Performance Analysis of Islamic Bank Microcredit Scheme in Bangladesh

Transcription

1 PROSIDING PERKEM VI, JILID 1 (2011) ISSN: X Performance Analysis of Islamic Bank Microcredit Scheme in Bangladesh Abul Bashar Bhuiyan (bashariu@yahoo.com) Chamhuri Siwar Institute for Environment and Development Universiti Kebangsaan Malaysia (UKM), Bangi, 43600, Selangor, Malaysia Abdul Ghafar Ismail (agibab@ukm.my) Research Center for Islamic Economics and Finance School of Economics Universiti Kebangsaan Malaysia Bangi, Selangor D.E., Malaysia Mamunur Rashid Graduate School of Business Universiti Kebangsaan Malaysia Bangi, Selangor D.E., Malaysia ABSTRACT Islamic Microfinance is still an emerging concept even in Bangladesh, the motherland for Microfinance. This study analyzes the allocative, socio-economic and financial performance of RDS for a sample of 14 years from 1996 until The study finds better coverage efficiency in the villages, by branches, center and employee management. Socio-economic performance is also noteworthy with the introduction of various social activities and financing of microenterprises. Financially, this study suggests evaluating operating cost, investment income and financing options of RDS in details to avoid riskiness in future. Overall, the study puts prominence on adopting modern human resource management techniques, as the Islamic Microfinance is more about dealing with poor people more closely mitigating their socio-economic needs in a spiritual way. Keywords: Islamic Microfinance, Rural Development Services, Bangladesh JEL Classification: G2, N3 INTRODUCTION Poverty is the central problem to sustainable human development. With the increasing diversity in human poverty, an increasing percentage of world population is reported under poverty line every year. While it was difficult for conventional financial institutions to extend financial help to continue the growth potentials of every human being, Microcredit (microcredit and microfinance are hereafter used interchangeably) came with revolutionary approach by providing the poor the accessibility to the credit to increase their productivity, for reducing vulnerability, and to alleviate poverty through selfemployed economic activities. Microcredit deals with the poor those were ignored by formal financial institutions because of not having assets for collateral, enough financial records, and credit history, see, (Chowdhury, 2001; Hossain, 1988; Littlefield, Morduch, & Hashemi, 2003; Mahjabeen, 2007; Morduch, 2000; Wilkins & Jennifer, 2007) Through the hands of Professor Mohammad Yunus, the concept of Microcredit is still insufficient in many aspects to reduce the overall poverty level in Bangladesh (Amin, Rai, & Topa, 2003). On the same way Studies identified the interest rate charged by Micro-finance Institutions (MFIs ), which has a range of 15% to 20% from institutional and 33% to 120% in non-institutional cases, as one of the major impediments behind the effective financing solution for the poor Bangladesh (Amin, et al., 2003; Kabeer, 2001). In such situation, number of marginal poor people is increasing every year, from 78.2 million poor people in 1970 to million people in (Imai & Azam, 2010; Islam, 2009). Apart from a missing holistic view in poverty reduction, the MFIs have not ruminated on the spiritual, moral and ethical dimensions of human-socio-economic development, which is precious in Persidangan Kebangsaan Ekonomi Malaysia ke VI (PERKEM VI), Ekonomi Berpendapatan Tinggi: Transformasi ke Arah Peningkatan Inovasi, Produktiviti dan Kualiti Hidup, Melaka Bandaraya Bersejarah, 5 7 Jun 2011

2 62 Abul Bashar Bhuiyan, Chamhuri Siwar, Abdul Ghafar Ismail, Mamunur Rashid sustainable human development (M. Ahmed, 2006; Alam, 2009). In the era of high-growth Islamic banking, the best-fit alternative to conventional Microcredit is Islamic Microcredit, which promises the same benefits based on Shariah. As Islam provides the complete code of life, the religion covers poverty reduction as one of the premier agendas. Islam considers that poverty induces other indecent acts; therefore, poverty should be treated with much care. Among more than three thousand MFIs at present working in Bangladesh, Rural Development Scheme (hereafter referred to as RDS) is the largest Islamic Microcredit program (M. Ahmed, 2006; Alam, 2009; Habib, Haque, Mian, & Bashar, 2004; M. Mizanur Rahmana, Jafrullahb, & Islamc, 2008; Parveen, 2009; M. Rahman & Ahmad, 2010; Uddin, 2008). Despite of the increasing religious sympathy and higher interest rate with the counterparts, RDS could not able to achieve significant progress in terms of outreach and socio-economic development. Therefore, it is imperative to critically analyze the performance of RDS to examine the way forward for better success in future. Applying performance analysis techniques, this study analyzes the current status of Rural Development Schemes (RDS) offered by Islamic Bank Bangladesh Limited. The focus of this study is limited of generic performance analysis, whereas the question - how Islamic is the RDS - is out of scope of this study. Specific objectives of the study include analyzing the allocative efficiency of RDS, the socio-economic contribution, and financial performance (Risk and Return ratios) of RDS. The study has significance for both policy makers and Islamic MFIs (IMFIs ), in terms of setting up future goals and objectives for better Islamic Microcredit framework in Bangladesh. Section 2 gives a synthesis of the literature review. Section 3 sheds light on Rural Development Schemes. Section 4 highlights the data, Methodology and Analysis procedure. Section 5 concludes with the results and direction for future researches. MICROCREDIT SCHEME OF ISLAMIC BANK BANGLADESH LIMITED Islami Bank Bangladesh Limited started with the major objective of supporting an Islamic economy for balanced economic growth by ensuring reduction of rural-urban disparity and equitable distribution of income on the basis of Islamic rules and regulations. It is the largest private bank in Bangladesh and started in The bank has been practicing group based microcredit scheme, which is known as Rural Development Scheme (RDS). The scheme was launched in 1995 as a pilot program styled after the Grameen Bank model except that the scheme used Islamic modes of investment based on Shariah principles. Among many, the primary focus of RDS is to provide the financial access to poor people for creating opportunity of income generation with a view to alleviate poverty in a sustainable manner (IBBL, 2009; M. M. Rahman, Jafrullahb, & Islam, 2008). Some of the objectives of RDS, IBBL are listed below: To extend investment facilities to agricultural, other farming and off-farming activities in the rural areas. To finance self-employment and income generating activities of the rural people, particularly the rural unemployed youths and the rural poor. To alleviate rural poverty through integrated rural development approach. To extend investment facilities for hand tube-wells and rural housing, keeping in view the needs of safe drinking water and housing facilities of the rural poor To provide education and Medicare facilities to the down-trodden people. Initially it started as a pilot operation in the rural areas of several districts under the direct supervision of the nearby branches of the Bank. At present, it is extended to all the 61 districts out of 64 districts of the country through 139 Branches of the Bank. The metropolitan areas and three Chittagong Hill Districts are yet uncovered for strategic reason(ibbl, 2009). Exhibit 1 below provides a highlight of RDS s progress. It has been practicing Murabaha and Bai-muajjal modes of investment for financing. Very recently, RDS has started Musharaka mode as well. In all cases, the Branch must ensure strict adherence to the banking and shariah in norms. For this investment, RDS charge only 10 percent profit on flat rate with a rebate of 2.5 per cent for timely payment while the conventional microcredit institutions charges 15 to 22 per cent interest for income generation. The investment recovery rate of RDS is per cent in 2009 (IBBL, 2009). The above explanation shows that RDS is considered as a new paradigm in poverty alleviation and bring about development (H. Ahmed, 2003). RDS has large positive impact, which is observed in the case of food intake, housing, education, clothing, taking medical treatment, use of toilet, use of

3 Prosiding Persidangan Kebangsaan Ekonomi Malaysia Ke VI clear pure water, income, expenditure and as such economic, socio-economic, health and physiochemical environment (Uddin, 2008). Parveen (2009) argues that RDS of IBBL has been treated as a sustainable MFI in the rural development and poverty alleviation of Bangladesh with a short span of time of its establishment. Another study has found that MFIs are based on the implicit assumptions of social class conflict, so they tend to empower women, whereas Islamic MFIs intend to empower family by ensuring joint liability of husband and wife in case of lending to family or groups of families, which ensures a mutual liability sharing and cooperation in the family. (Mannan, 2006). Habib et al. (2003) examine the effectiveness of RDS credit by interviewing a few randomly selected program beneficiaries located in Sadar and Fulbaria Upazila of Mymensingh district. Most of the beneficiaries found having required loan money within reasonable time limit during the study period. Loan was used productively irrespective of loan holder categories. Loan repayment performance of the beneficiaries was observed to be satisfactory. Self-consciousness and hope of receiving future loan were observed to be the major contributing factors for good loan repayment behavior of the beneficiaries. Small borrowers were good re-payers followed by the medium and large borrowers. Rahman found in 2008 that most of the clients have utilized their borrowed Money and increseed household income and expenditure had increased significantly and clients had a positive opinion towards the microinvestment programme as it improved their standards of living but the reality is that not all the clients have invested their borrowed money in income generating activities. Instead, some of them have utilised their investment in house repairing, children s marriage ceremony and furniture purchase etc (M. M. Rahman, et al., 2008). METHODOLOGY The scope of this study is to perform an appraisal of the performance of Rural Development Schemes (RDS), the largest Islamic MFI in Bangladesh. Data were collected from Islamic Bank Bangladesh Headquarter in Dhaka for a total period of 14 years from 1996 until 2009, yearly basis. The data mostly include balance sheet and income statement information along with some allocative statistics regarding the coverage, social contribution and human resource engagement. Exhibit 2 and 3 highlight the growth of some selected statistics, which include villages covered, growth of number of group members and clients, growth in net savings of the members, growth of recovered amount of investment, fund deployed under RDS, growth of investment income, operating cost and profit and loss. The study intends to highlight the performance of RDS from allocative, socio-economic and financial (risk-return ratios) standpoints. Islamic MFIs are still at the emerging stages and conducting allocative performance tests are timely for IMFIs. By allocative performance/ efficiency, the study indicates the allocation of RDS operation into different operational segments by region, branches, groups of employees, clients and number of group members. These segments can be grouped into two major areas of concern; internal segments, which includes the branches, groups of employees, clients and group members, and external segments that includes mainly geographic segments such as the growth of operation by villages and districts covered. For these categories of analysis, we have also shown the descriptive statistics (in terms of mean, minimum and maximum) to explain the existing status of the RDS coverage. Under the RDS program, IBBL has distributed tube-well for safe water and also have built sanitary latrine in the remote areas. Some of the members are also given waivers from their payment of the principal for extreme poverty cases. These issues are categorized as social contribution of RDS. Likewise, RDS has started giving investment to micro-enterprises. These investments are especially important for rural economy and, therefore, are considered as input to economical development by RDS. Finally, risk and return ratios are common in performance analysis studies. To present the extent of success and riskiness of operation, a number of risk and return ratios are calculated. Calculations and formulas explained in Hempel and Simonson (1999) are followed for risk and return ratios. The return and risk ratios are slightly redesigned to fit the need of the study and type of Islamic Microcredit data. Exhibit 4 shows a highlight of the formulas for allocative and risk, and return performance analyses. Exhibit 2 shows the growth of Islamic MFIs in Bangladesh. The mean growth rate of village coverage was 69% during the sample period. Group members increased on average at 55% rate every year, clients at 56%, and net savings of the members at 22%. Growth of recovery of the investment stood at 91% average, which has supplemented by 72% yearly growth in fund deployed in RDS. Investment income has grown at 75% over the years, operating cost has grown at 62%, and net average profit growth after adjustment of cost of fund has grown approximately at 300% over the years. The

4 64 Abul Bashar Bhuiyan, Chamhuri Siwar, Abdul Ghafar Ismail, Mamunur Rashid statistics clearly shows how profitable the Islamic MFIs are. However, shortly we will also observe the riskiness in terms of volatility of income and expenses due to various factors. Exhibit 3 shows how the operation has been allocated for selected years. RDS was offered with only 20 branches at the beginning, which is now offered from 139 branches at the end of year These branches are scattered in 61 districts (out of 64 districts) and in six divisions. The hilly areas in the Southeastern side of the country are largely uncovered until Total number of direct employment, especially as field officers, has increased substantially from only 83 in the first year to 1747 at the end of Increase in no of centers has outnumbered all other segments, which was only 140 at the end of 1996 and ended up at in However, direct employee per center has decreased drastically, which is an area of concern for member-management in a group based Microcredit program. DISCUSSION OF THE RESULTS This study discusses the performance of Rural Development Schemes (RDS) of IBBL from three different but integrated standpoints; the allocative (coverage), socio-economic contributions and the financial performance (through risk-return ratios). Allocative performance Allocative performance analysis allows us to understand average coverage of certain operational variable (such as investment or sales) into a wide variety of allocative segments (such as villages, branches, and people). Studies conduct allocative performance analysis mostly for the emerging institutions to examine the coverage and scope of operation. RDS started its operation in 1996 with only 7800 Taka per client, which stood at Taka with an average year-to-year growth rate of 8.1%. Likewise, investment per branch has grown at over 40% and investment per employee grew at 32% (approximately) on average (see Exhibit 5). Recent amendments in Microcredit regulation in Bangladesh allow the institutions to accept deposit to encourage people for saving. Exhibit 4 shows that savings per member started at only Taka per member, which in constant dollar term is around $3-$3.5. In 2009, savings per member stood at 3023 Taka with an average year-year growth of 22% during Branches and field officers have played active role in collecting deposit from the members through group membership and center activities as the savings per branch grew at around 57%, saving per village and per employee grew at 33.5% and 47.8% respectively on an average. These results indicate that group based models have their benefit within and Microcredit business largely depends on the field workers and branch activity. Exhibit 5 shows the percentage growth and Taka value of disbursement and recovery. Disbursement by branch grew at around 45% every year on an average. However, per client the growth was only 8.5%, which indicates some variation in the level of disbursement among clients. A client was borrowing around 7800 Taka ($150 -$155) in 2009, which is more than double in This indicates the sustainability issue of the borrower; however, due to changes in inflation rate, it cannot be clearly related to poverty reduction. Growth of Recovery (some figures are more than 100%, since it the growth of recovery amount, not the recovery percentage) depends on the effort of all direct employees and activities in the center under group based microcredit operation. Exhibit 5 shows that recovery per employee (directly engaged with RDS program both in field and in project offices) has grown over 52% over the years, on average, from 1997 to Exhibit 6 highlights the village and members covered by each field officer (FO), no of branches offering Microenterprise Investment Scheme (MEIS) and no of members under MEIS. The human resource activeness seems to be the toughest job where each FO has to cover 326 members and 7 villages in the year of A better sales-force management might be necessary to crop better result. RDS started serving the Microenterprises from the year In that year, 18 branches were given the charge of handling the MIES services, which stood at 135 branches throughout the country in61 districts. It is amazing to see the growth potentials of MIES as the number of members/ clients availing the services grew almost to double from 2008 to The program started with only 355 members and became a members family at the end of Exhibit 7 gives a picture of the investment income, salaries expenses and operating cost grouped into various allocative segments. Even though in nominal Taka value the investment income was positive, due to higher growth in branches (operating with RDS), villages (covered under RDS), employee (directly working with RDS) and clients (availing investment form RDS), percentage growth of investment income dividend into these allocative segments shows a negative results. The positive

5 Prosiding Persidangan Kebangsaan Ekonomi Malaysia Ke VI sign is there as well. Investment income per client in 2008 and 2009 became positive. Salaries per employee show an average increase of 30% over the years. However, this increase cannot be directly discussed in the context whether RDS pays too low or too high compared to other microcredit programs. Operating cost per branch has also increased at around 37% per year on an average. These are the two important area of concern since successful operation of Microcredit depends on efficient management of human resources. Salaries expenses carry a major weight in the operating cost. Growth of net profit has been astonishing (see exhibit 8). Average profit per branch, employee, member and client all grew average at more than 100% over the years. Due to data shortage, we failed to indentify the drastic reduction in the profit of 2008 in details. Consequently, the profit of 2009 was even in 1000%. However, due to comparative higher growth of allocative segments, profit per employee and members was lower in 2009 compared to To identify the sudden change in the income and expense statement, we suggest carrying out in-depth analyses on cost and profit efficiency of RDS. RDS is still a part of IBBL and does not fall under microcredit authority supervising other microcredit firms in Bangladesh. Therefore, the auditors statement should also be taken under consideration. Socio-economic contribution Rural Bangladesh has scarcity of pure water and lack of proper sanitation system. RDS, along with its investment, has disbursed a huge sum of money for setting up Tube-well and sanitary latrine in the rural areas. In the year of 2009, a total of Million Taka was disbursed for tube-well and 4.57 Million Taka for constructing sanitary latrine in the village areas (Exhibit 10). Islamic finance follows the principle of waiving fees and even the principal amount if the borrower cannot pay for some difficulties that satisfy the requirement for waiver. The amount of waiver in Million Taka stood at 1.86 Million in 2009 with an overall 14-year average of 0.85 Million Taka. The maximum amount RDS waived, 2.77 Million, was in the year of 2008 (Exhibit 10). Exhibit 10 shows that the cumulative disbursement under MEIS program grew 10 times from 2005 to 2008 and grew more than double further during 2008 and Present outstanding during under MEIS grew more than double as well. However, the ratio of disbursement to outstanding is higher in 2009 when compared with 2008, which indicates some problem with collection of fund under MEIS. Further analysis is need in this area, while it is significant in rural development. Mean size of yearly-average investment under MEIS is Million per year, which went up to Taka Million in RDS started highlighting the MEIS from Therefore, the growth until 2009 is far-fetched. Financial performance: risk and return ratios Risk and return go hand in hand. Investment involving no risk or excessive risk is prohibited in Islam. In this subsection, the study presents a number of risk and return ratios. The risk ratios present the volatility in the amount on a year-by-year basis and for the entire sample of 14 years. These ratios are related to lack of recovery of investment, changes in cost of fund, lower savings to investment ratio and others on volatility of income and investment. Return ratios are related to investment income and profitability. Exhibit 11 gives a draft of the risk ratios of RDS program. RDS by right is neither a full pledged bank nor a Microcredit institution. It does not directly fall under the Microcredit authority and it works as any other department of Islami Bank Bangladesh Limited. Therefore, the savings collected under RDS program is similar to the Islamic mode of deposit collected by the Bank. The only difference is the deposit is collected for a number of members under the RDS program, which is of small amount. The higher percentage of savings reduces RDS s burden of cost due for borrowing money for investment purposes. As of 2009, only 27.21% of the disbursement was financed from savings, meaning the rest is financed from debt. Higher dependency on debt would make the business for RDS difficult and risky in future. Further, institutions like RDS would help making the banking industry more competitive as the fight for collecting deposit, especially rural deposit, will increase. Percentage of recovery has slightly reduced to 99%, however, is still much higher than many banks. RDS s recovery system depends on the centers capability and efficiency of the field officers. To build up strong recovery system, close tie with the rural people and understanding of their value chain are of immense importance. Therefore, efficient field force is necessary and RDS is suggested to work on this more strategically. RDS is borrowing mostly from the mother organization, IBBL. The highest cost of fund was 7.35%, where as the lowest was 5.74%. The recent trend of COF is declining. It becomes stable at 6% during Since RDS largely depends on the business of IBBL, future

6 66 Abul Bashar Bhuiyan, Chamhuri Siwar, Abdul Ghafar Ismail, Mamunur Rashid business trend of IBBL may hurt its COF. Therefore, RDS is suggested to diversify its financing base to other possible Islamic sources. Even with a higher percentage growth in disbursement, the risk fund provision as a percentage of disbursement has not been kept during 2005 to Lack of the MFI accounting reporting system and the limitation in data collection narrowed our explanation on why the risk fund has not been kept or whether this has been kept centrally with IBBL. If RDS is considered as a separate entity and IBBL has the mentality to establish it as a Microcredit wing, IBBL must report the necessary accounts separately. Otherwise, the question of credible transparency will be raised. The operating cost to total income ratio is stable at around 50%, which is a good sign. The operating cost to total income ratio was as high as 75%. In 2009, the ratio stood at around 55%. This indicates a better cost management under RDS. Similar credit goes to salaries expense management. Even though there might be questions on the credibility of effective compensation management compared to the industry, in generic sense, salaries expense as a percentage of total income has reduced recently to 50% in 2009 when compared with the highest of 68% in Total expenditure per taka of income has increased historically from 0.68 Taka in 1996 to 0.92 Taka in The average is 0.80 Taka, whereas the highest was 1.06 in Salaries expenses are still at the core of higher expenditure and expenditure management mostly depends on how efficiently salaries expenses are managed. Obviously, the prerequisite is to manage the employee in the most efficiently way. Investment income is the major income for RDS and disbursement is the real value of investment for a given year. Therefore, a higher percentage of investment income to disbursement can be explained as the efficient use of the investment fund. The ratio has increased from 6% in 1996 to 8.40% in 2009 with an average of 7.75% over the years. However, the maximum of this ratio was 10.07%, which indicates opportunities for RDS. Investment income became the only income from the major income during the sample period. Until 2004, investment income was the major income. However, from 2005 until recently, investment income is the only income for RDS. Therefore, efficient client management at the center, recovery actions and policies at branches are expected to play major role in increasing investment income in future. Net profit as a percentage of investment income shows the efficiency of operating cost management, investment management and recovery management as well. Higher the ratio better is the performance. As the number of members, clients and employees are increasing at a higher rate than the growth of disbursement and investment income, the ratio of net profit to investment income has reduced to a drastic 7.88% in 2009 from around 50% in Net profit as a percentage of total disbursement can be considered as the typical Return of Asset (ROA). Higher ROA is better for the company. ROA is reducing every year from 3.77% in 1996 to 0.66% in 2009 with an average of 2.33% during Profit margin is calculated by deducting interest expense (cost of fund) from interest income (investment income). Profit margin to disbursement ratio tells us about the operating efficiency of the firm, where the profit margin can also be called as operating profit margin. Higher ratio would signal better operating efficiency. As indicated by operating cost and salaries expenses earlier, this ratio shows a better result with 4.0% in 1996 to an upper level of 5.30% in CONCLUSIONS A summary of the above results can be analyzed further for policy implications. Some of the important issues are summarized below: First, efficient human resource is the key to success in Microcredit success in Bangladesh. As Islamic Microfinance considers the clients and members as partners in different models, building strong link with clients will bring better results in future. Field officers and project officers should be trained on the process of handling with village people, the consumption need and their business needs as well. Second, operating cost and operating risk are among the significant issues the IMFIs should look into. Efficient human resources management would increase the compensation charged by the employees. On the other hand, lack of efficient staffs would create competitive risk in the field in collecting deposit and investment. As a result, the human resource management should be more strategic that maximizes the value of the operation. Third, social and Entrepreneurial contribution should be extended as much as possible with a view to develop the rural economy. Nationalized and other private and foreign commercial banks failed to serve the rural economy leaving the hole too wide for the Non-governmental organizations and Microcredit institutions. Furthermore, RDS should step forwards towards socio-economic contribution because of its religious motive of operation.

7 Prosiding Persidangan Kebangsaan Ekonomi Malaysia Ke VI Data availability is an important limitation in IMFIs. Future research may take initiative to ask the questions on the extent of Islamic operation in Islamic microfinance, on operational efficiency of the Islamic microfinance, on regulatory sufficiency and worldwide comparison with multi-dimensional performance indices. REFERENCES Ahmed, H. (2003). Frontiers of Islamic Banking: A Synthesis of Social Role and Micro finance. The European Journal of Management and Public Policy. Ahmed, M. (2006). Impact of Rural Development Scheme on Poverty Alleviation: A Case Study. Research, Planning and Development Division Islami Bank Bangladesh Limited. Alam, M. N. (2009). Interest-Free Microfinance to Micro Entrepreneurs in Rural Bangladesh. Paper presented at the First International Microfinance Conference on Microfinance. Amin, S., Rai, A. S., & Topa, G. (2003). Does microcredit reach the poor and vulnerable? Evidence from northern Bangladesh. [doi: DOI: /S (02) ]. Journal of Development Economics, 70(1), Chowdhury, A. (2001). The Role of Micro-credit in Alleviation of Poverty: A study of the Grameen Bank in Bangladesh. Department of Finance and Banking, University of Dhaka, Bangladesh. Habib, M. A., Haque, M. S., Mian, M. R. U., & Bashar, M. A. (2003). MICRO CREDIT: AN EXPERIENCE OF ISLAMI BANK BANGLADESH LIMITED. Department of Agricultural Finance, Bangladesh Agricultural University, Bangladesh. Habib, M. A., Haque, M. S., Mian, M. R. U., & Bashar, M. A. (2004). Micro Credit: An Experience of Islami Bank Bangladesh Limited. Department of Agricultural Finance Bangladesh Agricultural University, Mymensingh-2202, Bangladesh. Hempel, G. H., & Simonson, D. G. (1999). Bank Management: Text and Cases (5 ed.): Wiley and Sons. Hossain, M. (1988). Credit for the Alleviation of Rural Poverty: The Grameen Bank in Bangladesh (No. No.55). Washington DC. IBBL, A. R. (2009). Performance of Rural Development Scheme. Dhaka, Bangladesh: Islami Bank Bangladesh Limited Imai, K., & Azam, M. (2010). Does Microfinance Reduce Poverty in Bangladesh? New Evidence from Household Panel Data. Discussion Paper Series. Islam, N. (2009). Can Microfinance Reduce Economic Insecurity and Poverty? By How Much and How? : Department of Economic and Social Affairs, United Nations. Kabeer, N. (2001). Conflicts Over Credit: Re-Evaluating the Empowerment Potential of Loans to Women in Rural Bangladesh. [doi: DOI: /S X(00) ]. World Development, 29(1), Littlefield, E., Morduch, J., & Hashemi, S. (2003). Is microfinance an effective strategy to reach the Millennium Development Goals? Focus Note, 24. M. Mizanur Rahmana, Jafrullahb, M., & Islamc, A. T. (2008). Rural Development Scheme Bangladesh Limited (IBBL): Assessment Challenges. IIUM Journal of Economics and Management 16, no Mahjabeen, R. (2007). Microfinancing in Bangladesh: Impact on households, consumption and welfare. [doi: DOI: /j.jpolmod ]. Journal of Policy Modeling, 30(6), Mannan, M. A. (2006). Innovation and Operational Experience of Risk Management of Islamic Microfinance Local Challenges and Global Opportunities: A Case Study Approach Paper presented at the Seventh Harvard University Forum on Islamic Finance. Morduch, J. (2000). The Microfinance Schism. [doi: DOI: /S X(99) ]. World Development, 28(4), Parveen, J. A. (2009). Sustainability Issues Of Interest-Free Micro-Finance Institutions In Rural Development And Poverty Alleviation. The Bangladesh Perspective. Theoretical and Empirical Researches in Urban Management 2(11). Rahman, M., & Ahmad, F. (2010). Impact of microfinance of IBBL on the rural poor's livelihood in Bangladesh: an empirical study. International Journal of Islamic and Middle Eastern Finance and Management, 3(2), Rahman, M. M., Jafrullahb, M., & Islam, A. T. (2008). Rural Development Scheme Bangladesh Limited (IBBL): Assessment Challenges. IIUM Journal of Economics and Management 16, no

8 68 Abul Bashar Bhuiyan, Chamhuri Siwar, Abdul Ghafar Ismail, Mamunur Rashid Uddin, M. M. (2008). Credit for the Poor: The Experience of Rural Development Scheme of Islami Bank Bangladesh Ltd. The Journal of Nepalese Business Studies, Vol. V No. 1. Wilkins, & Jennifer. (2007). Grameen: Banking for the Poor. From Grameen Bank Bhavan, Mirpur-1, Dhaka-1216, Bangladesh. Web site, available at: Accessed August 25, [doi: DOI: /j.jneb ]. Journal of Nutrition Education and Behavior, 39(6), APPENDIX: EXHIBIT 1: The progressed report of RDS, IBBL Description Branches Villages 4,560 8,057 10,023 10,676 10,751 Members/clients 217, , , , ,475 Investment Outstanding (Taka million) 1, , , Source: (IBBL, 2009) EXHIBIT 2: Growth of Selected Statistics ( ) Growth of Selected Statistics ( ) Villages Covered Group Members Clients Net Savings Total Recovery Fund Deployed in RDS Investment Income Opt. Cost Profit/ Loss Mean St. Dev Min Max EXHIBIT 3: Selected Allocative Segments for Selected Years Selected Allocative Segments for Selected Years Branch District Division No of Direct Employment Centers Note: No of Direct Employment is the sum of no of Field Officer, Project Officer and Assistant project officer EXHIBIT 4: Allocative Performance for Investment and Savings (in % Growth and in Taka Value) Exhibit 5: Allocative Performance for Investment and Savings (in % Growth and in Taka Value) Inv_ Per Client Inv_ Per Branch Inv_ Per Employee Savings/ Member Savings per Branch Savings/ Village Savings/ Employee 1996 (TK) (%) 19.6% 104.1% 185.3% 56.2% 139.7% 283.5% 235.1% 1998 (%) -28.9% -21.4% -47.5% 23.9% 62.8% -44.1% 8.7%

9 Prosiding Persidangan Kebangsaan Ekonomi Malaysia Ke VI (%) -9.7% 144.2% 62.2% 5.8% 148.8% -30.2% 65.2% 2000 (%) 10.9% 58.2% 40.0% 35.0% 83.9% 89.8% 62.7% 2001 (%) 5.2% 49.7% 53.9% 30.7% 76.8% 9.0% 81.6% 2002 (%) 9.0% 8.1% 1.8% 57.8% 59.2% 29.7% 49.8% 2003 (%) 7.9% 10.6% -0.6% 12.7% 20.6% 6.5% 8.4% 2004 (%) 11.0% 29.8% 23.8% 12.5% 30.0% 23.3% 24.0% 2005 (%) 11.4% 24.3% 18.1% 7.3% 27.2% 32.4% 20.9% 2006 (%) 5.4% 62.2% 20.4% -16.1% 35.4% -10.5% 0.4% 2007 (%) 13.1% 22.9% 5.6% 14.8% 32.4% 16.4% 13.8% 2008 (%) 15.0% 0.1% 10.9% 7.9% 14.4% 13.2% 26.7% 2009 (%) 34.6% 27.9% 38.2% 37.5% 14.7% 16.4% 24.0% 2009 (TK) Mean (TK) Mean (% Growth) 8.1% 40.1% 31.7% 22.0% 57.4% 33.5% 47.8% EXHIBIT 5: Allocative Performance for Disbursement and Recovery (in % Growth and in Taka Value) Allocative Performance for Disbursement and Recovery (in % Growth and in Taka Value) Dis_ branch Dis_ clients Dis_ village Recovery per employee 1996 (TK) (%) 112.3% 24.4% 239.6% 257.4% 1998 (%) -42.6% -48.1% -80.3% 14.3% 1999 (%) 233.1% 23.2% -6.5% 29.8% 2000 (%) 50.1% 5.2% 55.0% 59.5% 2001 (%) 56.9% 10.2% -3.3% 115.3% 2002 (%) 9.6% 10.5% -10.7% 42.1% 2003 (%) 11.4% 8.8% -1.6% 16.4% 2004 (%) 33.4% 14.1% 26.5% 27.5% 2005 (%) 25.2% 12.2% 30.3% 21.6% 2006 (%) 54.1% 0.1% 1.9% -7.9% 2007 (%) 30.5% 20.2% 14.7% 22.5% 2008 (%) -2.4% 12.1% -3.4% 48.6% 2009 (%) 11.5% 17.4% 13.2% 33.6% 2009 (TK) Mean (TK) Mean (% Growth) 44.8% 8.5% 21.2% 52.4% EXHIBIT 6: Allocative Performance for Coverage Village per FO Allocative Performance for Coverage Member per No. of Branch FO Handling the MEIS No. of Member / Clients under MEIS

10 70 Abul Bashar Bhuiyan, Chamhuri Siwar, Abdul Ghafar Ismail, Mamunur Rashid Mean St. Dev EXHIBIT 7: Allocative Performance for Income and Expense (% growth and in Taka amount) Allocative Performance for Income and Expense (% growth and in Taka amount) Inv Inc per branch Inv inc per village Inv Inc per employee Inv Inc per client Salaries per employee Opt cost per branch 1996 (TK) (%) -37.5% 0.0% -12.6% -63.4% 151.2% 48.9% 1998 (%) -28.9% -75.6% -52.5% -35.6% 8.5% 50.8% 1999 (%) -13.5% -75.7% -42.5% -68.0% 108.3% 200.4% 2000 (%) -24.6% -22.2% -33.3% -47.2% -18.4% -8.8% 2001 (%) 0.0% -38.3% 2.8% -29.7% 45.0% 35.7% 2002 (%) -5.5% -23.0% -11.0% -4.7% 6.4% 14.4% 2003 (%) -12.0% -22.3% -20.9% -14.1% -2.0% 10.0% 2004 (%) -7.8% -12.5% -12.1% -21.1% 2.9% 6.2% 2005 (%) -10.9% -7.2% -15.3% -20.1% 10.9% 21.8% 2006 (%) -14.4% -43.4% -36.5% -44.4% 24.5% 68.4% 2007 (%) -8.5% -19.6% -21.4% -15.8% -6.8% 8.6% 2008 (%) -5.1% -6.1% 5.0% 9.0% 52.3% 30.7% 2009 (%) -2.2% -0.7% 5.8% 3.0% 5.7% -2.3% 2009 (TK) Mean (TK) Mean (% Growth) -13.1% -26.7% -18.8% -27.1% 29.9% 37.3% EXHIBIT 8: Allocative Performance for Profitability (in growth % and Taka amount Allocative Performance for Profitability (in growth % and Taka amount Profit per Branch Profit per Employee Profit per member Profit per client 1996 (TK) (%) 222.6% 351.0% 110.2% 89.1% 1998 (%) % % % % 2002 (%) -5.0% -10.6% -5.9% -4.3% 2003 (%) 13.3% 1.9% 5.9% 10.7% 2008 (%) -98.2% -98.0% -98.3% -97.9% 2009 (%) % % % % 2009 (TK) Mean (TK) Mean (% Growth) 110.6% 187.4% 231.8% 199.8%

11 Prosiding Persidangan Kebangsaan Ekonomi Malaysia Ke VI EXHIBIT 9: Social Contribution (in Million Taka) for selected years Social Contribution (in Million Taka) for selected years Tube-well (Taka disbursed since inception) Sanitary Latrine (Taka disbursed since inception) Waiver Mean St. Dev Min Max EXHIBIT 10: Entrepreneurial Services for Micro-entreprises Entrepreneurial Services for Micro-entreprises Cumulative Disbursed under MEIS Present Outstanding under MEIS Avg. Size of Investment under MEIS Mean St. Dev Min Max Saving as % of Disburseme nt % of Recovery EXHIBIT 11: Risk Ratios COF % Risk Ratios % of Risk Fund Provision to Disbursement Operating Exp as % of Total Income Salary Exp as % of Total Income Expendit ure per Taka of income % % 7.00% 2.00% 51.86% 42.39% % 99.00% 7.00% 3.59% 45.60% 40.24% % 97.00% 7.35% 1.94% 46.65% 42.55% % 99.00% 6.82% 0.00% 48.36% 43.42% % 99.01% 6.00% 0.00% 61.10% 55.42% % 99.00% 6.00% 0.00% 55.21% 50.15% 0.92 Mean 19.06% 98.93% 6.66% 1.31% 51.45% 45.89% 0.80 St. Dev 7.63% 0.73% 0.48% 1.28% 8.75% 8.29% 0.13 Min 4.92% 97.00% 5.74% 0.00% 36.38% 31.87% 0.52 Max 27.21% % 7.35% 3.59% 75.16% 68.18% 1.06

12 72 Abul Bashar Bhuiyan, Chamhuri Siwar, Abdul Ghafar Ismail, Mamunur Rashid Investment income as % of Disbursement EXHIBIT 12: Return Ratios Investment income as % of Total Income Return Ratios Net Profit as % of Investment Income Net Profit as % of Disbursement Profit Margin as % of Disbursement % 50.00% 62.91% 3.77% 4.00% % 40.44% 74.49% 4.15% 2.23% % 46.13% 49.24% 2.65% 1.80% % % 16.56% 1.49% 5.83% % % 0.24% 0.02% 5.31% % % 7.88% 0.66% 5.30% Mean 7.75% 72.95% 33.55% 2.33% 4.60% St. Dev 1.62% 25.67% 30.93% 1.98% 1.65% Min 5.38% 40.44% % -0.97% 1.80% Max 10.07% % 95.63% 5.82% 6.98%