-treated (dropout) composition following the baseline study. However, we had to replace3 11 borrowers of baseline study since they are not traceable mainly due to loan default and/or closure of business. In the first study, treated (dropout) borrowers were not qualified for further analysis since they restricted themselves to provide some crucial information. Therefore, analysis was conducted on 420 existing borrowers. One basic improvement over earlier study is that, we able to collect crucial information even from the treated (dropout) borrowers. Therefore, in this study, we conducted analysis on the total 588 borrowers. � 66 percent control borrowers' status has been changed after the base line study. 22 percent
borrowers availed loan again while 44 percent did not apply or availed loan from the bank. � 32 percent treated (repeat) borrowers' did not apply/avail loan from BRAC Bank after their last
loans were paid off � 9 percent treated (dropout) borrowers’ availed loan again after the base line survey.
These statistics reveal significant intra-borrowers category shifting since baseline study. In baseline study, borrowers were categorized into three broad groups: trading4, manufacturing and services5. In this study, we have further clustered manufacturing and divided manufacturing into two groups: manufacturing6and agro firms7. Rationale for this inclusion is to identify BRAC Bank’s focus on agro-based industries. Majority (about 82 percent) of SME borrowers are engaged in trading business which was 84 percent in earlier study, about 8 percent in manufacturing, about 5 percent in service and agro firms (Table-9). Treated (dropout) borrowers are comparatively more involved in trading (about 84 percent), control borrowers are found to be more engaged in Manufacturing (about 13 percent) and Agro based firming (about 7 percent) while treated (repeat) borrowers are relatively more involved in service oriented businesses. Nature of business changed significantly amongst the panel dataset, one commonalty is observed, i.e. those borrowers’ whose main business changed are now mainly doing agro firming. Further
3Amongst 11 replaced baseline survey borrowers, 5 were dropout and each 3 were repeat and first time borrowers. Factors
considered while replacement were borrower type (first/repeat/dropout), product type, SME unit office, loan amount, date of sanction, date of disbursement, date of expiry, loan tenor, interest rate, installment size, loan outstanding, overdue, DPD (dues per day), sector, sub-sector, borrower type of the untraceable borrower. These 11 missing borrowers were client of Uttara (7), Tongi (2) and Moheskhali (2) 4 This includes electronics, household items like crockery, shoes, computer hardware, accessories, fertilizer, pesticides, chemicals, poultry feed, medicine, restaurants, spare parts, books, stationary, furniture, construction materials, paints, hardware, clothes, footwear, rod, cement, tin, fuel pump, wood, timber log, bakeries, cosmetics, toiletries, grocery (departmental store), mobile, tailoring, whole sellers of rice, tea 5 This includes decorators, hospitals, clinics, pathological laboratories, diagnostic center 6 This include rice processing firms, bakery, furniture and saw mills, oil mills, printing press, knitting, woolen, pharmaceutical products and light engineering firms. 7 This include Agricultural products, poultry firms, hatcheries, jute, agricultural machineries, agricultural equipments and dairy firms
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exploration results look like this, 9 percent control borrowers moved to agro firming from their earlier trading and manufacturing businesses, at present 21 percent treated (repeat) borrowers’ main occupation is agro firming and service, shifted from their earlier trading and manufacturing businesses, 10 percent treated (dropout) borrowers’ are now involved in agro firming and service who are previously carrying trading and manufacturing businesses.
Table 9: Type of enterprises and borrowers
Business Type
Control Treated (Repeat) Treated (Dropout) Total
Round II %
n=56
Round I %
n=134
Round II %
n=288
Round I %
n=286
Round II %
n=244
Round I %
n=105
Round II %
n=588
Round I %
n=525
Trading 78.6 (44)
80.60 (108)
81.6 (235)
85.31 (244)
83.61 (204)
85.71 (90)
82.14 (483)
84.19 (442)
Manufacturing 12.5 (7)
13.43 (18)
7.6 (22)
11.89 (34)
6.56 (16)
13.33 (14)
7.65 (45)
12.57 (66)
Agro Firm 7.1 (4)
4.9 (14)
4.92 (12)
5.10 (30)
Service 1.8 (1)
5.97 (8)
5.9 (17)
2.8 (8)
4.92 (12)
0.95 (1)
5.10 (30)
3.24 (17)
This is a positive policy indication; BRAC Bank is now gradually choosing borrowers of such types who are doing businesses (i.e. manufactories and services) that create employment thereby directly contributes to country’s overall economy rather than intermediary businesses that purchases goods and sells them to new target customers, i.e. trading. Treated (repeat) borrowers on an average have availed loan 3 times from the bank while treated (dropout) borrowers’ had availed loan for times. Maximum 8 times loan disbursed to treated (repeat) borrowers and 4 times to treated (dropout) borrowers. Most of the treated (repeat) borrowers availed loan within the range of 2 to 4 times. On the other hand, most of the treated (dropout) borrowers availed loan 1 to 2 times and then after these borrowers either not applied since they did not feel the financing need or applied but not approved by the bank management.
Table 10: Times loan availed by treated (repeat) and treated (dropout) borrowers
Times loan availed
Treated (Repeat) %
n= 288
Treated (Dropout) %
n= 244
1 - 52
2 32 34
3 35 8
4 21 6
5 9 -
6 2 -
8 1 -
Almost all (99 percent) the borrowers are male irrespective of the types of borrowers. The average age of the borrowers is 42 years which was 40 in earlier study. Amongst all types, treated (dropout) borrowers are averagely 2 and 4 years senior to treated (repeat) and control groups. Average experience in the current business of the borrowers is about 15 years where treated (dropout) borrowers’ current business experience is found to be the maximum. There is significant difference (P=0.0210 and P=0.0389) in these factors between the treated (repeat) and treated (dropout) borrowers. This seems logical since treated (dropout) borrowers’ are senior by age; therefore these borrowers have started their business career expectedly earlier to rest two borrower types. This result was also match with earlier study. Irrespective of borrower categories, 96 percent were proprietorship concerns excluding those borrowers who have prior family business experience. Rest 4 percent (total 44 in number) borrowers’ nature of business ownership was partnership where average number of partners was 4.
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In general about 94 percent borrowers are married and average educational qualification of the borrowers is about 10 years, no change from earlier study. Factors that motivate the borrowers to start the current business are: � To be self dependent (about 37 percent borrowers) � Inspired from observing others' profitable business (about 13 percent borrowers) � Higher salability therefore fewer chance of stock piling (about 11 percent borrowers) � Having prior relevant experience (about 10 percent borrowers) � Family business development & for own future prospects (about 9 percent borrowers)
Table 11: General characteristics of the borrowers
Type of Borrowers
Age of the entrepreneur
Average (Std. Dev)
[n]
Educational qualification of the
entrepreneurs Average
(Std. Dev) [n]
Experience in Current business
Average (Std. Dev)
[n]
Experience in Family business
Average (Std. Dev)
[n]
Round II
Round I
Round II
Round I
Round II
Round I
Round II
Round I
Control 38.59 (7.43) [56]
38.20 (8.43) [134]
10.21 (3.80) [56]
9.52 (3.00) [134]
12.36 (6.48) [56]
12.16 (7.11) [134]
9.80 (8.11)
[5]
12.50 (13.34)
[10]
Treated (Repeat) 41.01 (8.96) [288]
39.97 (8.64) [286]
10.11 (3.73) [288]
9.53 (3.30) [286]
14.93 (8.82) [288]
15.00 (8.30) [286]
18.25 (9.67) [28]
15.72 (8.17) [43]
Treated (Dropout) 43.29 (9.34) [244]
42.21 (8.70) [105]
10.09 (3.40) [244]
9.96 (2.95) [105]
14.99 (7.89) [244]
14.97 (8.29) [105]
15.70 (9.12) [40]
13.29 (7.79) [14]
Total 41.73 (9.10) [588]
39.97 (8.69) [525]
10.12 (3.59) [588]
9.61 (3.16) [525]
14.71 (8.26) [588]
14.27 (8.09) [525]
16.27 (9.40) [73]
14.73 (8.97) [67]
In both current and earlier study, it is found that about 9 percent of the borrowers have 16 years family business exposure before starting the current business. Treated (repeat) borrowers have higher family business experience than the other two types (Table-11). Triggering factors that encouraged the borrowers engaged in family businesses were: � Family business development & for own future prospects (about 30 percent borrowers) � Other members engaged in business (about 13 percent borrowers) � To be Self Dependent (about 11 percent borrowers) � Easily salable, fewer chance of stock piling (about 9 percent borrowers) � Having prior relevant experience (about 9 percent borrowers)
Control borrowers are found most aged (average age around 43 years), treated (repeat) borrowers have higher educational qualification (have achieved at least educational qualification equivalent to S.S.C), treated (repeat) borrowers have highest current and family business experience (around 16 and 18 years in present and family business) respectively.Therefore, it is evident that borrowers’ personal characteristics have definite impact on different indicators which is discussed in later sections. Since only one-fourth unit offices are located at urban areas and 99 percent borrowers are located within the operational areas of respective unit offices, therefore it can be assumed that most of the borrowers are from rural areas. Study findings reveal that about 70 percent borrowers are from rural areas (upazila head quarter and unions) which is (+2 percent) higher than earlier study. Inclusion of 63 borrowers is the major reason for this increase. Overally 91 percent borrowers opinioned, their enterprises’ location is perfectly suitable for doing business. Amongst these, 53 percent borrowers’ enterprises are at present situated at commercial place, 38
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percent are in general market places and 10 percent in residential areas. Repeat borrowers’ business locations are the most suitable (93 percent) amongst all borrower categories, according to their perception. On an average location of borrowers’ enterprises are within quarter kilometer of a pacca road, less than one kilometer of a high school, one and half kilometers away from college, around six and half kilometers of commercial centre which is almost quarter kilometer closer than earlier study finding. This probably indicates new buildup of commercial center in the program areas. Nearest market place is half kilometer of borrower’s enterprises, almost one and half kilometers of a bus stand, about fourteen and half kilometers of a rail station, about nine and half kilometers of a launch station. Therefore, lunch terminal found closer to borrower’s business than rail station and bus stand. Distance from upazila head quarter to borrower’s business is four and half kilometers, one and half kilometers of a union council office and less than four and half kilometers of government hospital (Table-12). There is significant (P =0.05) difference between the control and treated (repeat) borrowers in important factors like pucca road (P=0.0107), commercial center (P=0.0183) and rail station (P=0.0065); factors like commercial center (P=0.0352), market place (P=0.0146), Upazila head quarter (P=0.0590) are resulted as significant in case of treated (repeat) and treated (dropout) borrowers.
Table 12: Average distance (in kilometer) of the location of the enterprises from some business friendly institutions
Average Distance
Round II Avg.
(Std. Dev) [n]
Round I Avg.
(Std. Dev) [n]
Control Treated (Repeat)
Treated (Dropout)
Total Control Treated (Repeat)
Treated (Dropout)
Total
Pucca road 0.64
(1.24) [54]
0.24 (1.01) [273]
0.20 (0.69) [233]
0.26 (0.93) [560]
0.42 (0.97) [132]
0.26 (1.09) [275]
0.13 (0.44) [101]
0.27 (0.96) [508]
High school 0.76
(1.08) [56]
0.67 (0.71) [283]
0.73 (0.90) [244]
0.71 (0.83) [583]
0.74 (0.83) [134]
0.68 (0.75) [283]
0.72 (0.94) [105]
0.70 (0.81) [522]
College 1.20
(1.39) [56]
1.91 (2.78) [285]
1.53 (2.27) [244]
1.68 (2.48) [585]
1.47 (1.92) [134]
1.96 (2.92) [284]
1.31 (2.04) [105]
1.71 (2.54) [523]
Commercial center 3.59
(7.01) [54]
7.99 (13.28) [278]
5.77 (9.96) [235]
6.65 (11.58) [567]
5.32 (9.67) [129]
7.76 (12.22) [270]
6.06 (11.45)
[95]
6.80 (11.49) [494]
Market place 0.45
(0.91) [54]
0.68 (1.58) [274]
0.39 (1.00) [234]
0.54 (1.31) [562]
0.49 (0.98) [134]
0.52 (1.34) [283]
0.51 (1.41) [105]
0.51 (1.27) [522]
Bus stand 1.21
(2.98) [56]
1.61 (3.15) [280]
1.21 (2.73) [242]
1.41 (2.97) [578]
1.77 (3.97) [134]
1.29 (2.38) [286]
0.80 (2.21) [105]
1.32 (2.85) [525]
Rail station 7.81
(10.02) [35]
15.44 (15.97) [231]
14.87 (15.41) [196]
14.62 (15.46) [462]
11.86 (13.64) [100]
16.32 (15.88) [232]
14.08 (15.85)
[82]
14.80 (15.44) [414]
Launch terminal 6.35
(9.63) [39]
10.32 (12.89) [155]
9.38 (12.82) [134]
9.46 (12.55) [328]
7.48 (10.76)
[86]
10.67 (13.72) [165]
8.17 (11.91)
[63]
9.29 (12.66) [314]
Upazila head quarter 3.90
(5.30) [56]
5.06 (6.05) [287]
4.14 (5.07) [244]
4.57 (5.60) [587]
3.95 (4.90) [134]
5.19 (5.81) [286]
3.27 (4.76) [105]
4.49 (5.44) [525]
Govt. hospital 3.72
(4.74) [56]
4.61 (5.19) [288]
4.13 (4.70) [244]
4.32 (4.95) [588]
4.16 (4.56) [134]
4.84 (5.17) [284]
3.32 (4.43) [105]
4.36 (4.90) [523]
Page | 25
Union council 1.11
(0.98) [50]
1.46 (1.74) [262]
1.46 (1.74) [218]
1.42 (1.68) [530]
1.47 (1.47) [118]
1.59 (1.91) [261]
0.98 (1.23) [95]
1.44 (1.70) [474]
Treated (dropout) borrowers’ firms are now comparatively closer (.01 kilometer less than earlier study) to their nearest high school and college, new commercial centers developed nearby the control borrowers’ business center after the base study, as a result distance from the nearest commercial center lessen by about quarter kilometer. Communication, local government administration and healthcare facility are gradually developing nearby the treated (repeat) and treated (dropout) borrowers’ business centers since distance from next rail station, lunch terminal, government hospital and union council shorten by more than quarter, half kilometer and less than quarter kilometer respectively.This result implies that BRAC Bank first targeted SMEs’ of already developed rural growth centers and then eyed on emerging business centers. The average distance of unit offices to the enterprise is less than 4 kilometers whereas from other banks to enterprises’ distance is less than five kilometers and unit offices to home of the borrowers is two kilometers while other banks distance from borrowers’ home is almost three kilometers. In both cases, distance is quarter kilometers higher in earlier study (Table-13). Average distance of unit offices and other banks to control borrowers’ firms and home have been reduced substantially due to higher rate of forward flow either to treated (repeat) and treated (dropout) groups. Hence average distance of unit offices and other banks to treated (repeat) and treated (dropout) borrowers’ firms and home increased. Distance from other bank to borrowers’ firm between control and treated (repeat) borrowers found significant (P=0.0408) while factors like distance from unit offices to borrower’s business and residing place between treated (repeat) and treated (dropout) borrowers found as significant (P=0.0005 and P=0.0061 respectively). This result indicates, location of unit offices might be one of the influential factors for treated (repeat) borrowers’ attrition while control borrowers prioritize the facility like convenient access to lender’s outlets while making financing decision along with other determinant factors. Control borrowers’ average distance of unit offices to enterprises and home grew marginally might be because of these borrowers’ business and residential addresses have been changed. Treated (repeat) borrowers’ average distance of unit offices and other banks to home also increased might be also due to earlier stated reason. These findings gives idea about the area of borrower’s coverage compared to competing banks.
Table 13: Average distance (in kilometer) of the enterprises or borrowers’ home from BRAC Bank and other
banks
Average Distance
Round II Avg.
(Std. Dev) [n]
Round I Avg.
(Std. Dev) [n]
Control Treated (Repeat)
Treated (Dropout)
Total Control Treated (Repeat)
Treated (Dropout)
Total
From SME unit office of BRAC Bank to enterprises
3.22 (4.20) [55]
4.61 (5.71) [286]
3.04 (4.40) [244]
3.82 (5.12) [585]
3.45 (4.02) [134]
4.51 (5.66) [285]
1.87 (3.18) [105]
3.71 (4.95) [524]
From other bank to enterprise 3.75
(4.18) [56]
5.43 (5.85) [288]
4.14 (4.83) [244]
4.73 (5.34) [588]
4.30 (4.06) [134]
5.21 (5.66) [286]
3.30 (4.55) [105]
4.60 (5.13) [525]
From SME unit office of BRAC Bank to home of the enterprises
2.07 (3.82) [55]
2.26 (4.03) [281]
1.72 (2.94) [242]
2.01 (3.60) [578]
2.24 (3.64) [134]
2.23 (3.93) [285]
0.98 (1.90) [105]
1.98 (3.57) [524]
From other bank to home of the enterprises
2.50 (3.39) [56]
2.80 (3.79) [284]
2.74 (3.77) [244]
2.75 (3.74) [584]
2.93 (3.63) [134]
2.77 (3.69) [286]
2.42 (4.09) [105]
2.74 (3.75) [525]
Page | 26
It was found in earlier study, borrowers’ demography and unit offices’ location had impact on different outcome indicators. Since this is follow up of earlier study, we have kept the earlier indicators set intact and observe the changes in outcomes in three comparing groups.
Analysis of Indicators: Impact Evidences
We had collected data for the three periods of borrowers’ businesses in current study: business starting period, prior to avail first loan from BRAC Bank and current period (here cutoff period was December 2011) on the possible number of variables and indicators. In addition to that, we have borrowers’ current position’s data as of 2010. For comparison purpose, we have back and forth referred to this dataset where required. Though this is a cross-sectional study, it could be done using only a few indicators. In that case, that selected indicators might not encompass and answer the overall changes in borrowers’ life as a result of BRAC Bank’s SME credit program. Therefore, in the base study, indicators set were structured as much as exhaustive. Consequently, as the objective of this follow-up study is to observe changes in outcomes within the given framework, we have looked at the changes occurred within three comparing groups. There are few variables (i.e. stock) that do not usually changes in every year; hence short duration of panel dataset might not produce significant improvement of these variables. This might be seen as one of the shortcoming of this study. Even so, in earlier study DiD technique was used for the panel data set which we also used in current study. Most of the results were derived from cross-sectional data set. PSM technique was used to validate the findings. In the baseline study, report was progressed indicator-by-indicator primarily using mean difference, PSM-based results and DiD-based results also referred where applicable. In this follow up study we did the same, in addition to that here analysis started with control and treated (repeat) group comparison. Then it further segmented in control-treated (repeat), control-treated (dropout) and treated (repeat)-treated (dropout) borrowers to see what the specific changes are taken place in these couples. Financial indicators
Accumulation of asset: Growth rate of total assets and size of assets at cost and present market value are considered while evaluating this broad indicator. Growth rate of total asset at present market price of treated (repeat) group grew phenomenally (more than 300 times higher) compared to control in round II and their growth rate is 5.51 percent higher than that of round I growth. This difference in growth rate of total asset at market price between control and treated (repeat) borrowers found as statistically significant. Treated (repeat) borrowers’ growth rate of total asset is comparatively higher and this differences is proven as significant according to PSM (t-value=2.310 result. Though treated (dropout) borrowers have higher average total asset both at cost and market price than rest comparing groups, their asset growth rate relatively lower as because of their acquired assets already larger in round I than rest couples.
Table 14: Accumulation of Assets of enterprises
Measurement Indicator
Round II Round I Growth over
Round I to Round II
Treated (Repeat) n=288
Control n=56
t-value*
Difference as
% of Control
Treated (Repeat) n=286
Control n=134
t-value*
Difference as
% of Control
Treated (Repeat)
Control
Total Assets at cost
25,787.82 14,399.47 1.57 79.09 25,419.08 15,683.61 4.34 62.07 1.45 (8.19)
Total Assets at Market Price
45,227.95 25,500.50 2.12 77.36 44,809.28 29,849.90 4.77 50.12 0.93 (14.57)
Growth rate of Total Assets at Market price
123.37 30.23 2.36 308.10 117.86 55.63 3.69 111.85 4.67 (45.66)
* Indicates significance level of the difference between treated and control group
Figures in USD and USD-BDT conversion rate 1 US$= 70.0035
Understandably treated (repeat) borrowers’ hold higher total asset than the control group since the earlier group received repeated financial services from BRAC Bank. It may have positively contributed to their
Page | 27
Figure 10: Growth of Total Asset at Cost as times loan availed advances
asset growth. Several factors may have contributed: acquiring of new assets and/or reinvesting of profit or surplus. The difference of total asset at cost of control and treated (repeat) borrowers between two periods is US$ 1652.88. Treated (repeat) borrowers’ total asset at cost grew comparatively at higher rate than the control but such difference is not statistically significant. Assets of treated (repeat) borrowers grow over time as with their number of repeat financing (Figure-10). It is, however, not appropriate to argue that all treated (dropout) borrowers are worse off than the treated (repeat). Our analysis shows that the treated (dropout) borrowers have higher assets and growth rate. This may be due to the fact that treated (dropout) borrowers decided not to borrow because of their attainment of perceived optimum size and inability to assume higher loan burden. During these periods, treated (dropout) borrowers’ total assets at market price grew by 19.66 percent compared to treated (repeat) borrowers’ growth rate of 26.91 percent. It clearly indicates BRAC Bank’s SME financing program has more positive impact than that of the control group. If total asset at cost is ranked by possession, treated (dropout) borrowers hold the highest asset, followed by treated (repeat) and control group is in last position. This trend is also consistent in case of total asset at market price. Treated (repeat) and treated (dropout) borrowers owned the highest assets perhaps because of repeated financing facility from the bank. However this indicator is not significant for any group. Table-14 indicates, difference between total asset at market price of treated (repeat) and control groups is statistically significant (t-value=2.12). Significance of total asset at market price indicates borrowers’ capacity to pay-off its debt at the time of liquidation. However, DiD result shows this indicators as insignificant (P=0.125). Therefore, overall it seems that treated (repeat) borrowers are in better condition in terms of accumulation of asset than the control. Utilization of resources: Utilization of fixed asset is the one of determinant of firms’ asset utilization. This broad indicator is measured through ratios like growth rate of fixed assets both at cost and market price, ratio of fixed asset to total asset and sales. Fixed asset to total asset indicates firms’ resource utilization strategy. Higher ratio indicates higher capabilities of firms to pay off liabilities at the time of liquidation; however this ratio should be balanced in a way that fixed asset would not offset current asset position since without having sufficient current asset (i.e. inventory, cash etc.) firm’s growth might not be sustainable. Table-15 shows that the treated (repeat) borrowers have positive fixed assets–total assets ratio, implying the firms have acquired more fixed assets than the control which was negative in baseline study (-0.03), however PSM result indicates this ratio as insignificant. This ratio for the both treated (repeat) and control borrowers found positive compared to earlier study is also signifies that working capital situation of these borrowers are improving compared to earlier period. Both fixed asset at cost and market price of four-time treated (dropout) borrowers grew substantially higher than that of four-time treated (repeat) borrowers (Figure-11 and 12 respectively). Treated (dropout) and treated (repeat)
Page | 28
Figure 11: Growth of Fixed Asset at Cost as times loan availed advances
borrowers’ fixed asset grew consistently, however treated (repeat) borrowers’ growth rate is 4.78 percent higher than the treated (dropout).
Table 15: Utilization of resources of enterprises
Measurement Indicator
Round II Round I Growth over Round I
to Round II
Treated (Repeat) n=288
Control n=56
t-value*
Difference as
% of Control
Treated (Repeat) n=286
Control n=134
t-value*
Difference as
% of Control
Treated (Repeat)
Control
Growth rate of Fixed Assets at cost
362.96 63.24 0.91 473.96 97.97 49.25 3.04 98.92 270.49 28.40
Growth rate of Fixed Assets at Market price
117.70 36.44 2.08 223.04 79.12 49.25 6.37 60.65 48.77 (26.02)
Ratio of Fixed Assets to Total Assets
0.90 0.88 0.48 1.76 0.22 0.25 (2.49) (12.20) 309.00 252.00
Ratio of Sales to Fixed Assets
6.92 5.52 1.08 25.42 13.35 8.03 2.16 66.25 (48.14) (31.26)
* Indicates significance level of the difference between treated and control group
The treated (repeat) borrowers had significantly (P=0.05) higher growth of fixed asset at market price
Figure 12: Growth of Fixed Asset at Market Price as times loan availed advances
Page | 29
while the same at cost price was found insignificant (t-value=0.91) compared to earlier study. However, earlier study’s PSM result indicates both the indicators as significant (P=0.01). Treated (repeat) and treated (dropout) borrowers’ growth of fixed asset both at cost and market price are proven as significant in both mean difference and PSM test. The ratio of sale and asset was 25.42 percent higher for treated (repeat) than the control, however this difference is not tested as significant (t-value=1.08). All of the comparing groups, sales to fixed asset ratio are significantly (P=0.01) better than earlier period. Overall it seems that treated (repeat) and treated (dropout) borrowers are in better condition in terms of utilization of resources. Sales Performance: Long run earning potential can be explained by growth in sales and absolute sales. This also reflects higher productivity and sustainability of the firm in the long run. The growth rate of sales is remarkably 96.60 percent higher for treated (repeat) borrowers than the control even though the difference is not statistically significant. Earlier study reported this ratio as significant (t-value= 3.19). Though treated (dropout) borrowers have the highest average sales, however sales growth is proportionately lower due to having larger base. Only control group has positive sales growth rate and
though sales growth is negative, treated (dropout) borrowers sales growth rate difference is significantly improved (P=0.05) than one year back. It can be explained this way BRAC Bank’s program has timely intervene to improve borrower’s business performance as well as these borrowers have utilized this loan effectively.
Sales grew significantly (t-value=2.03) for treated (repeat) borrowers compared to control group. Not only that treated (repeat) borrowers’ average sales is about 14 percent higher than that of earlier study while control borrowers’ average sales down by around 14 percent compared to same period (Table-16). Treated (dropout) borrowers have the highest sales, followed by treated (repeat) group. Treated (dropout) borrowers’ business performance suggests, BRAC Bank’s financing scaled up their business performance to a level that now they are well off to run their business without the assistance from the bank. This is
Measurement Indicator
Round II Round I Growth over Round I
to Round II
Treated (Repeat) n=288
Control n=56
t-value*
Difference as
% of Control
Treated (Repeat) n=286
Control n=134
t-value*
Difference as
% of Control
Treated (Repeat)
Control
Growth rate of Sales
68.98 35.09 1.46 96.60 81.76 41.24 3.19 98.24 (15.63) (14.92)
Sales 17,992.78 7,677.96 2.03 134.34 15,800.00 8,960.00 4.43 76.30 13.88 (14.31) * Indicates significance level of the difference between treated and control group
Figures in USD and USD-BDT conversion rate 1 US$= 70.0035
Figure 13: Growth of Sales as times loan availed advances
Table 16: Sales Performance of enterprises
Page | 30
certainly significant impact of financing. Then comes, treated (repeat) borrowers who are relatively in better shape due to repetitive financial aiding from the bank while control group’s business performance improved perhaps this group are still servicing the first time loan, since the duration of financing is rather short, it should take further time to create impact on business performance. Largely the above result suggests moderate level of scaling up of business and better use of fixed assets by treated (dropout) and treated (repeat) borrowers. Higher asset base positively trigger the sales of four-time treated (dropout) borrowers (Figure-13) and also consistency found in their sales growth. Therefore, it can be said that BRAC Bank’s credit program has been positively translated in their trade performance. Profitability: This broad indicator is measured in terms of absolute profit and profitability in relation to profit growth, asset and sales. Profit of both treated (repeat) and control groups increased by around 65 percent and 11 percent respectively compared to earlier study. Treated (repeat) borrowers’ profit grew significantly (P=0.05) than the control in this study. Normally higher sales usually trigger higher profit and this assumption prevails in the comparing groups. Same like sales, treated (dropout) borrowers earn the highest profit in volume and then comes treated (repeat) group. Yet amongst all groups, profit of treated (dropout) borrowers is tested as significant (P=0.05) both in mean difference and PSM test.
Figure-14 poises contrary result to sales performance of four-time treated (dropout) borrowers, their profit is US$ 128.37 less than four-time existing treated (repeat) borrowers. This might be because of their higher overheads despite no or less cost of debt than the repeats. Therefore, treated (repeat) borrowers’ profit generating capacity is steadier than the treated (dropout). While treated (dropout) borrowers profit grew more by 109.98 percent and the profit difference is statistically significant (P=0.01). The PSM results (Table-17) show that the treated (repeat) has higher growth rate of profit over the control group which is statistically significant (t-value=1.68). Within the comparing groups, only treated (repeat) borrowers profit growth tested as significant (P=0.10) both in mean difference and PSM results. Treated (dropout) and treated (repeat) borrowers’ ROA found significant (P=0.05) both in mean difference test and PSM. According to this statistics, treated (dropout) borrowers are now holding relatively more revenue generating current asset and their stock turnover is higher than others.
Figure 14: Growth of Profit as times loan availed advances
Page | 31
Table 17: Profitability of enterprises
Measurement Indicator
Round II Round I Growth over Round I
to Round II
Treated (Repeat) n=288
Control n=56
t-value*
Difference as
% of Control
Treated (Repeat) n=286
Control n=134
t-value*
Difference as
% of Control
Treated (Repeat)
Control
Profit 1,338.39 702.12 1.97 90.62 811.44 633.17 1.81 28.16 64.94 10.89
Growth rate of Profit
74.42 19.68 1.68 278.07 53.66 30.66 2.68 75.02 38.69 (35.80)
Return on Asset (ROA)
47.77 55.58 (1.04) (14.06) 29.13 37.82 (4.69) (22.98) 63.99 46.97
Return on Sales (ROR)
12.21 12.93 (0.30) (5.55) 7.81 10.76 (6.38) (27.40) 56.33 20.17
* Indicates significance level of the difference between treated and control group
Figures in USD and USD-BDT conversion rate 1 US$= 70.0035
Return on Sales indicates profit margin being earned by the borrower. This indicator is found as significant only for treated (repeat) borrowers as per mean difference test and PSM (P=0.01) results. This result connotes, treated (repeat) borrowers have the larger profit margin than the rest might be as result of the buyers’ reliance on them that grew over the years. Several other factors may have contributed to hypothesis: more focus on the amount of sales and consolidation of their business. DiD results of all these cases are not statistically significant. Capital structure: Financial structure reflects distribution of debt and equity capital. We evaluate impact of BRAC Bank credit on financial structure of the firms using five indicators – equity capital, debt capital, growth rates of equity and debt capital, and debt-equity ratio. It is difficult to suggest any direct of the impact on financial structure depending on the strategy adopted by the firm-borrowers. If any firm revolves profit and put into equity capital on the one hand, and repays loan on the other hand, it will have higher growth in equity capital and negative in loan growth rate. There may be another situation where, a firm may go for expansion of the business using profit, either fully or partly, and borrowing more for financing expansion, the firm may show higher growth in debt capital and relatively lower growth rate in equity capital. This might be the situation with the treated (repeat) borrowers. However, the structure will be also determined by the amount of profit or percentage of profit withdrawn for the use of the family. It is, however, difficult to set any pre-assumed direction of the impact.
Table 18: Capital Structure of enterprises
Measurement Indicator
Round II Round I Growth over
Round I to Round II
Treated (Repeat) n=288
Control n=56
t-value*
Difference as
% of Control
Treated (Repeat) n=286
Control n=134
t-value*
Difference as
% of Control
Treated (Repeat)
Control
Total Capital 40,593.08 19,632.56 2.61 106.76 35,038.88 26,257.37 4.10 33.44 15.85 (25.23)
Total Debt 12,124.06 6,429.79 2.50 88.56 10,474.59 7,942.08 3.68 31.89 15.75 (19.04)
Equity Capital 28,587.81 13,687.58 2.25 108.86 24,498.58 18,306.92 3.45 33.82 16.69 (25.23) * Indicates significance level of the difference between treated and control group
Figures in USD and USD-BDT conversion rate 1 US$= 70.0035
The results as reported in Table-18 suggest that the treated (repeat) borrowers had higher total capital (by 106.76 percent), higher debts (by 88.56 percent) and higher equity capital (by 108.86 percent) compared to the control. The differences of all these indicators found as significant (P=0.05) in mean difference and PSM result while in DiD only total debt is figured out as significant (P=0.10). There are two major components of total capital, one is debt and another is equity. Treated (repeat) borrowers have the highest volume of capital because of higher debt than others while treated (dropout) borrowers hold the highest equity capital than the others. This seems logical, since treated (dropout) borrowers are no more debt holder, their debt have been released and add back to equity. On the other hand, treated (repeat) borrowers are becoming financial stable therefore in their debt-equity composition equity portion
Page | 32
increasing and debt is releasing. Once they will reach at the maturity position, their debt portion will be substantially low. This in fact suggests, treated (dropout) borrowers built up their equity with the help of BRAC Bank’s credit and their internal and external shock absorbing capacity has been strengthened. One would be able to deduce from the following table that difference in debt-equity ratio of both control and treated (repeat) is increasing in round II from round I. The difference is now 4.57 percent which was 0.62 percent earlier. This signifies treated (repeat) borrowers are conserving equity more rapidly than debt; therefore they are getting rid of debt liability in the passage of time. As a whole, it seems that treated (dropout) and treated (repeat) borrowers are in better condition in terms of financial structure of the firm. Summing up the above, one important finding is borrowers who did not avail loan after availing credit for fourth times from the bank; they are in better financial position than one to fourth times loan receiving borrowers who are either continuing or left the bank. No comparing group found within the borrowers who have availed credit more than fourth times. This finding indicates, 4 times financing is sufficient to improve the financially conditions of the borrowers. Regular8 borrowers are in superior9 condition expectedly than the defaulters both financially and economically and the differences are statistically significant (P=0.05). 17 percent borrowers are defaulter10 within the sample. This percentage is quite high, but the segments BRAC Bank have targeted and financing, are already riskier segments that are mostly unbanked due to their existing of business position. This down gradation can be intentional, i.e. adverse borrower selection, fund diversion or due to inadvertent causes like increased competition, accident in personal/businesses, natural calamity etc. One lesson learnt from here, BRAC Bank’s credit assessment process should be strengthening in such a way that it will not only assess the borrower but also his surroundings. For doing so, BRAC Bank should formulate cluster based strategies which will be followed up periodically by “Area Approach Method”. Last of all, it can be stated, BRAC Bank’s SME credit program surely leads the way of gradual socio-economic improvement of these mostly underserved segments’.
All-in-all, PSM suggest 28 indicators as significant however, through this outcome it is difficult to sketch dimension of borrower level sustainability. To get the idea about the sustainability dimension at borrower level, we have used facto loading technique. It is commonly accepted technique since it helps to reduce the number of indicators, hence position the indicators set to a manageable state and give an idea about the dimension. Factor loading result suggest, there are three broad pillars of borrower level sustainability, i.e. asset size, sales performance and capital structure. Within asset dimension, total and fixed assets’ size and growth both at cost and market price found most significant indicators. Growth of sales and sales to fixed asset explain the sales performance of the borrowers most while capital structure is explained precisely by total capital, debt and equity, credit to asset and BRAC Bank’s credit to fixed asset ratios. Economic indicators
Employment creation: Credit would directly create employment if it leads to increase in business size. In the earlier section financial impact of credit on business has been discussed. Following table represents that incase of full-time male employment generation, treated (repeat) borrowers were directionally better-off than control borrowers. Opposite was observed in female employment generation. Both mean difference and PSM result shows that among treated (repeat) and control borrowers statistically significant difference found in male employment creation (P=0.10) however female employment creation is not yielded as significant. Factor analysis does not result any of these indicators as significant.
8 Borrowers who are paying monthly installments regularly or latest installment is not paid on installment due date but next installment date not yet arrived, i.e. overdue for less than 30 days from the date of lapse installment due date 9 Table-49 compares the detail condition of regular and default borrowers 10Default borrowers are defined as the borrowers who have defaulted at least two or more installments in most recent times
Page | 33
According to Table-50 treated (repeat) borrowers recruited more male employee than the control; average recruitment by repeat and control borrowers is 3 and 2 respectively. Difference of male employment creation by treated (repeat) and treated (dropout) borrowers’ is marginal (0.35 more than later group), yet these differences are not statistically significant. This is a good sign, treated (repeat) borrowers are hiring more than others to support their business growth as revealed in earlier section. This is one of the good impacts that have been instrumental mainly due to repeated financial assistance from BRAC Bank. Treated (dropout) borrowers’ have hired the majority female employees followed by the control. Overall female employment increased compared to earlier study. The difference of female employment creation by treated (repeat) borrowers between two periods found as significant (P=0.05). This is another good impact that has been made possibly indirectly through BRAC Bank’s credit.
Table 19: Employment Generation
Measurement Variable
Round II Round I
Treated (Repeat) n=288
Control n=56
t-value*
Difference as
% of Control
Treated (Repeat) n=286
Control n=134
t-value* Difference as % of Control
Number of full time male employees
3.60 2.13 1.91 68.61 2.26 1.62 3.27 39.51
Number of full time female employees
4.25 5.50 (0.48) (22.73) 0.31 0.29 0.23 6.90
* Indicates significance level of the difference between treated and control group
Savings generation: Savings generation, income enhancement, and increase in profit, growth of similar business in the market area are used as a tool for assessing the economic impact of credit. The results suggest that the treated (repeat) borrower’s perceived higher positive impact of BRAC SME loan in all of these factors except creation of competitive business environment. PSM result indicates that control borrowers’ influence more in competitive market development compared to their counterparts. As per mean difference and PSM result, control and treated (repeat) borrowers’ perceptions difference are proven to be significant (P=0.05) in case of savings generation as a result of BRAC Bank’s financing while in evaluating income enhancement and business expansion treated (repeat) and treated (dropout) borrowers perceptions difference are tested as significant (P=0.05) while neither DiD nor factor analysis poise better result for none of these indicators.
Table 20: Reflection of perceptions about different Economic indicators (percent)
Measurement Variable
Round II Round I
Treated (Repeat) n=288
Control n=56
t-value* Difference as % of Control
Treated (Repeat) n=286
Control n=134
t-value* Difference as % of Control
Generation of savings
43.14 32.23 1.63 33.84 75.95 72.24 0.37 5.14
Income enhancement
42.31 33.00 1.94 28.21 52.21 30.88 6.60 69.07
Business expansion
49.84 42.79 1.13 16.47 71.71 35.03 8.84 104.71
Creation of competitive business
79.83 91.07 -0.73 -12.34 74.68 71.51 3.17 4.43
* Indicates significance level of the difference between treated and control group
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Environmental indicators
In the Wake of financial sector development, banks are now recognizing the essence of “Green Investment”; therefore, now-a-days banks are focusing more on making sustainable investments that have lesser adverse impact on environment. This way banks are promoting the way to make our environment better. As a result, companies are also integrating the concept of environment sustainability in their business activities. Green investments generally refer to the businesses that are somehow involved in operations aimed at improving the environment and that exercise or on-the-way of adopting the best environmental practices. Say, investing in dying factory, may be profitable investment vehicle for some investors while others may accuse it as threat for environment since such factory use and exhaust health hazardous chemicals which directly pollute water. However, if this industry install and use Effluent Treatment Plan (ETP) to remove pollutant elements in their product process, then this industry can be treated (repeat) as environmental-friendly imitative.
Basically descriptive approach was adopted in baseline study for evaluating impact of credit on environment. Through this approach earlier we tried to figure out the extent of pollution that the borrowers create to the environment directly or indirectly. Same methodology was also followed in this panel study. Borrowers activities suggests that BRAC Bank appears to be quite environment conscious in making project decisions, since majority (about 87 percent) of the enterprises were environment friendly neither use chemical nor poly bag in their business operations; amongst these, around 83 percent of the enterprises did not deal with any chemical particles in their business while 47 percent borrowers never used poly bag in their businesses. Treated (repeat) borrowers’ is in better position than the control groups in terms of number of environment friendly enterprises, discouragement of chemical and creating health hazards.
Table 21: Enterprises’ responsiveness towards various Environmental Issues
Sl. No. Environmental Indicators Specific Measurement
indicators
Round II Round I
% (n)
Treated (Repeat)
% (n)
Control % (n)
Total % (n)
1 Environment Friendly Enterprises The ratio of environment friendly enterprises to total enterprises
91.70 (264)
88.18 (49)
86.90 (511)
84.19 (442)
2 Discouragement of use of chemical
The ratio of the enterprises which do not use chemical in their business to total enterprises
82.29 (237)
78.57 (44)
82.82 (487)
98.67 (518)
3 Discouragement of creating health hazard
The ratio of the enterprises which do not create health hazard to people in the community to total
93.75 (270)
92.86 (52)
94.89 (558)
94.29 (495)
4 Discouragement of use of poly bag The ratio of the enterprises which do not use polythene bag to total enterprises
50.00 (144)
50.00 (28)
46.60 (274)
54.86 (288)
Though BRAC Bank does not directly contribute to the development of better environment, it does not finance such a project that has grossly polluted the environment. While credit assessment, it is meticulously assessed whether the project proposed to finance somehow violate the country’s environmental policy or Bangladesh Bank’s prescribed discouraged sectors. Most of the projects or enterprises appeared to be environmental friendly as evident from the samples. However, around 13 percent of the enterprises currently produce or use pollutants as appose to environmental sustainability; this is significant improvement (3 percent less)compared to earlier study. BRAC Bank is providing loan to different types of enterprises amongst all are not sensible to the environment. Some of these directly or indirectly pollutes the environment, thereby creates health hazards and overall causing harm to environment. Subsequent sections show the total scenario of impact of financing on the environment.
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Table 22: Environmental impact of enterprises
Sl. No.
Impact criteria Round II Round I
% Change No of
Enterprise %
No of Enterprise
%
1 Affecting Environment 47 7.99 53 10.10 -2.11
2 Creating Health Hazard 30 5.10 30 5.71 -0.61
Total 77 13.10 83 15.81 -2.71
3 Number of Enterprises not affecting Health & Environment 511 86.90 442 84.19 +2.71
Total observation(n) 588 100 525 100
Source: Generated from field data
Nature of pollution will vary from one business nature to other, again all the business types will not pollute environment, yet again level of pollution will also differ from one type to other depending on their production process and type of products they produce or sell. Most commonly, enterprises like chatal (where paddy is processed to make rice), saw mill, brick fields, engineering workshops, press and printing shop are directly producing several pollutants. Beside this, other types of enterprises where pollutants are produced indirectly. Table-52 in the appendix shows different types and its quantity of enterprises that are producing or using pollutants. Research reveals, twenty one types of businesses generate environmental pollution and thereby create health hazard. The common are chatal, grocery store and rice and saw mills. Both rice chattals and rice and saw mills produce ash, dark smoke, hot water and sound pollution. Grocery stores use poly bags. Brick fields are the major source of ash and dark smoke which pollutes the surrounding environment badly and contribute to health related hazards. Diagnostic centers and engineering workshops also produce chemical wastage, welding and dust particles. Other than these, commonly used pollutant particle is “Poly Bag”. Compared to earlier study, 6 enterprises found where ploy bag are not used instead they are using jute-made or paper-based bag. This is a positive sign of growing awareness about “Global Warming” within the samples.
Broadly 6 type’s pollutant particles are used in 21 categories of businesses. Below table (Table-23) clearly visualize that usage of poly bag (-2.81 percent), creation of dust particles and sound (-4.72 percent) have decreased significantly while production of chemicals, wielding and dark smoke raised substantially (+6.14 percent) compared to earlier study. Usage of kerosene, diesel and exhaustion of chemical west remain as-it-is like the earlier study. Earlier study findings basically helped the bank in redressing its lending policy which results in significant improvement as appeared in latest study. However, at the time of loan approval, extent of pollution of some enterprises likes rice chatal, engineering workshops, diagnostic centers, printing presses should be evaluate critically.
Table 23: Frequency Distribution of Pollutants
Sl. No. Pollutants categories Round II Round I Net
Change Frequency % Frequency %
1 Poly bag 47 61.04 53 63.85 -2.81
2 Ash, Dark Smoke, Hot water 13 16.88 13 15.66 +1.22
3 Chemicals, Welding, Sound & Dark smoke 14 18.18 10 12.04 +6.14
4 Dust particle & Sound 1 1.30 5 6.02 -4.72
5 Kerosene, Diesel 1 1.30 1 1.20 +0.10
6 Chemical waste 1 1.30 1 1.20 +0.10
Total no of enterprises affecting environment and Health 77 83
Source: Generated from field data
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Identified pollutants not only affect the environment but also create health hazards. Through these particles environment is affected in various ways like air pollutions, soil degradation, sound pollution, water pollution and damaging to plants. On the other hand, health related problems like respiratory problems, skin diseases, eye problems, reduce hearing power, and other health related diseases are by-product of these pollutants. Though usage of environment affecting particles reduced significantly, there is no improvement in usage of pollutants affecting health compared to earlier study. Table-24 shows the frequency of impacts over environment and health and the percentages of each frequency within the total observation.
Table 24: Impact on Environmental and Health by the enterprises
Sl. No.
Pollutants categories
Environmental impact Health Hazard (Frequency)
Frequency % Frequency %
Round II
Round I
Round II
Round I
Round II
Round I
Round II
Round I
1 Poly bag 47 53 61.04 63.85 - - - -
2 Ash, Dark Smoke, Hot water 13 13 16.88 15.66 13 13 43.33 43.33
3 Chemicals, Welding, Sound & Dark smoke 14 10 18.18 12.04 10 10 33.33 33.33
4 Dust particle & Sound 1 5 1.30 6.02 5 5 16.66 16.66
5 Kerosene, Diesel 1 1 1.30 1.20 1 1 3.33 3.33
6 Chemical west 1 1 1.30 1.20 1 1 3.33 3.33
Total Number of Enterprises Affecting 77 83 100 100 30 30 100
Source: Generated from field data
Social Indicators
Social status and influence generally determined by economic sufficiency. Successfulness in business not only empowers SME borrowers financially and economically but also gets social benefit as a consequence of success. They have been gone through a transition period of their life to be economically stronger and socially recognized. Social impact of the SME loans is measured by some social factors like ‘being a member of social institution like school, college, social institutions like clubs, religious institutions like mosque and be involved in other social activities like providing free education to children, participating in resolving conflict among the villagers, and so on. All these factors i.e. the social activities helped to understand the impact of BRAC Bank’s credit on the social stratification of the borrowers. It is anticipated, there would be significant interaction and participation at the community level of the borrowers as a positive impact of BRAC Bank’s SME financing. This broad indicator is measured based on borrowers’ perception by asking few specific social development related questions. Core questions are engagement in social activities, relationship with neighboring enterprises, wives’ involvement in decision making process, expenses in child education, health care, usage of entertainment media etc. With duration of 1 year, borrower level engagement in different social activates like member of business sumity, social clubs, cooperative society, governing body of educational institutions, Religious group/Institution and involved in the social activities (free education, Shalis and others) increased significantly compared to base study. Maximum borrowers’ are now at least a member of local banik sumity or cooperative society where treated (repeat) and treated (dropout) borrowers are relatively more engaged with such business groups. This indicates credit program not only improve their social status but also conscious them about the essence of business togetherness. As a whole, borrower’s involvement in social clubs increased by 6 percent compared earlier study, involvement in religious group and various social initiatives increased significantly. There is significant difference found between control (P=0.0209), treated (repeat) and treated (dropout) (P=0.0000) borrowers of round I and II study in “membership in a bonik sumity” indicator while indicator like a member of religious group/institution resulted as significant between treated (repeat) group (P=0.0280) of round I and II. This is not the end, 23 percent borrowers also inspired others to involve in social activities. Table-25 categorized borrowers’ involvement in different social activities.
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Table 25: Frequency distribution of engagement in social activities
Social Activities
Round II % (n)
Round I % (n)
Control Treated (Repeat)
Treated (Dropout)
Total Control Treated (Repeat)
Treated (Dropout)
Total
Be the member of bonik sumity 56.52 (13)
75.18 (103)
74.56 (85)
73.36 (201)
20.15 (27)
30.77 (88)
26.67 (28)
27.24 (143)
Be the member of social clubs 4.35 (1)
7.30 (10)
5.26 (6)
6.20 (17)
1.49 (2)
1.05 (3)
0.00 (0)
0.95 (5)
Be the member of cooperative society 13.04
(3) 8.03 (11)
11.40 (13)
9.85 (27)
2.99 (4)
3.50 (10)
3.81 (4)
3.43 (18)
Involve in the social activities (free education, Shalis and others,) 0.00 (0)
5.84 (8)
6.14 (7)
5.47 (15)
1.49 (2)
2.45 (7)
0.95 (1)
1.90 (10)
Be the member of governing body of educational institutions 13.04
(3) 8.76 (12)
9.65
(11)
9.49 (26)
5.97 (8)
5.94 (17)
3.81 (4)
5.52 (29)
Be a member of Religious group/Institution 34.78
(8) 32.85 (45)
30.70 (35)
32.12 (88)
8.96 (12)
11.19 (32)
15.24 (16)
11.43 (60)
Treated (dropout) and control borrowers’ involvement in “banik sumity” accelerated significantly; amongst these groups, treated (dropout) borrowers’ involvement grew by the maximum percentage. This can be interpreted in this way; BRAC Bank’s credit program allows this borrower group financial stability in such was that now they have the position to engage in socially recognized places. Treated (repeat) borrowers engagement in religious group/institution increased appreciably compared to earlier period and even compared to control group as an impact of the bank’s SME financing. Does BRAC Bank’s financing have impact on borrowers’ family level? We tried to figure out this question based on borrowers’ perception. Hence, following improvements had been evident after availing loan from BRAC Bank according to the research findings. � 65.77 percent borrowers’ relationship with neighboring businessmen had been improved to “Very
Good” from “Good” � On an average borrowers’ current monthly household income increased by 274.89 percent
compared to their business starting year while current monthly household income grew by 144.16 percent after availing loan from BRAC Bank.
Major improvement over baseline study is that other people were encouraged to start similar sort of business by seeing the business growth of the borrowers’ (Table-26). Control and treated (dropout) borrowers played pioneering role in motivating others to engage in similar sort of business. Treated (dropout) borrowers’ perceived their overall family position developed significantly since base study.
Table 26: Frequency distribution of BRAC Bank’s loan impact on borrowers’ social life (Based on borrowers’ perception)
Social Impacts
Round II %
n=588
Round I %
n=525
Control Treated (Repeat)
Treated (Dropout)
Total Control Treated (Repeat)
Treated (Dropout)
Total
Employment increased 43.63 48.68 46.52 47.60 70.65 101.99 75.45 92.09
Other's encouraged to come in similar business 91.07 79.83 118.22 96.14 94.27 100.78 80.80 94.89
Improved housing possible 46.43 48.10 45.97 47.11 52.93 58.10 64.37 58.57
Increase number of household member in economic activities
34.50 41.98 54.76 46.05 97.57 77.39 34.00 77.66
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Social Impacts
Round II %
n=588
Round I %
n=525
Control Treated (Repeat)
Treated (Dropout)
Total Control Treated (Repeat)
Treated (Dropout)
Total
Family's overall position developed 28.03 39.23 36.69 37.34 27.62 43.70 36.15 38.83
No of freeze increased 87.50 84.74 96.09 89.25 88.89 114.64 91.40 107.27
In baseline study, four indicators namely use of child labor, education of children, health related expenditure and use of TV or other entertainment media were considered to assess the impact of credit at the social level. The results are shown in Table-27. In earlier study, it was observed that use of child labor was the maximum in case of treated (repeat) borrowers which is also true for this study. Treated (repeat) borrowers’ average usage of child labor has been increased by 0.63; which is in fact contrast to the positive impact of credit at social level. As oppose to this, rest indicators carries better impact of credit at social level for all borrowers’ categories. Comparatively control borrowers are now spending more in healthcare (17.37 percent more than earlier), 25.06 percent more in child education, entertainment media usage (83.47 percent more than 1 year earlier). Treated (repeat) borrowers are spending more in entertainment media purpose (76.84 percent excess than 1 year earlier). However, none of these indicators found statistically significant (p=0.20) in this follow up study while all of these were indicated as significant in baseline study.
Table 27: Matrix of Social Employment, Education and other social indicators
Social Indicators
Round II Round I
Control n=56
Treated (Repeat) n=288
t-value* Control n=134
Treated (Repeat) n=286
t-value*
Use of child labor (Number) 1.00 1.63 0.45 0.04 0.09 1.57 Education of children (% increase in expenditure)
53.58 50.78 0.80 28.52 51.88 4.30
Health (% increase in expenditure) 43.70 44.76 0.89 26.33 45.99 6.81 Television (%increase in expenditure) 90.00 92.48 0.90 6.53 15.64 4.04 * Indicates significance level of the difference between treated and control group
Monitoring the status of comparing groups it is found that usage of child labor deduce in case of treated (repeat) and treated (dropout) borrowers. Though this indicator is not found as significant, one good sign is use of child labor completely eliminated within first-time treated (repeat) borrowers. Treated (dropout) borrowers are spending relatively more in child education than 1 year earlier. Treated (repeat) and Treated (dropout) borrowers are spending more in healthcare compared to baseline study. Commonly expenditure in entertainment media increased in all groups except control group. Treated (repeat) borrowers are comparatively better-off within these comparing indicators, though none of these indicators found to be statistically significant. It is expected that borrowers would increase their community interaction and participation in social works as with the positive growth of their financial and economic indicators. However, it is difficult to work out any other major impact of the BRAC Bank credit at the community level since these indicators generally does not change within short span time. Therefore, outcomes might result better as these follow up studies get older. Impact of Credit on Market Development
In base line study impact of BRAC Bank credit on local market development was measured by three indicators: a) backward linkage b) forward linkage and c) expansion of similar line of business. Analysis of these three indicators was done aggregately and based on borrowers’ perception, not clustering them
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further, i.e. control, treated (repeat) and treated (dropout). In that study, three questions were thrown toward the borrowers; First, had there been any increase in the number of similar business in the market and how many? Second, had there been any increase in the number of forward-linking business organizations in the market? Third, had there been any increase in the backward-linking business organizations in the market? In this follow up study, we have replicated the earlier methodology. Based on the perceptions of the borrowers, growth rate of these three indicators were estimated (Table-28).
Table 28: Matrix of Market Development Indicators
15.59 percent borrowers perceived, as a result of above positive market development, quality products are now more easily available in the locality. Besides, development of these indicators also triggered local infrastructural development (26.10 percent borrowers’ perception) and growth of other businesses as per 30.97 percent borrowers’ perception. In consequence of business entities increased at the locality, now dealers are delivering goods directly to the enterprises (31percent borrower perceive this) averagely 4 years after their first loan availing from BRAC Bank. The above results suggest that BRAC Bank’s credit has possibly boosted not only the similar line of business expansion but also draw other linkage (i.e. backward and forward) industries to grow significantly in the locality.
Effectiveness indicators of BRAC Bank
In general, both control and treated (repeat) borrowers firstly know about the bank through bank staffs, then subsequently by existing borrowers of the bank, closer location of unit offices to borrower enterprises or home, bank advertisement. Round II statistics indicates, both control and treated (repeat) groups is becoming promoter of the bank which in other way suggests their satisfaction about banking with BRAC Bank. Treated (repeat) borrowers are relatively more knocked by the bank staff this might be because of prior relationship or bank’s strategy to retain the good customers. As it is already statistically proven, proximity of unit offices is significantly important factor among the borrowers of all types which is matched with the borrowers’ perception about “proximity to the unit office of BRAC Bank”. Bank’s advertisement has little influence on borrowers’ mind as indicated in Table-29. Besides, borrower learnt about the bank through other means (1.49 percent) like friends, relatives, BRAC NGO and for self-interest. Though the difference between control and treated (repeat) borrowers’ perception about these indicators increased comparatively, none of them found statistically significant.
Table 29: How borrowers learn about BRAC Bank’s operation?
Awareness Indicator
Round II Round I
Control % (n)
Treated (Repeat)
% (n)
t-value* Control
% (n)
Treated (Repeat)
% (n)
t-value*
Communication by bank staff 43.86 (50)
50.00 (241)
0.429 47.27 121)
47.95 (281)
0.9004
Communication by existing borrowers 35.09 (40)
33.61 (162)
0.86
Proximity to the unit office of BRAC Bank 15.79 (18)
13.49 (65)
0.803 9.77 (25)
14.68 (86)
0.528
Bank advertisement 3.51 (4)
1.24 (6)
0.809 3.91 (10)
2.73 (16)
0.53
Others 1.75 (2)
1.66 (8)
0.993
* Indicates significance level of the difference between treated and control group
Market development indicators Growth rate (%) Net Growth
(%) Round II Round I
Expansion of similar business 111.16 98.67 12.49
Backward linkage 442.86 167 275.86
Forward linkage 540 127.8 412.2
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Treated (repeat) borrowers in earlier study but treated (dropout) in recent times are communicated by bank staffs more frequently, convenient location of unit offices has positively impacted both the control and treated (repeat) groups, bank advertisement has positive impact on control and treated (dropout) borrowers; however none of these indicators found as significant. Majority borrowers’ availed loan from BRAC Bank since they perceive that here lending process is easier and flexible, next majority portion is influenced by bank’s staff. Other factor that attract the borrowers is, there are no such bank at that time that offer “Collateral-free” loan to SMEs in that area. This idea is supported since more than 8 percent treated (repeat) borrowers’ availed loan from BRAC Bank since at that time there was no such bank that have this kind of loan facility. Control borrowers are less influenced by this factor since meanwhile other banks’ have expanded their operation in these areas. Only 4.32 percent borrowers taken loan as they thought, BRAC Bank’s credit pricing is comparatively lower. Besides, around 5 percent has taken loan for their business expansion purpose.
Table 30: Why borrowers had availed loan from BRAC Bank?
Loan availing reason
Round II Round I
Control % (n)
Treated (Repeat)
% (n)
t-value* Control
% (n)
Treated (Repeat)
% (n)
t-value*
Low interest rate 4.63 (5)
4.32 (21)
0.98 2.76 (7)
4.45 (25)
0.42
Absence of other banks branch 2.78 (3)
8.44 (41)
0.73
Communication by banks staffs 38.89 (42)
38.48 (187)
0.96
Borrower friendly flexible lending system 41.67 (45)
44.86 (218)
0.70 50.00 (127)
45.20 (254)
0.38
Others 12.04 (13)
3.91 (19)
0.38
Considerable number of treated (dropout) borrowers (5.17 percent more than earlier) stated that they availed repeat loan as because of lower credit rate in BRAC Bank and moderate treated (repeat) borrowers (7.88 percent more than earlier) mentioned, they availed repeat loan due to absence of other bank or bank that offers SME loan in that area. 93 percent borrowers were informed by the bank’s staff prior to the first loan disbursement. To sell a loan bank’s staffs communicate the borrowers averagely 4 times. In 96 percent cases, bank staff had provided correct information about the loan borrowers availed.
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CHAPTER VII: DISCUSSION AND CONCLUSION
Till date BRAC Bank is the youngest bank of Bangladesh, just passed 11 years and moving towards to complete a decade. However, the achievement is quite exemplary. BRAC Bank possesses the maximum SME asset portfolio, therefore the largest SME bank of Bangladesh. The Bank used its strong capital and liquidity position and its increasingly powerful brand to capture market share from competitors and to deepen relationships with customers and clients. The bank grew income and profit despite the economic flux across the world and significant interest rate and foreign exchange headwinds. The Bank operates under a “Triple-Bottom-Line” approach where profit and social responsibility march together as it strives towards poverty free and enlighten Bangladesh. The bank continuously upheld the “Three P” agenda – Planet, People and Profit, as part of our sustainable and glorious banking journey since inception. The Bank’s vision spins around sustainable development of the Small and Medium Enterprises (SMEs) objective is to work as catalyst for the ‘missing middle in the customer pyramid’ that are mostly unbanked. The bank firmly believes that SMEs have a significant role in employment generation, poverty alleviation and overall economic growth of the country. Over this period, the bank has made significant presence at the national and international level. Both vertical and horizontal expansion has taken place. Although the bank has demonstrated its core values and ethics on banking business, it has never been known to the professionals about kind of impact that the bank has created at the entrepreneur level. As such, BRAC bank had taken an initiative for conducting pan-bank survey to assess the impact of SME credit on its small sized entrepreneurs in 2010. Consequently Centre for Corporate Governance and Finance Studies of University of Dhaka was appointed for this purpose; this institute initially developed the impact measurement framework, thereafter conducted survey on 525 borrowers of the bank through semi-structured questionnaire prepared based on the framework. Through statistically analysis, few impact indicators were validated in that study. Since impact has to be monitored and measured in continuous basis on the fixed sample, after one year in 2011 we had internally surveyed the same sample plus 63 new inclusions on the same questionnaire with an objective to monitor the validity of proposed indicators. The findings as discussed earlier undoubtedly reveal that BRAC Bank’s SME credit program has benefitted the borrowers irrespective of borrower categories. If we further narrowed down, it was observed that BRAC Bank credit has benefitted the treated (dropout) borrower more than treated (repeat) and control groups. As mentioned earlier, analyses were carried on three different combinations, i.e. control-treated (repeat), control-treated (dropout) and treated (repeat)-treated (dropout) borrowers. Compared to the control group, credit had benefitted the participating treated (repeat) group in many different ways. Synopsis of the impact of BRAC Bank’s credit program is as follows. First, business size of treated (repeat) group has increased as a result of sales growth, increased sales turnover and efficient use of current and fixed assets than the control. Second, profit of treated (repeat) groups grew in many folds mainly due to higher rate of return. As a matter of strategy, treated (repeat) group focused more on sales rather profit maximization since this group has greater financial resources than its comparing group. Third, growth of treated (repeat) and treated (dropout) borrowers’ business size created further employment opportunity. Full-time male employment grew significantly while female employment did not grow as expected. Financial development prompted other members of the family to participate in other economic development activities. These results definitely establish that financial and economic sustainability of firms is possible as result of BRAC Bank credit. Fourth, treated (dropout) borrowers are in better shape compared to rest comparing groups. It is proven that these borrowers’ socio-economic condition has been developed significantly because of BRAC Bank’s catalytic role. Their financial position has been developed in such a way that now they are not feeling the need of further financing, they can run their own show independently and that is biggest impact of BRAC Bank’s SME credit program. Fifth, it is also found that maximum fourth times repeat financing is sufficient enough for an entrepreneur to stand on his own feet. This is because, fourth times treated (dropout) borrowers have higher asset size, sales, profit and capital than even these of treated (repeat) four-time treated (repeat) borrowers. Their financial position is also relatively larger than 5th times treated (repeat) borrowers.
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Sixth, regular borrowers are in improved condition than the defaulters. This finding indicates two aspects, adverse selection and moral hazard. Taking lesson from this, to minimize adverse selection BRAC Bank has to devise cluster specific strategy which has to be monitored periodically in area approach basis as well as increase borrower interaction by bank staffs to know their business pulse. This is in fact directing to strengthen existing credit administration and recovery process of the bank. Impact of credit indirectly contributes to the society since the credit program significantly improved the treated (dropout) and treated (repeat) borrowers’ financial and economic health. With the improvement of financial position, treated (repeat) borrowers are now more engaging with various business groups and socio-religious institutions. Credit program also helped treated (repeat) group to spend more for health, education of the children and housing in addition to increasing interaction at the community level. Entrepreneurship is growing at locality by seeing the progression of the treated (dropout) and treated (repeat) borrowers. Though treated (repeat) borrowers’ average usage of child labor increased by 0.63 (though not statistically significant) , tendency of child labor usage by treated (repeat) and treated (dropout) borrowers is gradually diminishing; at the same time first-time treated (repeat) borrowers are completely free of child labor. This is one of the improvements over round one’s odd findings. Relationship with neighboring businessmen improved significantly (relationship status shifted to “Very Good” from “Good”), quality products are now easily available at the locality, and distributors/dealers are delivering goods directly to the firms averagely 4 years after their first loan availing from BRAC Bank. Majority borrowers get to know about the bank from bank’s staff, treated (repeat) borrowers are playing pivotal role in promoting the bank, treated (dropout) borrowers are relatively more communicated by the staffs. Proximity of branch premises have significant role to play in financing decision making. Borrowers prefer convenient access to the unit offices precisely from the business centers. Majority borrowers’ perceive that documentation and lending process is comfortable here. Averagely bank staffs visit 4 times at borrowers’ place for selling a loan and almost majority cases bank staffs have provided correct information. Bank can promote pollution-free environment through formulating and strictly maintaining appropriate lending policy where it should be defined the discouraging sectors that directly affect environment. About 87 percent BRAC Bank financed enterprises are environmental friendly enterprises. Number of enterprises that affect environment directly is reduced by 6 compared to earlier study. However, number of health hazardous enterprises remains stays at 30; no change from earlier study. Finally, the indicators have proven to be valid as it significantly differentiates performance of treated (repeat) groups from the control. Based on the results, report can be concluded by affirming that BRAC Bank has definite impact on borrowers’ financial, economic and socio-environmental life, since it created values to the entrepreneurs. SME credit of the bank has contributed positively to different outcomes for the borrowers. Bank financed enterprises are environmental friendly and borrowers are gradually more involving in various social activities, therefore credit has positive impact at the social and environmental sustainability level. Only pondering facts (though improving) are how to minimize usage of child labor (which is in decreasing tone though) and discourage financing chemical-related business enterprises (though number of enterprises not affecting health and environment increased by 2.71 percent). Except these areas of improvement, it can boldly said that “BRAC Bank’s credit program has positively and significantly brought changes in the financial, environmental and socio-economic life of its SME borrowers”.
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http://books.google.com.bd/books/about/Applied_logistic_regression_analysis.html?id=EAI1QmUUsbUC&redir_esc=y
http://econ.lse.ac.uk/~amanning/courses/ec406/ec406_DinDPanel.pdf http://geography.uoregon.edu/geogr/topics/ttest.htm http://stattrek.com/hypothesis-test/difference-in-means.aspx http://faculty.vassar.edu/lowry/ch11pt1.html http://www.statsoft.com
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APPENDIX
FARMEWORK OF MEASUREMENT INDICATORS
Table 31: Matrix of Financial Indicators
Sl. No
Financial Indicators
Definition/Rationale Specific
Measurement indicators
Index/Formula
1 Loan repayment rate
Ability of the firms to repay loans fully or the intensity of difficulty faced in repayment of loans
• Loan Recovery Ordering
• Intensity of difficulty in repayment
• Ordering of loan recovery: Full repayment (1), Partial repayment (2), and No repayment (3)
• Intensity of difficulty ordered: Never (1); rarely (2), Occasional (3), and Frequently (4).
2 Accumulation of assets
Size of firms is correlated with accumulation of wealth or assets. It measures stability and strength of firm.
• Growth rate of total assets at cost
• Average asset at cost per firm
• Change in total assets at cost in 2010 as percentage of value of base year (year of first loan taken from BRAC Bank).
• Total assets at cost divided by number of firms
• Both the indicators are measured at cost.
3 Value of all assets
All assets are valued at market price. It measures solvency or ability of the firms to meet its liabilities.
• Growth rate of total assets at market price
• Average asset at market price per firm
• Change in total assets at market price in 2010 as percentage of value of base year (year of first loan taken from BRAC Bank).
• Total assets at market price divided by number of firms
• Both the indicators are measured at market price.
4 Utilization of resources
Measures use of resources, long run growth, and overall ability of the firms to use resources. Higher growth rate in fixed assets will imply lesser resources available for operation. This will also affect sustainability in long run.
• Growth rate of fixed assets
• Growth rate of total assets
• Ratio of fixed assets and total assets
• Sales-fixed assets ratio
• Change in fixed assets as percentage of base year (year of first loan from BRAC Bank)
• Change in total assets as percentage of base year (year of first loan from BRAC Bank)
• Fixed assets divided by total assets
• Sales volume divided by fixed assets
5 Long run earning potential
Growth in sales volumes measures long run earning potential of the firms
• Growth in sales
• Change in sales as percent of base sales
6 Profitability Measures financial sustainability of the firm.
• Absolute profit per month
• Rate of return
• Return on assets
• Growth rate of profit
• Reported profit per month
• Rate of return: Profit as percentage of sales
• Return on assets: Profit as percentage of total assets
• Change in annual profit from the base year (year of first loan taken from BRAC Bank)
7 Financial structure It measures dependency of the firm on debt capital,
• Debt-equity ratio
• BRAC Bank • Total debt as percentage of total
equity
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Sl. No
Financial Indicators
Definition/Rationale Specific
Measurement indicators
Index/Formula
and exposure to different credit markets over time.
credit-assets ratio
• Credit-assets ratio • Credit from BRAC Bank as
percentage of total assets or capital
• Total credit as percentage of total assets
8 Financial impact of BRAC Bank credit
Value of BRAC Bank to the entrepreneurs is measured by financial impact of BRAC Bank credit. These are perception-based measures.
• Business expansion
• Increase in profit
• Growth in business expansion due to BRAC Bank credit, as perceived by borrowers;
• Increase in profit due to BRAC Bank credit as perceived by borrowers
Table 32: Matrix of Economic Indicators
Sl. No.
Indicators Definition/Rationale Specific
Measurement Indicators
Index/Formula
1 Employment creation
Credit contributes positively to growth through creating employment opportunities. It measures incremental employment – full or part time – created by BRAC Bank credit using both actual and perceptions of the borrowers.
Full time employment – outside family
• Number of male full- time employees created.
• Number of female full-time employees created
part time employment – outside
• Number of male part-time employees created.
• Number of female part-time employees created
Full time employment – family
• Number of male full-time employees created for the family
• Number of female full-time employees created for the family
part time employment – family
• Number of male part-time employees created for the family
• Number of female part-time employees created for the family
• Perceived impact of credit on employment
• Percentage of employment created due to BRAC Bank credit as perceived by borrowers
4 Generation of savings
Credit may induce savings at the individual and family level. BRAC Bank credit contributes to savings through income generation at the family level.
• Incremental savings due to BRAC Bank credit
• Percentage change in savings due to BRAC Bank credit as perceived by the borrowers
5 Income enhancement
Credit induces income of the borrower and family through employment opportunities and profit-sharing.
• Incremental income
• Incremental profit
• Percentage change in income as perceived by the borrowers
• Percentage change in profit as perceived by borrowers
6 Business expansion Credit expands size through • Expansion in • Percentage change in
Page | 49
Sl. No.
Indicators Definition/Rationale Specific
Measurement Indicators
Index/Formula
its effects on sales and assets. size
• Growth in total assets
business expansion as perceived by the borrowers
• Change in total assets as percentage of base year (year of first loan from BRAC Bank)
7
Creation of competitive environment or business
Similar business may be developed through learning from the experience of firms financed by BRAC Bank. Such expansion of similar business creates competitive environment.
• Number of new similar business enterprises developed.
• Percentage of similar business developed
• Number of new similar business firms emerged in the market
• Percentage of similar business firms developed as perceived by borrowers
8 Development of backward linkage enterprises
Expansion of business due to BRAC Bank credit induces to development of backward linkage enterprises
• Expansion in size of the backward linkage enterprises
• Percentage change in backward linkage enterprises started as perceived by the borrowers
9 Development of forward linkage enterprises
Expansion of business due to BRAC Bank credit induces to development of forward linkage enterprises
• Expansion in size of the forward linkage enterprises
• Percentage change in forward linkage enterprises started as perceived by the borrowers
10 Value chain development
Expansion of business due to BRAC Bank credit motivates the company/ dealer to carry the products to the enterprises
• Number of firms
• Percentage of firms for which company or dealer carry the products as of total firms
Table 33: Matrix of Environmental Indicators
Sl. No
Environmental Indicators
Definition/Rationale Specific
Measurement indicators
Index/Formula
1 Environment friendly enterprises
To understand the extent to which BRAC Bank credit leads to green investment
• The ratio of environment friendly enterprises to total enterprises
• Percentage of environment free enterprises as of total enterprises reported by the borrowers
2 Discouragement of business using chemical
To understand the extent to which BRAC Bank credit discourages to the business that use chemical.
• The ratio of the enterprises which do not use chemical in their business to total enterprises
• Percentage of the enterprises which do not use chemical as of total enterprises reported by the borrowers
Discouragement of business creating health hazard
To understand the extent to which BRAC Bank credit discourages to the business that create health hazard.
• The ratio of the enterprises which do not create health hazard to total enterprises
• Percentage of the enterprises which do not create health hazard as of total enterprises reported by the borrowers
4 Discouragement of using polythene bag
To understand the extent to which BRAC Bank credit discourages to use polythene
• The ratio of the enterprises which do not use
• Percentage of the enterprises which do not use polythene bag as of total enterprises reported
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bag polythene bag to total enterprises
by the borrowers
Table 34: Matrix of Social Indicators
Sl. No Social
Indicators Definition/Rationale
Specific Measurement indicators
Index/Formula
1 Women empowerment
Employment of women empowers them to play role in the family and in the society.
• Women employment due to BRAC Bank credit, outside family
• Women employment from the family
• Participation in business decision
• Number of women employment created outside the family
• Number of women employment created from the family
• Ordering of perception of the borrowers
• (1 always, 2 occasional, 3 never)
2 Use of child labor
Expansion and profitability of business due to BRAC Bank credit discourage the firms to employ child labour.
• Lesser employment of child labour
• Number of child labour employed
3 Education of children
Credit through surplus generation may have impact of children’s education.
• Financing of child education
• Family Literacy rate
• Percentage of ease in financing child education, as perceived by borrowers
• Percentage change in family literacy rate from the base year (year of first loan of BRAC Bank)
4 Interaction in the community
Credit may enhance interaction in the community because wider participation of the borrowers
• Enhancement in community interaction
• Number of enterprises with greater participation in the community
• Percentage of borrowers involved in social and professional organizations
• Perceived increase in interaction with neighbors
• Percentage of borrowers involved in social activities
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Table 35: Matrix of Effectiveness Indicators of BRAC Bank
Sl. No Effectiveness Indicators
Definition/Rationale Specific
Measurement indicators
Index/Formula
1 Creating
awareness
Borrowers will apply if they
have information. Such
information is provided by
the BRAC Bank employees
• Communication by bank staff
• Bank advertisement
• BRAC Unit office
• Percent of borrowers got information from bank staff
• Percent of borrowers got information from advertisement
• Percent of borrowers got information from nearby by unit office
2 Cost of fund
Cost of borrowing fund is the
interest rate. Borrowers may
find it cheap if effective
interest rates of other sources
are higher.
• Low interest rate
• Percent of borrowers considering BRAC Bank interest as cheaper
3 Accessibility to
BRAC Loan
Accessibility is defined in
terms of less complexity of
the procedures.
• Borrower-friendly flexible lending system
• Percent of borrowers considering loan sanctioning procedure as flexible and borrower friendly.
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MEAN DIFFERENCE AND DiD OUTPUT
Hypothesis H0 - Mean {Treated (Repeat) Borrower} = Mean (Control borrower) H1- Mean {Treated (Repeat) Borrower} ≠ Mean (Control borrower) H0 - Mean {Treated (Dropout) Borrower} = Mean (Control borrower) H1- Mean {Treated (Dropout) Borrower} ≠ Mean (Control borrower) H0 - Mean {Treated (Repeat) Borrower} = Mean {Treated (Dropout) Borrower} H1- Mean {Treated (Repeat) Borrower} ≠ Mean {Treated (Dropout) Borrower}
Table 36: Statistically Significant Indicators in Mean Difference test
Measurement Indicators
Control-Treated (Repeat) Control-Treated (Dropout) Treated (Repeat)-Treated(Dropout)
Growth of total asset at cost ** *** *
Growth of total asset at Market Price *** *
Fixed asset at cost ***
Fixed asset as Market Price *
Growth of fixed asset at cost ** ****
Growth of fixed asset at Market Price *** ***
Ratio of fixed asset to total asset at Market Price
**** **** **
Growth of Sales *** **
Profit * *** ***
ROA *** ***
Total capital **
Total debt *** *
Ratio of debt to equity ** * ****
BRAC Bank loan **
Total credit *
Ratio of credit to total asset **
Generation of savings *** * **
Income enhancement ***
Business expansion * ****
Employment increased ** **
Creation of competitive business *
Note: ****, ***, **, * significant at the 1 percent, 5 percent, 10 percent and 20 percent levels, respectively
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FACTOR ANALYSIS
To evaluate the impact of BRCK bank credit on SME borrowers we used 28 indicators representing different dimensions. In baseline study, 25 indicators were used for the same purpose. Some of these indicators may be strongly correlated and therefore these indicators may be reduced based on the intensity of correlation and explaining power of variance. We have used ‘Factor Analysis’ technique to reduce number of variables as it is a linear combination of the variables that have most information. Different factors are constructed with the variables that account for maximum variation in the original data (Pohlmann 2004; Vavra 1972). Number of factors is determined based on eigenvalue. An eigenvalue measures the variation explained by a factor. Therefore, it considers only the positive eigenvalue. Variance explained by each factor is what is known as ‘proportion’. Based on the sum of eigenvalues, the proportional contribution to explained variance of each factor is determined. This allows one to identify the factor that has most contribution to explained variance. The fundamental issue then is the number of factors that has to be retained. It can be derived from the eigen values. As a rule of thumb, according to the Kaiser-Guttman rule, a research should explain the factors that have eigenvalues of greater than one. Once the number of factors is identified, we need to interprete the factor structure. This will help us to identify the factor structures by rotating the factors using the method either orthogonal or oblique. The most common method is orthogonal rotation, i.e., verimax. Finally, plotting of loading will provide information on the dimensions and co-movement of the variables.
In this panel study, we have used 588 borrowers date which was 535 in earlier study for factor analysis. We included twenty eight indicators in the factor analysis. The indicators have been stated and discussed in the section on ‘Analysis of indicators’. Therefore, we will have 28 factors. The results are reported in Table-34. Based on the eigenvalues and the rule of thumb, we identify five factors (which was four in earlier case) – Factor one to five. The proportionate explained variances of the original data are reported in column four of Table-1. It shows that Factor1 explains 49.29 percent of the variance, followed by 14.32 percent of Factor2. The first five factors together explain about 85.09 percent of the variance which was 85.47 percent in baseline study.
Table 37: Factor analysis of Measurement Indicators
Factor Round II Round I
Eigenvalue Difference Proportion Cumulative Eigenvalue Difference Proportion Cumulative
Factor1 13.801 9.790 0.493 0.493 4.26074 2.19784 0.3848 0.3848
Factor2 4.010 1.548 0.143 0.636 2.0629 0.36438 0.1863 0.5712
Factor3 2.462 0.150 0.088 0.724 1.69852 0.25785 0.1534 0.7246 Factor4 2.312 1.069 0.083 0.807 1.44067 0.52968 0.1301 0.8547
Factor5 1.242 0.400 0.044 0.851 0.91098 0.34795 0.0823 0.937 Factor6 0.843 0.021 0.030 0.881 0.56303 0.10378 0.0509 0.9879
Factor7 0.821 0.113 0.029 0.910 0.45926 0.10598 0.0415 1.0293
Factor8 0.709 0.036 0.025 0.936 0.35327 0.08504 0.0319 1.0613 Factor9 0.673 0.220 0.024 0.960 0.26824 0.0952 0.0242 1.0855
Factor10 0.453 0.160 0.016 0.976 0.17304 0.03244 0.0156 1.1011
Factor11 0.293 0.062 0.010 0.986 0.1406 0.15005 0.0127 1.1138 Factor12 0.230 0.174 0.008 0.995 -0.00945 0.02025 -0.0009 1.113
Factor13 0.056 0.027 0.002 0.997 -0.0297 0.01808 -0.0027 1.1103
Factor14 0.029 0.003 0.001 0.998 -0.04779 0.04651 -0.0043 1.106
Factor15 0.026 0.007 0.001 0.999 -0.0943 0.04139 -0.0085 1.0974
Factor16 0.020 0.009 0.001 0.999 -0.13569 0.01583 -0.0123 1.0852
Factor17 0.011 0.007 0.000 1.000 -0.15152 0.01623 -0.0137 1.0715
Factor18 0.004 0.001 0.000 1.000 -0.16775 0.01517 -0.0152 1.0563
Factor19 0.003 0.002 0.000 1.000 -0.18291 0.02838 -0.0165 1.0398
Factor20 0.001 0.001 0.000 1.000 -0.21129 0.01833 -0.0191 1.0207
Factor21 0.001 0.000 0.000 1.000 -0.22963 . -0.0207 1
Factor22 0.001 0.000 0.000 1.000
Factor23 0.000 0.000 0.000 1.000
Factor24 0.000 0.000 0.000 1.000
Factor25 0.000 0.000 0.000 1.000
Factor26 0.000 0.000 0.000 1.000
Factor27 0.000 0.000 0.000 1.000
Factor28 0.000 . 0.000 1.000
Sum of eigen values
28.00001 11.07122
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It can also be evaluated from the plot of eigen values. The following plot shows that after five factors, the scree plot shows a break in slope. Therefore, two-factor solution is more appropriate. Yet, we accept four factors based on the eigen value of one or more. In Table-35, we have provided factor loading and unique variances of the variables. We find that factor one explains financial, capital structure, debt and business performance, i.e., sales. The other side of the financial structure is assets structure, i.e, total asset and fixed asset..The ratio of sales to fixed asset, BRAC Bank loan to fixed asset, and credit to asset represent the second factor.All the indicators were, as discussed earlier, validated. But the major loading is factor one. This is capital and assets structure of the firms that explain performance and impact of BRAC Bank’s credit on the enterprise as well as the borrowers better. It is also shown in graphical representation of the factor loading.
Figure 15: Scree plot of eigenvalues after factor
Page | 55
Table 38: Factor Loading (Pattern Matrix) and unique variances
Variable Factor1 Factor2 Factor3 Factor4 Factor5 Uniqueness
Total Assets at cost (USD) 0.904 -0.247 -0.133 0.233 -0.038 0.049
Total Assets at Market Price (USD) 0.979 -0.122 -0.085 0.070 -0.018 0.015
Growth of total asset at cost 0.971 0.113 0.146 -0.050 0.010 0.021
Growth of total asset at MP 0.971 0.118 0.138 -0.051 0.004 0.021
Fixed asset at cost (USD) 0.992 0.026 0.007 -0.035 -0.010 0.014
Fixed asset at MP (USD) 0.992 0.032 -0.007 -0.082 -0.002 0.008
Growth of fixed asset at cost 0.970 0.109 0.144 -0.047 0.029 0.023
Growth of fixed asset at Market Price 0.972 0.113 0.140 -0.047 0.011 0.022
Fixed asset to total asset at cost 0.060 0.599 0.092 -0.705 0.196 0.095
Fixed asset to total asset at Market Price 0.034 0.596 0.102 -0.738 0.188 0.054
Monthly Sales 0.485 0.122 -0.506 -0.155 -0.058 0.466
Growth Sales 0.952 0.154 0.143 -0.019 0.132 0.032
Sales to fixed asset -0.057 0.741 -0.492 0.339 -0.088 0.083
Profit Size 0.113 -0.416 -0.590 0.142 0.426 0.265
Rate of Profit 0.339 0.256 0.035 0.401 0.446 0.459
Return on Asset -0.426 0.633 0.046 0.192 0.470 0.158
Rate of Return -0.254 -0.311 0.598 0.366 0.413 0.176
Total Capital (USD) 0.991 0.039 -0.068 -0.028 0.013 0.011
Total Debt (USD) 0.993 0.061 -0.012 -0.024 -0.024 0.008
Equity Capital (USD) 0.986 0.028 -0.095 -0.029 0.032 0.015
Debt-equity ratio -0.063 0.093 0.481 0.175 -0.508 0.468
BRAC Bank loan 0.395 0.193 -0.372 0.385 -0.186 0.486
BRAC loan to fixed asset ratio -0.204 0.861 -0.027 0.394 -0.102 0.052
Total Credit 0.978 0.132 -0.037 0.009 -0.048 0.022
Credit to asset ratio -0.156 0.880 -0.046 0.386 -0.093 0.041
Full time male employee 0.448 -0.094 0.469 0.440 0.179 0.345
Growth rate of male employee 0.549 -0.017 0.525 0.119 -0.124 0.393
Total part time employee 0.369 -0.501 -0.476 0.102 0.054 0.373
Defining the color codes:
Figure Found Most influential in Round II Figure Found Most influential both in Round I and II
Page | 56
Table 39: Type of enterprises and borrowers including Treated (Dropout)
Business Type
Control-Treated(Repeat) Control-Treated(Dropout) Treated(Repeat)-Treated(Dropout)
Round II %
Round I %
Round II %
Round I %
Round II % (n)
Round I % (n)
Trading 68.97 79.31 72.88 81.36 84.78 85.87
Manufacturing 3.45 13.79 8.47 10.17 7.61 10.87
Agro Firm 13.79 0.00 5.08 0.00 5.43 0.00
Service 13.79 6.90 13.56 8.47 2.17 3.26
Table 40: General characteristics of the borrowers including Treated (Dropout)
Type of Borrowers
Age of the entrepreneur
Average (Std. Dev)
Educational qualification of the
entrepreneurs Average
(Std. Dev)
Experience in Current business
Average (Std. Dev)
Experience in Family business
Average (Std. Dev)
Round II Round I Round II Round I Round II Round I Round II Round I
Control-Treated(Repeat) 38.55 (7.48)
37.41 (7.37)
11.17 (4.03)
10.00 (2.87)
13.14 (8.82)
9.97 (4.69)
0.00 (0.00)
0.00 (0.00)
Control-Treated(Dropout) 42.59 (9.81)
39.54 (9.71)
10.54 (3.43)
9.47 (2.94)
13.54 (7.80)
13.61 (8.38)
15.83 (16.44)
15.50 (15.93)
Treated(Repeat)-Treated(Dropout) 41.78 (9.18)
38.88 (8.08)
9.77 (3.26)
9.42 (3.29)
15.34 (6.73)
15.40 (7.93)
15.00 (5.93)
13.55 (6.26)
Table 41: Average distance (in kilometer) of the location of the enterprises from some business friendly institutions including Treated
(Dropout)
Average Distance
Round II Avg.
(Std. Dev)
Round I Avg.
(Std. Dev)
Control-Treated (Repeat)
Control-Treated (Dropout)
Treated (Repeat)-Treated (Dropout)
Control-Treated (Repeat)
Control-Treated (Dropout)
Treated (Repeat)-Treated (Dropout)
Pucca road 0.21
(0.39) 0.29
(0.81) 0.19
(0.79) 0.21
(0.39) 0.28
(0.80) 0.19
(0.78)
High school 0.70
(0.50) 0.74
(0.63) 0.74
(0.99) 0.70
(0.50) 0.74
(0.63) 0.75
(0.99)
College 1.44
(1.24) 1.68
(2.42) 1.61
(2.32) 1.44
(1.24) 1.68
(2.42) 1.62
(2.33)
Commercial center
5.21 (10.05)
6.05 (10.86)
5.38 (8.13)
5.03 (9.92)
6.05 (10.86)
5.38 (8.13)
Market place 0.64
(1.40) 0.42
(0.70) 0.43
(1.18) 0.67
(1.40) 0.41
(0.70) 0.42
(1.16)
Bus stand 2.59
(5.32) 1.79
(3.76) 1.24
(2.23) 2.50
(5.24) 1.79
(3.76) 1.21
(2.21)
Page | 57
Average Distance
Round II Avg.
(Std. Dev)
Round I Avg.
(Std. Dev)
Control-Treated (Repeat)
Control-Treated (Dropout)
Treated (Repeat)-Treated (Dropout)
Control-Treated (Repeat)
Control-Treated (Dropout)
Treated (Repeat)-Treated (Dropout)
Rail station 14.04
(15.87) 13.24
(14.09) 16.58
(16.06) 14.04
(15.87) 13.24
(14.09) 16.37
(16.06)
Launch terminal 8.43
(13.83) 8.48
(10.60) 10.43
(15.04) 8.43
(13.83) 8.26
(10.55) 10.95
(15.23)
Upazila head quarter
3.19 (3.93)
4.00 (4.68)
4.99 (5.47)
3.19 (3.93)
4.00 (4.68)
4.99 (5.47)
Govt. hospital 3.73
(3.85) 4.42
(4.50) 4.72
(4.99) 3.73
(3.85) 4.42
(4.50) 4.72
(4.99)
Union council 1.26
(1.41) 1.79
(1.77) 1.68
(2.04) 1.26
(1.41) 1.86
(1.77) 1.72
(2.04)
Table 42: Average distance (in kilometer) of the enterprises or borrowers’ home from BRAC Bank and other banks institutions
including Treated (Dropout)
Average Distance
Round II Avg.
(Std. Dev)
Round I Avg.
(Std. Dev)
Control-Treated (Repeat)
Control-Treated (Dropout)
Treated (Repeat)-Treated (Dropout)
Control-Treated (Repeat)
Control-Treated (Dropout)
Treated (Repeat)-Treated (Dropout)
From SME unit office of BRAC Bank to enterprises
3.22 (3.58)
3.53 (4.02)
3.92 (5.45)
3.22 (3.58)
3.53 (4.02)
3.92 (5.45)
From other bank to enterprise
4.29 (3.84)
4.38 (3.87)
4.66 (5.42)
4.29 (3.84)
4.38 (3.87)
4.66 (5.42)
From SME unit office of BRAC Bank to home of the enterprises
2.08 (3.16)
2.25 (3.51)
2.11 (3.24)
2.08 (3.16)
2.25 (3.51)
2.09 (3.23)
From other bank to home of the enterprises
3.07 (3.66)
2.96 (3.66)
2.80 (3.24)
3.07 (3.66)
2.96 (3.66)
2.80 (3.24)
Table 43: Accumulation of Assets including Treated (Dropout)
Measurement Variable
Borrower Type
Round II Round I t-value Difference as
% of Round I
Total Assets at cost (USD)
Control-Treated (Repeat)
16,944.98 14,071.66 0.51 20.42
Control-Treated (Dropout)
14,766.75 18,069.37 (0.69) (18.28)
Treated (Repeat)-Treated (Dropout)
27,504.05 31,296.57 (0.60) (12.12)
Total Assets at Market Price (USD)
Control-Treated (Repeat)
35,021.91 27,310.41 0.93 28.24
Control-Treated (Dropout)
29,280.57 36,227.20 (0.88) (19.18)
Treated 54,465.30 50,912.69 0.38 6.98
Page | 58
Measurement Variable
Borrower Type
Round II Round I t-value Difference as
% of Round I
(Repeat)-Treated (Dropout)
Growth rate of Total Assets
Control-Treated (Repeat)
112.75 40.92 2.51 175.56
Control-Treated (Dropout)
79.92 49.02 1.61 63.04
Treated (Repeat)-Treated (Dropout)
116.78 111.02 0.23 5.19
Colored rows found as “Significant (P=0.05)” in PSM
Table 44: Utilization of resources including Treated (Dropout)
Measurement Variable
Borrower Type Round II Round I t-value Difference as
% of Round I
Growth rate of Fixed Assets at cost
Control-Treated (Repeat)
134.07 64.36 1.71 108.30
Control-Treated (Dropout)
175.53 41.46 2.66 323.41
Treated (Repeat)-Treated (Dropout)
293.36 141.03 1.28 108.02
Growth rate of Fixed Assets at Market price
Control-Treated (Repeat)
107.62 40.28 2.30 167.20
Control-Treated (Dropout)
80.63 35.63 2.51 126.29
Treated (Repeat)-Treated (Dropout)
109.20 101.04 0.33 8.07
Ratio of Fixed Assets to Total Assets
Control-Treated (Repeat)
0.93 1.33 (3.20) (30.03)
Control-Treated (Dropout)
0.86 1.33 (3.60) (35.30)
Treated (Repeat)-Treated (Dropout)
0.89 0.97 (1.76) (8.19)
Ratio of Sales to Fixed Assets
Control-Treated (Repeat)
7.61 1.17 2.63 549.05
Control-Treated (Dropout)
8.73 0.80 3.80 991.61
Treated (Repeat)-Treated (Dropout)
9.34 1.00 4.21 833.41
Colored rows found as “Significant (P=0.05)” in PSM
Page | 59
Table 45: Sales Performance including Treated (Dropout)
Measurement Variable
Borrower Type Round II Round I t-value Difference as
% of Round I
Growth rate of Sales (USD)
Control-Treated (Repeat)
38.45 69.17 (0.79) (44.41)
Control-Treated (Dropout)
51.37 27.01 2.22 90.23
Treated (Repeat)-Treated (Dropout)
54.96 109.99 (1.82) (50.03)
Sales (USD)
Control-Treated (Repeat)
12,396.61 12,035.15 0.10 3.00
Control-Treated (Dropout)
11,182.79 9,750.84 0.68 14.69
Treated (Repeat)-Treated (Dropout)
22,883.87 18,000.82 1.12 27.13
Colored rows found as “Significant (P=0.05)” in PSM
Table 46: Profitability including Treated (Dropout)
Measurement Variable
Borrower Type Round II Round I t-value Difference as
% of Round I
Pro
fit
(USD
)
Control-Treated (Repeat)
1,091.02 716.22 1.60 52.33
Control-Treated (Dropout)
1,295.33 728.70 2.55 77.76
Treated (Repeat)-Treated (Dropout)
1,539.83 880.71 2.53 74.84
Gro
wth
rat
e o
f P
rofi
t
Control-Treated (Repeat)
26.03 38.26 (0.91) (31.97)
Control-Treated (Dropout)
46.90 37.87 0.41 23.85
Treated (Repeat)-Treated (Dropout)
46.60 58.59 (0.72) (20.46)
Ret
urn
on
Ass
et
(RO
A)
Control-Treated (Repeat)
49.98 44.76 0.46 11.67
Control-Treated (Dropout)
79.69 35.56 2.59 124.11
Treated (Repeat)-Treated (Dropout)
64.14 27.03 2.06 137.29
Ret
urn
on
Sal
es
(RO
R)
Control-Treated (Repeat)
13.20 9.36 1.22 41.06
Control-Treated (Dropout)
12.87 11.34 0.76 13.49
Treated (Repeat)-Treated (Dropout)
8.69 7.81 0.89 11.20
Colored rows found as “Significant (P=0.05)” in PSM
Page | 60
Table 47: Capital Structure including Treated (Dropout)
Measurement Variable
Borrower Type Round II Round I t-value Difference as
% of Round I
Total Capital (USD)
Control-Treated (Repeat)
29,597.04 25,722.85 0.65 15.06
Control-Treated (Dropout)
19,526.87 31,328.94 (1.91) (37.67)
Treated (Repeat)-Treated (Dropout)
38,956.28 35,049.65 0.48 11.15
Total Debt (USD)
Control-Treated (Repeat)
9,122.70 6,679.47 2.48 36.58
Control-Treated (Dropout)
3,773.94 10,365.55 (1.54) (63.59)
Treated (Repeat)-Treated (Dropout)
9,570.53 10,292.74 (0.36) (7.02)
Equity Capital (USD)
Control-Treated (Repeat)
20,474.35 19,043.38 0.26 7.51
Control-Treated (Dropout)
17,160.16 21,472.29 (0.98) (20.08)
Treated (Repeat)-Treated (Dropout)
31,680.56 24,690.23 0.91 28.31
Colored rows found as “Significant (P=0.05)” in PSM Table 48: Comparison of Financial and Economic Indicators based on borrowers’ loan availing frequency
Times loan
availed
Borrower type
Total asset at market price
Growth of total asset at
cost
Growth of total asset at market price
Fixed asset at cost
Fixed asset at market
price
Growth of fixed asset at
cost
Growth of fixed asset at market price
Sales Profit Rate of Return
Total debt
Ratio of
debt to
equity
Total credit
Ratio of
credit to
total asset
Creation of competitive
business
1
Control (56)
25500.50 52.60 30.23 7746.64 18847.67 63.24 36.44 7677.96 702.12 12.93 6429.79 0.41 6208.75 0.86 91.07
Treated (Dropout )
38776.15 122.12 80.84 11858.35 31301.78 136.90 81.55 16366.63 1474.34 11.60 6075.99 0.22 7326.25 0.21 107.31
Sig. 0.04 0.04 0.01 0.04 0.01 0.04 0.04 0.01 0.01 0.37 0.79 0.00 0.46 0.02 0.47
2
Treated (Repeat)
34527.19 389.74 86.13 12257.35 29507.06 527.24 89.47 16630.98 1034.66 12.90 9312.14 0.40 7499.63 3.22 81.81
Treated (Dropout)
50527.65 1839.00 143.58 16636.68 43657.97 1424.30 142.33 17553.98 1266.57 9.58 9758.11 0.29 11550.02 0.34 125.00
Sig. 0.06 0.36 0.03 0.14 0.07 0.48 0.05 0.87 0.18 0.05 0.82 0.01 0.02 0.57 0.05
3
Treated (Repeat)
40114.01 445.83 128.16 16313.60 31727.50 160.79 115.74 15006.32 1359.16 11.77 10953.50 0.38 8758.92 0.39 78.03
Treated (Dropout)
42657.02 379.51 78.27 17110.93 37712.58 621.48 76.09 18850.70 1401.06 10.53 6805.22 0.24 6121.12 0.21 133.80
Sig. 0.85 0.84 0.25 0.92 0.49 0.05 0.23 0.51 0.94 0.60 0.05 0.01 0.12 0.13 0.06
4
Treated (Repeat)
55613.14 531.13 168.32 24522.66 49698.82 587.24 167.85 23964.68 1621.70 10.68 16359.18 0.36 12348.35 0.35 73.66
Treated (Dropout)
66435.25 269.85 164.68 30263.28 56714.00 298.24 140.89 35391.17 1493.33 7.48 18648.42 0.23 9106.69 0.11 144.08
Sig. 0.69 0.59 0.98 0.68 0.79 0.63 0.85 0.33 0.89 0.36 0.81 0.02 0.61 0.02 0.02
5 Treated
(Repeat)* 56776.72 276.78 136.45 19012.42 42527.12 140.74 114.68 15105.91 1240.68 16.24 11126.69 0.37 9403.76 0.30 87.57
6 Treated
(Repeat)* 163534.8
6 56.17 51.88 65948.81 107018.18 32.73 40.72 49528.38 2071.33 4.43 33569.75 0.38 11785.13 0.19 58.75
8 Treated
(Repeat)* 119979.7
2 73.89 209.13 12885.07 120022.57 72.80 208.67 37152.43 7856.75 21.15 59997.00 0.45 57140.00 0.48 20.00
Page | 61
* Comparisons are not possible from loan availed 5th times and above since no borrowers are dropped after availing loan for fourth times. ** Colored cells indicate the indicator as significant at 0.00, 0.01, 0.02, 0.03, 0.04 and 0.05 levels respectively in mean difference test
Table 49: Comparison of Financial and Economic Indicators between Regular vis-à-vis Defaulter borrowers
Borrower Type (n)
Total asset
at cost
Total asset
at Market Price
Growth of total asset
at cost
Growth of total asset
at Market Price
Fixed asset
at cost
Fixed asset
at Market Price
Growth of fixed
asset at cost
Growth of fixed asset at
MP
Sales Growth
Sales
Ratio of
sales to
fixed asset
Profit Growth
of Profit
Total capital
Equity capital
Ratio of
debt to
equity
BRAC Bank loan
Total credit
Ratio of
credit to
total asset
Full time male
employees at present
Regular (487)
25221.12 47210.15 285.40 121.92 17094.10 39221.14 232.07 118.20 18475.97 72.01 6.97 1419.09 68.13 37167.02 28385.79 0.31 8485.83 9427.79 0.30 3.27
Irregular (101)
14144.86 23470.49 1669.93 39.37 8898.27 18320.04 1508.38 40.86 9799.62 21.11 10.39 703.34 24.03 23795.91 14968.13 0.49 6327.41 7415.72 3.41 2.13
Sig. 0.02 0.00 0.03 0.00 0.01 0.00 0.01 0.00 0.01 0.00 0.02 0.00 0.03 0.02 0.01 0.00 0.00 0.04 0.03 0.03
** Colored cells indicate the indicator as significant at 0.00, 0.01, 0.02, 0.03 and 0.04 levels respectively in mean difference test
Table 50: Matrix of Economic Indicators including Treated (Dropout)
Measurement Variable
Borrower Type Round II Round I t-value Difference as
% of Round I
Number of full time male employees
Control-Treated (Repeat)
2.55 2.95 (0.45) (13.78)
Control-Treated (Dropout)
2.56 2.74 (0.43) (6.53)
Treated (Repeat)-Treated (Dropout)
3.01 2.91 0.21 3.53
Number of full time female employees
Control-Treated (Repeat)
5.50 2.83 0.97 94.12
Control-Treated (Dropout)
3.80 1.95 2.14 94.42
Treated (Repeat)-Treated (Dropout)
6.50 3.83 1.23 69.57
Colored rows found as “Significant (P=0.05)” in PSM
Table 51: Matrix of Economic Indicators: reflection of perceptions (percent) including Treated (Dropout)
Measurement Variable
Borrower Type Round II Round I t-value Difference as
% of Round I
Generation of savings
Control-Treated (Repeat)
39.41 119.33 (2.06) (66.97)
Control-Treated (Dropout)
44.40 122.66 (1.53) (63.80)
Treated (Repeat)-Treated (Dropout)
50.90 106.94 (1.94) (52.40)
Income enhancement
Control-Treated (Repeat)
42.60 42.37 0.02 0.54
Control-Treated (Dropout)
39.82 37.33 0.55 6.67
Treated (Repeat)-Treated (Dropout)
40.80 53.10 (2.10) (23.17)
Business expansion
Control-Treated (Repeat)
47.80 36.85 1.57 29.71
Control-Treated (Dropout)
43.67 44.77 (0.12) (2.45)
Page | 62
Measurement Variable
Borrower Type Round II Round I t-value Difference as
% of Round I
Treated (Repeat)-Treated (Dropout)
47.35 75.76 (3.43) (37.49)
Creation of competitive business
Control-Treated (Repeat)
85.00 88.65 (0.15) (4.12)
Control-Treated (Dropout)
105.45 98.65 0.29 6.89
Treated (Repeat)-Treated (Dropout)
143.78 110.81 1.40 29.76
Colored rows found as “Significant (P=0.05)” in PSM
Table 52: Types of Enterprises affecting Environment
Sl. No.
Type of Business Pollutant No. of Enterprise
Net Change Round II n
Round I n
1 Books & Library Poly bag 1 1 No Change
2 Brick field Ash, Dark smoke 1 1 No Change
3 Rice husking mill Ash, Dark Smoke, Hot water 12 12 No Change
4 Diagnostic centre Chemical waste 1 1 No Change
5 Engineering Workshop, Transport Business Sound & Dark smoke, Chemicals, Welding, Dust particles
5 5 No Change
6 Fast Food Poly bag 2 2 No Change
7 Footwear Poly bag 2 2 No Change
8 Grocery Poly bag 11 15 -4
9 Hardware Poly bag 2 2 No Change
10 Pharmacy Poly bag 1 2 -1
11 Plastic material cookeries Plastic 2 2 No Change
12 Press & Printing Sound 1 1 No Change
13 Parts & Machineries Poly Bag, Kerosene, Diesel 1 1 No Change
14 Readymade Garments business Poly bag 5 5 No Change
15 Rice husking mill & saw mill Sound, Dark Smoke 9 9 No Change
16 Seeds, Fertilizer & pesticides Poly bag 6 6 No Change
17 Telecom, Mobile accessories Poly bag 2 2 No Change
18 Toys (kids) Poly bag 1 1 No Change
19 Trading Business Poly bag 4 4 No Change
20 Verities Store Poly bag 7 8 -1
21 Vat nary Poly bag 1 1 No Change
Total 77 83
Source: Generated from field data
Page | 63
Table 53: Frequency distribution of engagement in social activities including Treated (Dropout)
Social Activities
Round II %
Round I %
Control-Treated (Repeat)
Control-Treated (Dropout)
Treated (Repeat)-Treated (Dropout)
Control-Treated (Repeat)
Control-Treated (Dropout)
Treated (Repeat)-Treated (Dropout)
Be the member of bonik sumity 58.33 59.09 83.33 64.29 46.67 69.05
Be the member of social clubs 8.33 9.09 7.14 21.43 0.00 0.00
Be the member of cooperative society 8.33 9.09 16.67 0.00 20.00 11.90
Involve in the social activities (free education, Shalis and others,)
16.67 4.55 4.76
7.14 0.00 4.76
Be the member of governing body of educational institutions
8.33 18.18 7.14 21.43 20.00 14.29
Be a member of Religious group/Institution
41.67 31.82 23.81 14.29 46.67 28.57
Table 54: Frequency distribution of BRAC Bank’s loan impact on borrowers’ social life including Treated (Dropout) (Based on borrowers’ perception)
Social Impacts
Round II %
n=588
Round I %
n=525
Control-Treated (Repeat)
Control-Treated (Dropout)
Treated (Repeat)-Treated (Dropout)
Control-Treated (Repeat)
Control-Treated (Dropout)
Treated (Repeat)-Treated (Dropout)
Employment increased 55.00 35.00 53.49 72.88 53.13 81.67
Other's encouraged to come in similar business
85.00 105.45 143.78 88.65 98.65 110.81
Improved housing possible 44.72 43.16 49.47 53.33 50.83 57.28
Increase number of household member in economic activities
60.70 42.50 76.82 100.00 116.67 85.56
Family's overall position developed
46.19 42.49 34.39 27.04 25.64 44.20
No of freeze increased 72.29 100.00 95.00 90.00 83.33 139.05
Page | 64
Table 55: Matrix of Social Employment, Education and other social indicators including Treated (Dropout)
Social Indicators Round II Round I t-value U
se o
f ch
ild la
bo
r (N
um
ber
) Control-Treated (Repeat)
2.00 *
Control-Treated (Dropout)
1.40 1.00 0.70
Treated (Repeat)-Treated (Dropout)
1.00 2.67 0.60
Ed
uca
tio
n o
f ch
ildre
n (
per
cen
t in
crea
se in
ex
pen
dit
ure
)
Control-Treated (Repeat)
50.17 66.86 0.41
Control-Treated (Dropout)
53.63 52.35 0.91
Treated (Repeat)-Treated (Dropout)
39.76 66.61 0.00
Hea
lth
(p
erce
nt
in
crea
se in
ex
pen
dit
ure
)
Control-Treated (Repeat)
41.95 34.53 0.54
Control-Treated (Dropout)
49.02 47.85 0.89
Treated (Repeat)-Treated (Dropout)
48.30 62.40 0.04
Tel
evis
ion
(p
erce
nt
incr
ease
in
exp
end
iture
)
Control-Treated (Repeat)
100.14
*
Control-Treated (Dropout)
100.00 91.67 0.39
Treated (Repeat)-Treated (Dropout)
97.94 88.35 0.38
* Insufficient observations
Table 56: How borrowers learn about BRAC Bank’s operation? Including Treated (Dropout)
Awareness Indicator Round II
% Round I
% t-value
Co
mm
un
icat
ion
by
ban
k st
aff
Control-Treated (Repeat)
44.44 47.06) 0.856
Control-Treated (Dropout)
50.96 51.89 0.923
Treated (Repeat)-Treated (Dropout)
53.10 50.00 0.692
Co
mm
un
icat
ion
by
exis
tin
g b
orr
ow
ers Control-Treated
(Repeat) 37.04 47.06 0.503
Control-Treated (Dropout)
32.69 33.96 0.91
Treated (Repeat)-Treated (Dropout)
34.48 36.05 0.863
Pro
xim
ity
to t
he
un
it
off
ice
of
BR
AC
Ban
k Control-Treated (Repeat)
16.67 1.96 *
Control-Treated (Dropout)
11.54 10.38 0.929
Treated (Repeat)-Treated (Dropout)
10.34 11.63 0.905
Ban
k ad
vert
isem
ent
Control-Treated (Repeat)
0.00 1.96 *
Control-Treated (Dropout)
2.88 3.77 0.949
Page | 65
Awareness Indicator Round II
% Round I
% t-value
Treated (Repeat)-Treated (Dropout)
1.38 0.58 *
Oth
ers
Control-Treated (Repeat)
1.85 1.96 *
Control-Treated (Dropout)
1.92 0.00 *
Treated (Repeat)-Treated (Dropout)
0.69 1.74 0.94
* Insufficient observations
Table 57: Why borrowers had availed loan from BRAC Bank? Including Treated (Dropout)
Effectiveness Factors Round II
% Round I
% t-value
Lo
w in
tere
st r
ate Control-Treated
(Repeat) 1.96 0.00 *
Control-Treated (Dropout)
7.00 1.83 0.78
Treated (Repeat)-Treated (Dropout)
2.05 2.92 0.94
Ab
sen
ce o
f o
ther
b
anks
bra
nch
Control-Treated (Repeat)
3.92 4.08 0.99
Control-Treated (Dropout)
3.00 0.92 *
Treated (Repeat)-Treated (Dropout)
4.79 1.17 0.82
Co
mm
un
icat
ion
by
ban
ks s
taff
s
Control-Treated (Repeat)
35.29 40.82 0.73
Control-Treated (Dropout)
42.00 42.20 0.99
Treated (Repeat)-Treated (Dropout)
45.21 45.61 0.96
Bo
rro
wer
fri
end
ly
flex
ible
len
din
g sy
stem
Control-Treated (Repeat)
47.06 55.10 0.57
Control-Treated (Dropout)
43.00 50.46 0.46
Treated (Repeat)-Treated (Dropout)
44.52 46.78 0.79
Oth
ers
Control-Treated (Repeat)
11.76 0.00 *
Control-Treated (Dropout)
5.00 4.59 0.98
Treated (Repeat)-Treated (Dropout)
3.42 3.51 0.99
* Insufficient observations