investigating the role of microfinance in developed and developing economies

8/18/2019 Investigating the role of microfinance in developed and developing economies

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DISSERTATIONDISSERTATION

nvestigating the role of microfinance

in developed and developing

economies

For Assignment or Dissertation Help, PleaseContact:

Muamma! Sa"i! Saee!

#$$ %$% $&$'%()

Email:to!rsaee!*gmail+com

S-pe ID: tosa"i!saee!

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mailto:[email protected]:[email protected]


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ABSTRACTA.stract

The viability of microfinance and role of microfinance institutions is an ongoing debate over the years. To date, microfinance institutions served million of poor people by providing them

easy access to loans with better repayment rates, and also improving their health and welfare.

But on the other hand, the growing interest in microfinance schemes in developing and

developed economies raised many issues. The purpose of this study is twofold. First, this

study is significant in addressing the incompetence of microfinance institutions in reaching

the ‘core poor’ by uncovering the factors that obstruct the implementation and growth of

microfinance. Secondly, a cross-country comparison among !sian developing countries"Bangladesh, #a$istan, and %ndia& and ' developed countries "() and (S!& is conducted to

evaluate the effectiveness and productivity of their microfinance institutions in reaching and

serving low income people. %n order to achieve the ob*ectives of this study, the attempt is

made to collect microfinance data for si+ years from ' to '. The findings of the study

reveal that Bangladesh and %ndia are comparatively ahead of other countries in serving poor

people by providing them microfinance services. Similarly, on the basis of ten most important

microfinance indicators, it is concluded that /F%s in both developed countries i.e. () and

(S! lac$ in performance, outreach, financial stability, and costs compared to the developing

countries particularly Bangladesh and %ndia. %t is believed that this study will be a significant

addition to the literature because of cross-country analysis as well as the due to the

recommendations made at the end to promote microfinance practices to reduce poverty levels

in the world.

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ACKNOWLEDGMENTAcno/le!gement

% would li$e to than$ my supervisor who assisted me throughout the dissertation period. 0is

timely support and feedbac$ gave me the opportunity finish this dissertation on time. !

special than$s to 1urham (niversity and staff for providing me access to library boo$s and

*ournals related to microfinance. 2ast but not least, % am so grateful to my parents who

encourage me throughout my studies in 1urham (niversity and finally today % am able to

submit my dissertation in the partial fulfilment of my degree.

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Ta.le o0 Contents

Abstract................................................................................................................. 1Ack!"#e$ge%et................................................................................................. 2

CHAPTER %: INTROD1CTION

1.1 &tr!$'ct(!.....................................................................................................)

1.2 Backgr!'$ !* t+e St'$,................................................................................. )

1.- Pr!b#e% State%et........................................................................................10

1. Researc+ A(% a$ Ob/ect(es........................................................................11

1. Researc+ 'est(!s.......................................................................................11

1.3 S(g(4cace !* t+e St'$,...............................................................................11

1.5 Researc+ Orga(sat(!...................................................................................12

CHAPTER 2: 3ITERAT1RE RE4IE5

2.1 &tr!$'ct(!................................................................................................... 1-

2.2 G#!ba# Perce6t(! !* M(cr!4ace..................................................................1-

2.- M(cr!4ace Act((t(es...................................................................................1

2.-.1 M(cr!4ace Le$(g...............................................................................1

2.-.2 M(cr!4ace Pr!$'cts a$ Ser(ces........................................................12.-.- &terest Rates..........................................................................................1

2. R!#e !* M(cr!4ace &st(t't(!s....................................................................13

2..1 C!%%erc(a# Baks as 7!r%a# M7&s..........................................................13

2..1 M(cr!4ace ( Dee#!6(g C!'tr(es.....................................................15

2..2 M(cr!4ace ( Dee#!6e$ C!'tr(es......................................................18

2. 7act!rs A9ect(g t+e Gr!"t+ !* M(cr!4ace................................................20

2..1 7(ac(a# Stab(#(t,.....................................................................................20

2..2 :c!tr!##e$ Gr!"t+................................................................................20

2..- C'#t'ra# *act!rs........................................................................................21

2.. S,ste%at(c 7ra'$.....................................................................................21

2.. B'rea'crac, Barr(ers...............................................................................21

2..3 Lack !* Cre$(t Rat(g Agec(es................................................................21

2..5 C+a##eges *!r C!%%erc(a# Baks...........................................................22

2..) Met+!$!#!g(ca# 7#a"s.............................................................................. 22

2..8 State &teret(!....................................................................................222..10 !t+er *act!rs..........................................................................................22

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2.3 S'%%ar,....................................................................................................... 2-

CHAPTER (: METHODO3O67

-.1 &tr!$'ct(!................................................................................................... 2

-.2 Researc+ Met+!$!#!g,...................................................................................2

-.- P+(#!s!6+(ca# Para$(g%s................................................................................2

-. Researc+ Des(g............................................................................................2

-. Researc+ A66r!ac+........................................................................................23

-..1 'a#(tat(e s. 'at(tat(e.....................................................................23

-..2 De$'ct(e s. &$'ct(e...........................................................................23

-.3 Researc+ Met+!$s......................................................................................... 25

-.3.1 Case St'$, Met+!$..................................................................................25

-.3.2 S!'rces !* Data c!##ect(!.......................................................................2)

-.3.2.1 Sec!$ar, Data C!##ect(!................................................................2)

-.3.2 L(%(tat(!s !* Sec!$ar, Data.................................................................28

-.3.- Re#(ab(#(t, a$ ;a#($(t, !* Sec!$ar, Data...............................................28

-.5 Data Aa#,s(s.................................................................................................-0

-.) St'$, P!6'#at(!............................................................................................-1

-.8 Researc+ Et+(cs.............................................................................................-1

-.10 Res!'rces :se$...........................................................................................-2

-.11 Researc+ L(%(tat(!s....................................................................................-2

-.12 S'%%ar,..................................................................................................... -2

CHAPTER $: CROSS8CO1NTR7 ANA37SIS

.1 &tr!$'ct(!................................................................................................... -

.2 Data Re#(ab(#(t, Aa#,s(s................................................................................ -

.- Aa#,s(g Gr!ss L!a P!rt*!#(!.......................................................................-

. Aa#,s(g O'treac+....................................................................................... -5

..1 B!rr!"(gs...............................................................................................-5

..2 N'%ber !* Act(e B!rr!"ers....................................................................-)

..- Aerage L!a Ba#ace 6er B!rr!"er........................................................-8

.. Percetage !* 7e%a#e B!rr!"ers.............................................................0

. Aa#,s(g 7(ac(a# Stab(#(t,.......................................................................... 2

..1 Ret'r ! Asset


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7(g're .2@ Aerage #!a ba#ace 6er b!rr!"er '(t, rat(!.

............................

Tab#e .8 C!rre#at(! Matr(? @ De6!s(ts t! #!a rat(!.

.............................

Tab#e .10 C!rre#at(! Matr(? @ C!st 6er b!rr!"er.

................................ 5

Tab#e .11 C!rre#at(! Matr(? @ C!st 6er #!a.

......................................... )

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C+a6ter 1 &tr!$'ct(!

%+% Intro!uction

This chapter mainly contains an introduction and the basic idea of the dissertation. The

bac$ground and problem statement are included to set the scene for originating aim,

ob*ectives, and research 3uestions of the study. !fter that, the significance of the study

illustrates how this study will contribute to the literature of microfinance. Finally, the

theoretical framewor$ of the study gives an idea about the basic structure of the dissertation.

%+2 9acgroun! o0 te Stu!-

!ccording to 4onsultative 5roup to !ssist #oor "45!#&, 6microfinance offers poor people to

access basic financial services7 "Fardoust et al. ' p. 89:&. The idea of microfinance is

developed originally in Bangladesh when /uhammad ;unus formed the 5rameen Ban$ in

s that were

providing credits to poor people. %n the early days of establishment, 5rameen ban$

emphasised on small loans and savings and put interest rates ade3uately high to cover

e+penditures. !fter all, the ban$ as$ed borrowers to organise a group of five people andarrange wee$ly meeting with each other to repay their finances and also share valuable

thoughts and opinions. %n early


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was also informally adopted in many uropean countries during the


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Source: Srnec et al (2009, p. 188)

%+( Pro.lem Statement

/icrofinance became very popular when /uhammad ;unus, the founder of 5rameen Ban$,

received a =obel #ri@e for increasing awareness for supporting poor families by giving them

small finances. Since then several microfinance institutions established both in developed and

developing nations. To date microfinance institutions served million of poor people by

providing them easy access to loans with better repayment rates, and also improving their

health and welfare "Bec$er, '&. Therefore, there is no doubt that a ma*ority of poor

families gained countless benefits from microfinance schemes all around the world, but

problems occurred when too many microfinance institutions rapidly e+panded worldwide

until '< without appropriate institutional abilities to controls "2t@en$irchen, ''&. The

growing interest in microfinance schemes in developing and developed economies raised

many issues. For e+ample, potential borrowers did not retain any written evidenceD wish to

borrow minor uneconomic loansD and often have no assets as collateral. %n this regard, many

researchers believe that microfinance is one of the ma*or factors that significantly contributed

to the financial crisis of ': "Srnec et al. '


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2+% Intro!uction

The literature review chapter outlines different aspects of microfinance phenomenon. The

chapter includes a debate on different microfinance activities, global perception of

microfinance, role of microfinance institutions, and the factors that hinder the adoption and

implementation of microfinance methodology.

2+2 6lo.al Perception o0 Micro=nance

/icrofinance has a worldwide impression as a successful tool for reducing poverty. Several

policy ma$ers around the world therefore attempt to investigate the availability and

sustainability of microfinance for poor people in the future. The investors, donors, and other

$ey sta$eholders of the microfinance claim that 6microfinance can pay for itself, and must do

so if it is to reach very large numbers of poor households7 "Brandsma and Bur*or*ee, '8, p.


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communities by providing them opportunities to generate incomes "0artars$a and =adolnya$

':bD %mai et al. '&. The success or failure of microfinance institutions depends on

several factorsD some institutions failed and ceased already while others are serving million of

people in both developing and developed countries.

2+( Micro=nance Actiities

2+(+% Micro=nance 3en!ing

/icrofinance lending programs are not identical in every country. 5enerally, there are two

types of microfinance lendingE group lending and individual lending "2ehner, 'n the other hand, micro insurance is offered by /F%s to protect

poor people from particular ris$s and threats by paying consistent insurance premium in

proportion to the probability and costs of associated ris$s "ibid&. Some other services offered

by /F% include health advice, business development, and education. %t is evident that the

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combination of non-financial and financial services of /F% has deep impact on reducing

poverty "Gaman,


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2+$ Role o0 Micro=nance Institutions

The role of /icrofinance %nstitutions "/F%s& on alleviating the poverty has gained

momentum. 1ifferent opinions are found in this conte+t, some believe that /F%s play a

positive role in reducing poverty while others perceive that they significantly contributed to

the financial crisis of ': "Srnec et al. '


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microfinance activities in four waysE direct lending, partnership with /F%s, microfinance

subsidiary, or securitisation "2edgerwood,


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!nother proof of the /F%s role in !sian countries highlighted by the State of /icrocredit

Summit 4ampaign Aeport "''&, where it is stated that /F%s in !sian countries reached

nearly


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2+$+2 Micro=nance in Deelope! Countries

The financial crisis une+pectedly opened a way for microfinance institutions to offer their

services in developed countries that have been adversely affected by the economic downturn.

For instance, several /F%s started to see$ a licence to open credit unions in the (nited States

after the financial crisis of ': "Srnec et al. '


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credits, the industry altogether offers a variety of products and services to low income people

"Brau and Coller, '8&. /ary llen, the 4> of Comen’s Corld Ban$ in the (), re*ects the

perception that microfinance was one of the sources of finance crises. She asserts that there is

much e3uity still available for microfinance proposals "Mohnsson, '


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2+'+( Cultural 0actors

The ma*or benefit of microfinance is to offer small loans to poor people who are in fact

trapped in poverty for generations. Therefore, it is not easy to advertise and educate them

how small loans can help them to establish their own micro businesses in order to improve

their livelihoods. /oreover, international /F%s engage in microfinance activities also need to

communicate clearly about their agendas to local low income communities in order to

develop trust among them "(gur, '&.

2+'+$ S-stematic Frau!

Systematic frauds are also evident in several cases of /F%s failure. /any senior officials at

the management level misused their positions and powers given to them. They used

institutional financial and other resources for their own benefit using different mechanisms.

%n many cases it was found that microfinance loans were granted to their friends or relations

who were not entitled for those loans "/arulanda et al. '&.

2+'+' 9ureaucrac- 9arriers

Bureaucracy is another barrier to microfinance activities particularly in the developing

countries. Such problems occur mainly due to political and economic instability where

investors are reluctant to invest money and conse3uently /F%s face difficulties in running

microfinance operations smoothly "2ucarelli, '?&. !nother issue in this domain associated

with the minimum interest rates set by the governments. /F%s find themselves in trouble in

achieving sustainability of microfinance with high interest rates imposed by the government

"4ampion, ''&. Similarly, *udiciary problems in most of the developing countries enforce

/F%s to formulate credit structures under their regulations which also sometimes influence

microfinance activities "Servon, '&.

2+'+< 3ac o0 Cre!it Rating Agencies

4redit rating attainment can be an e+pensive option for small /F%s and often considered as

deficient in the microfinance sector. Therefore in order to develop trust of people and other

sta$eholders, it is inherent for /F%s to establish partnership with commercial ban$s and giant

auditing firm to secure better funding "(gur, '&.

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2+'+) Callenges 0or Commercial 9ans

#artnership with commercial ban$s may also create some problems for /F%s because

commercial ban$s have different approaches to target their customers for financing.

%ntroducing and implementing microfinance strategy can be difficult in terms of

understanding low income people and their culture, social values, and traditions etc. For this

purpose, commercial ban$s may need to conduct various training wor$shops to educate their

staffs to deal with specific client "Ahyne, '


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2+< Summar-

This chapter highlights the fact that microfinance has a worldwide perception as a successful

poverty reduction tool but microfinance activities are not same in every country. The

operations and activities of /F%s are primarily based on type of lending, productIservice, and

interest rates. The investigation of informal and formal /F%s reveals that formal /F%s in

partnership with commercial ban$s can play a critical role in serving more poor people in

both developing and developed countries. Though microfinance in developing countries is

well-established and running smoothly but there is a need to start such activities at the

e+tensive level to support low income people in developed countries as well. %t is also

concluded that /F%s face a number of internal and e+ternal threats that hinder the

implementation and growth of microfinance in the developing and developed countries.

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C+a6ter - Researc+ Met+!$!#!g,

(+% Intro!uction

The research methodology chapter mainly discusses the methodology adopted to complete

this research. The discussion in this chapter surrounds research philosophy, design, approach,

data collection techni3ues and procedures. %n addition, research ethics, research limitations,

and resources used are also the part of the debate.

(+2 Researc Meto!olog-

The research methodology is a broad concept which provides a systematic framewor$ to

solve research problems using a number of tools and techni3ues "Saunders et al. '9&. This

concept is often confounded with research methods which are only the part of the research

methodology for collecting primary or secondary data to achieve underlying ob*ectives of the

research. ‘Aesearch onion’ is a comprehensive framewor$ for research methodology which is

developed by Saunders et al "'9& to characterise and show various research activities at si+

different stages of the research. This framewor$ is employed in this study to highlight the

activities of the research as well as to provide reasoned discussion on the selection of appropriate tools and techni3ues to conduct the research. Figure . shows the research onion

of this research where bold items represent the adopted methodology.

Figure 3.1: Aesearch >nion

SourceE Saunders et al. (2007 p.132)

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(+( Pilosopical Para!igms

The research philosophy refers to the creation and the nature of the $nowledge to effectively

address research aims and ob*ectives "4ollins, '&. Two foremost philosophical paradigms

that can be applied to social science studies are positivism and interpretivism. The $ey

differences between these two are included in table ..

Table 3.1: Features of positivism and interpretivism paradigms

Features Positivism Interpretivism

5oal 1escriptive with valid arguments +ploratory with solid arguments

!pproach 1eductive %nductive

1ata type Puantitative "numeric data& Pualitative "te+tual data&Aeality perception Focused, few but e+act *udgements 1iverse, multiple thoughts

)nowledge Based on scientific laws Based on social science principles

1ispersion !bsolute Aelative

>ntology 4ombined, conventional, dependent 1iscrete, isolated, independent

Aesearch methods Surveys, physical e+periments %nterviews, case studies

Aelationship bIw

research and sub*ect

=on-participative, stiff,

unsupportive

#articipative, fle+ible, supportive

1ata analysis Puantitative analysis through

statistical or mathematical tools

Pualitative analysis "document

reviews, or interview data analysis&

Sources: Collins (2010, p. 38)

%n this research, interpretivist paradigm is chosen because this study is mainly based on

3ualitative cross-country analysis and re3uires strong arguments to underline the positive or

negative role of /F%s in developed and developing countries. Furthermore, the adoption of

the interpretivist paradigm helps the researcher to provide recommendations to promote

microfinance practices to reduce poverty levels in the world economies. The positivism

paradigm is not adopted because the study does not underta$e field or laboratory e+periment

or survey investigations "Saunders et al. '


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diverse causation factors that can affect the development and growth of /F%s in developed

and developing countries "Bryman, ':&. %n this study, not enough data for clarifying the

role of /F%s is available. Therefore, inductive approach helps the researcher to draw strong

conclusions on the basis of limited information.

(+< Researc Meto!s

The research methods allow the researcher to ac3uire best possible $nowledge to build up

understanding about a specific topic in order to achieve the ob*ectives of the research

"Bryman, ':&. The selection of appropriate research method for the study is always a

critical decision for the researcher because choosing inappropriate method can affect the

overall results of the study and also can obstruct the achievement of the underlying aim of theresearch "Saunders et al. '


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(+


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areE microfinance borrowings, gross loan portfolio, number of active borrowers, return on

asset "A>!& ratio, return on e3uity "A>& ratio, deposit-to-loan "1T2& ratio, average loan

balance per borrower, cost per borrower, cost per loan, and finally the percentage of female

borrowers. The average of each indicator for all /F%s associated with each country is ta$en

on a yearly basis.

! gross loan portfolio represents all outstanding principal amounts that are due for entire

outstanding client loans. !part from interest receivable, this underta$es all renegotiated loans,

delin3uent, and current loans. The number of active borrowers means individuals or groups

who presently have an outstanding loan balance. 0owever, a person having more than one

loan is considered as single a borrower. The description of other indicators is as followsE

Aeturn on asset ratio Q "=et >perating %ncome, less Ta+es& I !ssets, Aeturn on e3uity Q "=et

>perating %ncome, less Ta+es&I 3uity, 1eposits to loan Q 1eposits I 5ross 2oan #ortfolio,

!verage loan balance per borrower Q 5ross 2oan #ortfolio 5ross I =umber of !ctive

Borrowers, 4ost per borrower Q >perating +penseI =umber of !ctive Borrowers, 4ost per

loan Q >perating +penseI =umber of >utstanding 2oans, and percentage of female

borrowers.

(+


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empirical data collected from the website is tested through 4ronbach’s !lpha in S#SS. %t is

believed that adopting these careful considerations made the secondary data reliable and

validated.

(+) Data Anal-sis

1ata analysis is the bac$bone of this research and during this step, the researcher attempts to

investigate, organise, transform, and interpret useful information which conse3uently allows

him to conclude the study in an effective manner "Bryman, ':&. This study is mainly based

on cross-country analysis between developing and developed countries and in this regard,

each country’s /F%s are analysed and evaluated on the basis of 3ualitative and empirical

information that indicates the effectiveness and productivity of those institutes in reachingand serving poor people. For this purpose, the attempt is made to collect microfinance data

for si+ years from ' to '. The average of each microfinance indicator for all /F%s

associated with each country is ta$en on a yearly basis. The reliability and validity of the data

are analysed through 4ronbach’s !lpha "4R& test using S#SS program. Furthermore, )arl

#earson’s correlation coefficient is used to find correlations between the microfinance

indicators of each country. The correlation matri+es are developed using the following

formula through S#SS.

' '

" &" &

" & " &

x x y yr

x x y y

− −=

− − −

∑

∑ ∑

Source: Kin et al. (2011, p. 10!)

The correlation coefficient "r& value should remain between - and where answers near to

- represents negative relationship between variables and values near to indicates positive

relationship. %n this study, the charts, graphs, and tables are constructed in /S +cel to

represent empirical dataIinformation.

The diagram in figure .' illustrates adopted research approach, methods, and data collection

techni3ues in this study.

Figure 3.2: Aesearch approach

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(+? Stu!- Population

The population of this research mainly consists of formal /F%s operating in developing and

developed countries. These countries areE !sian countries "Bangladesh, %ndia, and #a$istan&,

(nited )ingdom "()&, and the (nited States of !merica "(S!&. !ll /F%s operating in these

countries are chosen to assess their true role in reducing poverty. %t was not re3uired to collect

everything about the /F%s that is why only relevant data is collected for analysis purposes.This relevant data are the indicators of success or failure of /F%s which includeE

microfinance borrowings, gross loan portfolio, number of active borrowers, return on asset

ratio, return on e3uity ratio, deposit to loan ratio, average loan balance per borrower, cost per

borrower, cost per loan, and finally the percentage of female borrowers. The empirical data

about these indicators are collected from httpEIIwww.mi+mar$et.org website for the period

from ' to '.

(+@ Researc Etics

Ta$ing into account ethical considerations are always important for the researcher in

conducting research in the academic domain "Bryman, ':&. The researcher followed a

particular ‘research ethics chec$list’ provided by 1urham (niversity to underta$e all essential

preventative measures. These ethical considerations allow the researcher toE

• #reserve the rights of human participants while communicating with themD

• #rotect data according 1ata #rotection !ctD

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• Fair use of technological and other resourcesD

• mploy officially permitted way to collect data about microfinance institutions etc.

(+%& Resources 1se!

2arson "'9& specifies three essential resources that are re3uired to complete any research.

They areE human resources, technological resources, and financial resources. !ll these

resources are also underta$en in this research as well. 0uman resources indicate the

researcher himself as well as supervisor and other individuals who guided the researcher in

completing this dissertation. Technological resources include all computing resources that the

researcher used for reading, writing, and searching purposes and finally, financial resources

indicate monetary resources that were re3uired for printing and binding stuff.

(+%% Researc 3imitations

The researcher endeavours to collect true and reliable data from the financial databases and

financial statements of /F%s. Therefore, any error in the data may affect the conclusion of the

study. Furthermore, it was difficult to conduct thorough research due to the restriction of the

number of words and fi+ed deadline. ! more deep research can be conducted in this domain

if more time and resources are provided.

(+%2 Summar-

The e+ploratory research design allows the researcher to address the strong need of

investigating the role of /F%s by ac3uiring 3ualitative data about microfinance. The

3ualitative approach is ta$ing on to investigate, understand, and e+plain the underlying

behaviour of /F%s in reaching the ‘core poor’. >n the other hand, inductive approach is

adopted due to lac$ of availability of desired data on some particular /F%s from developed

and developing countries. The wor$ reported in this study is based on secondary data which

is gathered from many trustworthy and genuine sources such as financial statements and

websites of /F%s. %n order to support 3ualitative findings, the empirical data was collected

about ten microfinance success indicators which includeE E borrowings, gross loan portfolio,

number of active borrowers, return on asset ratio, return on e3uity ratio, deposit-to-loan ratio,

average loan balance per borrower, cost per borrower, cost per loan, and the percentage of

female borrowers. The data analysis in this research is mainly based on cross-country

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analysis of different /F%s chosen from developed and developing countries. The entire

research process of the study is depicted in figure ..

Figure 3.3E ntire research process

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C+a6ter Cr!ssC!'tr,Aa#,s(s

$+% Intro!uction

%n this chapter, the cross-country analysis is performed to analyse the role of /F%s in

developing and developed economies. The analysis is conducted on the basis of various

indicators showing the performance of /F%s in terms of portfolio, outreach, financial

stability, and cost.

The secondary data about /icrofinance %nstitutions "/F%s& of developed and developingcountries are collected from the website of official microfinance database i.e.

www.mi+mar$et.orgImfi. The empirical data is based on ten microfinance indicators such asE

microfinance borrowings, gross loan portfolio, number of active borrowers, return on asset

ratio, return on e3uity ratio, deposit to loan ratio, average loan balance per borrower, cost per

borrower, cost per loan, and finally percentage of female borrowers. The data from ' to

' was collected about three !sian developing countries i.e. Bangladesh, %ndia, and

#a$istanD and two developed countries such as the () and (S!. The average of each

microfinance indicator for all /F%s associated with each country is ta$en on a yearly basis.

The data are sorted and analysed through /S +cel. The collected data is presented in

!ppendi+ !.

$+2 Data Relia.ilit- Anal-sis

4ronbach’s alpha "4R& test is performed to chec$ whether data collected from

www.mi+mar$et.orgImfi is reliable and standardised. 1oloi "'


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The results of 4ronbach’s alpha "4R& test are illustrated in table 8. where all ten indicators

are categorised into four significant groups. ach group’s 4R indicates satisfactory results.

The table also shows that the overall reliability of the data is .:'? which is considered as

‘good’

Table 4.1 – Aeliability analysis through 4ronbach’s !lpha

Indicator roup Indicator Items !" #esult

5ross loan portfolio 5ross loan portfolio .9'' !cceptable

Borrowing related

Borrowings

=o. of active borrowers

!vg. loan balance

L of female borrowers

8 .


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Figure 8. W 5ross loan portfolio of all countries Figure 8.' W2oan #ortfolio Bangladesh vs. ()

>n the other hand, Bangladesh is comparatively ahead of other countries in providing

microloans to poorer people. ! continuous increasing trend from ' to ': in

Bangladesh’s gross loan portfolio represents the emergence of various new /F%s in the

microfinance sector "1elimatsis and 0erger, '&.

!part from the developed countries i.e. () and (S!, the trend line of gross loan portfolio of

developing countries loo$s stable throughout the period. This could be the reason that

microfinance facility was not or partly available in these countries before the ': recession.Furthermore, figure 8.' clearly indicates the gross loan portfolio situations of Bangladesh and

(). !s compared to the Bangladesh and other developing countries, most of the low income

people in the () do not bother to underta$e microloans as they often get considerable

support from government in the form of ta+ credits and other benefits to fulfil their primary

needs "5ov.u$, '&.

Table 8.' represents the correlation matri+ of gross loan portfolio of selected countries. %t is

found from the correlation analysis that the loan portfolios of (S!, (), and %ndia are

strongly correlated with each other and also significant at . level. This is due to their

matching ratios of providing microloans to poor people during recession period. %n contrast,

the correlation between Bangladesh and () is strong but it is insignificant at . and .?

levels due to instability of outstanding loans.

Table 4.2 ) 4orrelation /atri+ W 5ross 2oan #ortfolio

*angla India Pa+ ,- ,/

*angla

Page | -5


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India.'9

".:'&

Pa+ -.8

".


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%t is shown in figure 8.8 that the borrowings of Bangladesh are far high compared to the ()

due to the familiarity and popularity of microcredit in Bangladesh.

The correlation matri+ in table 8. provides somehow similar results as table 8.'. The

borrowings level in %ndia is positively correlated with those of in the (S! and (). Table 8.

also demonstrates a strong correlation between () and (S! at .? significance level. >n

the other hand, the correlation between Bangladesh and () is positive but it is insignificant

at . and .? levels due to differences in the demand of microfinance in both countries.

Table 4.3 ) 4orrelation /atri+ W Borrowings


*angla

India.?

".99&

Pa+ -.?

".9:&

-.8".89:&

,-.8'

".9::&

.:9'X".'&

-.9".9


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Figure 8.? W !ctive borrowers of all countries Figure 8. W !ctive Borrowers Bangla vs. ()

>n the other hand, figure 8. illustrates an apparent difference between the active borrowers

in the () and Bangladesh. ! significant rise in the figures from ': to ' shows the

public awareness and popularity of microloans in the ().

The correlation matri+ in table 8.8 demonstrates significant positive relationships of the ()

with (S! and %ndia, and negative relationship with Bangladesh in terms of number of active

borrowers throughout the chosen period. This shows the parallel increase and decrease trends

in these countries within the same period.

Table 4.4 ) 4orrelation /atri+ W =umber of !ctive Borrowers


*angla

India-.?'

".


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and (S! have the highest average per borrower. This may be because of the difference of

e+change rates between developed and developing countries. For e+ample, giving O

microcredit can be a small amount for a () national but it worth as medium loan for the

people living in !sian developing countries. This is also the reason the () has a high average

loan balance per borrower compared to Bangladesh as shown in figure 8.:.

!verage 2oan Balance per Borrower "in (SV&

Figure 8.9 W !vg. loan balance of all countries Figure 8.: W !vg. loan balanceE Bangla vs. ()

The correlation matri+ in table 8.? shows that Bangladesh is positively correlated with %ndia

and (S! at . significance level. This means the ratio of average loan balance per

borrower is somehow similar among these three countries. >n the other hand, the table

reveals a statistically significant but negative correlation between Bangladesh and the ().

Table 4.( ) 4orrelation /atri+ W !vg. loan balance per borrower


*angla

India.:8X

".8&

Pa+ -.?9

".


43/66

,/ -.'?


44/66

Table 4.0 ) 4orrelation /atri+ W Female borrowers


*angla

India.9'?XX

".&

Pa+ -.8

".


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Figure 8. W A>! ratio of all countries Figure 8.' W A>! ratioE Bangladesh vs. ()

Figure 8.' shows a rapid increase in the () trend line of A>! in ': while the

Bangladeshi A>! ratio was positive throughout the period.

The correlation matri+ in table 8.9 indicates only one positive correlation between (S! and

%ndia which is significant at . level. !ll other values are not statistically significant with

each other but they do have positive or negative associations.

Table 4. ) 4orrelation /atri+ W Aeturn on assets ratio


*angla

India.<

".:9&

Pa+ .89

".?&

-.'".& ratio is calculated by deducting ta+es from net operating income

and divided it by shareholder’s e3uity. %n fact, A> measures /F%s efficiency of generating

funds from each unit of shareholder’s e3uity "4hurchill and Fran$iewic@, '&.

Aeturn on 3uity Aatio

Page |


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Figure 8. W A> ratio of all countries Figure 8.8 W A> ratioE Bangladesh vs. ()

%n figure 8. negative figures of () /F%s are not the good sign of performance which often

causes negative income conse3uences such as shareholders may withdraw remaining finances

from the business. !lthough Bangladesh, #a$istan, and %ndia faced several ups and downs in

A> due to economic, cultural, and social considerations, but they were able to remain

positive values throughout the period. This is also indicated in figure 8.8 where blue trend

line of Bangladesh represents sustainable growth of microfinance compared to the ().

Table 4.' ) 4orrelation /atri+ W Aeturn on e3uity ratio


*angla

India-.8:

".8


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$+'+( Deposits to 3oan DT3B Ratio

The 1eposits to 2oan "1T2& ratio is calculated as dividing deposits by gross loan portfolio

"0arper and !rora, '?&. 0ere deposits represent all compulsory, voluntary, institutional, or

retail deposits whereas gross loan portfolio is the outstanding client loans. %n figure 8.?, the

higher percentages indicate that deposits more than ade3uately funded the loan portfolio. %n

this regard, again Bangladesh clean sweeps other countries with high 1T2 ratios.

%nterestingly, the second highest but unstable ratios are achieved by #a$istan and (S! which

is a good sign of microfinance success in these countries. >n the other hand, %ndia and ()

have achieved lower 1T2 ratios throughout the period. Bangladesh maintains high

percentages compared to the () in figure 8.. This is because the () recently introduced

microfinance activities in the country and *ust few /F%s are operating in the () mar$et at

this time "#rovost, ''&.

1eposits to 2oan Aatio

Figure 8.? W 1T2 ratio of all countries Figure 8. W 1T2 ratioE Bangladesh vs. ()

%n table 8.


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".?88&

Pa+ -.9

".8&

.'<".8:&

,--.89

".


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Figure 8.9 W 4ost per borrower of all countries Figure 8.: W 4ost per borrowerE Bangla vs. ()

The correlation matri+ of cost per borrower in table 8. demonstrates a negative correlation

between Bangladesh and () due to the fact of huge differences between the costs per

borrower.

Table 4.1& ) 4orrelation /atri+ W 4ost per borrower


*angla

India

.?''".'::&

Pa+ .:

".8?9&

.9?8".:8&

,-.:<

".88&

-.9<".::'&

.?".


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4ost per 2oan "in (SV&

Figure 8.< W 4ost per loan of all countries Figure 8.' W 4ost per loanE Bangla vs. ()

>n the contrary, () and #a$istan have a high cost per loan. (nfortunately, this is the

permanent drawbac$ of high value currencies but the impact of this drawbac$ could be

reduced by concentrating on increasing A>! and 1T2 ratios by stimulating gross loan

portfolio and customer deposits "0arper and !rora, '?&.

Table 8. also reveals a negative but statistically significant relationship between the ()

and Bangladesh /F%s. %n addition, a positive correlation between %ndia and Bangladesh /F%s

illustrates the stability and continuous low costs of both countries within the selected period.

Table 4.11 ) 4orrelation /atri+ W 4ost per loan


*angla

India.?:


51/66


52/66


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Figure 8.' W !verage borrowings Figure 8.'' W !verage 5ross 2oan #ortfolio

The strong position of Bangladesh is clearly demonstrated in figures 8.' and 8.'8 where

Bangladesh dominates other countries in terms of number of active borrowers and averageloan balance per borrower. The positions of the () and (S! are inade3uate at this moment

because the microfinance activities are relatively new in these countries. %n fact, this concept

became popular after the financial crisis of ': when governments started to intensify such

activities to stimulate their economies.

!verage in (SV "' to '&

Figure 8.' W !verage =o. of active borrowers Figure 8.'8W !verage loan balance per borrower

Figures 8.'? and 8.' also demonstrate dominating positions of Bangladesh and %ndia in

terms of performance "measured through ratios& and cost of loans and individual borrowers.

The microfinance performance in the () in terms of ratio analysis is not satisfactory

compared to other countries.

Page | 2


54/66

Figure 8.'?W !verage financial stability "'-'&

Figure 8.'W !verage costs "'-'&

%t is also concluded on the basis microfinance indicators that /F%s in the () and (S! lac$

of performance, financial stability, outreach, and cost compared to the developing countries

particularly Bangladesh and %ndia. This is because that the microfinance concept is new in

these developed countries and hence there is a strong need to intensify microfinance activities

to increase awareness and $nowledge. The female borrowers have ta$en immense advantage

Page | -


55/66

from microfinance availability in all chosen countries apart from #a$istan which is a male

dominated country.

! comparison between the () and Bangladesh reveals that microfinance activities are more

mature in Bangladesh compared to the (). !s compared to Bangladesh, the costs of

microfinance activities are very high in the () due to significant differences in the currency

values of both countries. The high rate of female borrowers is also evident in most of the

developing and developed nations but interestingly the percentage of () female borrowers

are higher than others countries.

'+2 Recommen!ations

O t+e bas(s !* *acts a$ e($eces c!##ecte$ *r!% t+e #(terat're a$

%(cr!4ace $ata t+e *!##!"(g set !* rec!%%e$at(!s ca be %a$e t!

6r!%!te %(cr!4ace 6ract(ces ( !r$er t! re$'ce 6!ert, #ee#s ( t+e

"!r#$ ec!!%(es.

&%6r!(g 4ac(a# stab(#(t,&%6r!(g 4ac(a# stab(#(t, &t (s (%6!rtat t! (%6r!e 4ac(a# stab(#(t, !*

%(cr!4ace (st(t't(!s ( $ee#!6(g a$ $ee#!6e$ c!'tr(es. T+(s

esset(a##, re3uires commercial sources for generating funds because in this way they canattract more investors which will enhance their efficiency "2edgerwood and Chite, '&D

C!tr!##e$ gr!"t+C!tr!##e$ gr!"t+ L!ss !* c!tr!# !er %(cr!4ace act((t(es tr(ggere$

%a, (ss'es ( t+e 6astF t+ere*!re (t (s s'ggeste$ t! M7&s t! (crease t+e

ec(ec, !* t+e #!as a$ reac+(g t+e c!re 6!!r t! ac+(ee 6r!$'ct((t,F

Preet *ra'$s a$ 4ac(a# cr(%esPreet *ra'$s a$ 4ac(a# cr(%es T+e e" #a"s %'st be (tr!$'ce$ a$

e?(st(g reg'#at(!s %'st be re*!r%e$ a$ a66#(e$ t! M7&s t! re$'cesec'r(t, *ra'$ (ss'es 6,ra%($ sc+e%es ab's(e (est%ets a$ %!e,

#a'$er(g


56/66

Ta? a$ acc!'t(g treat%et !* %(cr!4ace Ta? a$ acc!'t(g treat%et !* %(cr!4ace &t (s a#s! rec!%%e$e$ t!

M7&s t! $e(se a s,ste% *!r t+e 6r!6er treat%et !* %(cr!4ace ( t+e

b!!ks !* acc!'ts. T+e NGO M7&s are re>'(re$ t! be e?e%6te$ *r!% 6r!4ts

ta? #(ke !t+er NGOs. & a$$(t(! t+e c!tr!ers(es regar$(g ta? 6!#(c(es%'st be res!#e$ b, re*!r%(g t+e reg'#at(!s ! M7&sF

C!%%erc(a# bak (!#e%etC!%%erc(a# bak (!#e%et 4ommercial ban$s are re3uired to conduct various

training wor$shops to educate their staffs to deal with specific clients "Ahyne, '


57/66

investigating the factors that hinder males to borrow microfinance in both developed and

developing countries.

Page | 3


58/66

Re0erences

!dongo, M. and Stor$, 4. "'?&. Factors %nfluencing the Financial Sustainability of Selected/icrofinance %nstitutions in =amibia, "#$%& %esearc' $aper 39

!hlin, 4 and Miang, = "':&. 4an micro-credit bring developmentH ournal o *e+elopent #conoics, :, pp. -'.

!li, !., )im, 0., /orse, M., Salmaso, S. and Spann, ). "'


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4arboni, B.M., 4alder\n, /.2., 5arrido, S.A., 1ayson, ). and )ic$ul, M. "'&. =andoo o icrocredit in #urope: Social /nclusion t'rou' icroenterprise *e+elopent . ()E dward lgar #ublishing 2imited

4ampion, !. "''&. 4hallenges to /icrofinance 4ommerciali@ation. ournal o icroinance, 8"'&, pp. ?9-.

4hurchill, 4. and Fran$iewic@, 4. "'&. ain icroinance 4or: anain oripro+ed perorance. %nternational 2abour >rgani@ation

4lary, T.!. "'


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5rameen Ban$ "'&. >raeen ;an at a >lance. Zonline[. !vailable fromEhttpEIIwww.grameen-info.orgIinde+.phpHoptionQcom^contentKtas$QviewKidQ'K%temidQ9? Z!ccessedE ? Manuary '[

0arper, /. and !rora, S.S. "'?&. Small customers, big mar$etE commercial ban$s inmicrofinance. TA% #ress, %ndia

0artars$a N. and =adolnya$, 1. "':b&. !n impact analysis of microfinance in Bosnia.5orld *e+elopent , ', pp. '?-'ctober ''

Page | 8

http://www.grameen-info.org/index.php?option=com_content&task=view&id=26&Itemid=175http://www.grameen-info.org/index.php?option=com_content&task=view&id=26&Itemid=175http://www.grameen-info.org/index.php?option=com_content&task=view&id=26&Itemid=175http://www.grameen-info.org/index.php?option=com_content&task=view&id=26&Itemid=175


61/66

)neiding, 4. and Aosenberg, A. "':&. Nariations in /icrocredit %nterest Aates, Consultati+e>roup to -ssist t'e $oor (C>-$), Brief, Muly

)othari, 4. A. "':&. %esearc' et'odoloy: et'ods and ec'niues. 'nd edition, =ew

!ge %nternational.

)umar, A. "'&. %esearc' et'odoloy. !#0 #ublishing

2apenu, 4. and Geller, /. "'&. 1istribution, growth and performance of microfinanceinstitutions on !frica, !sia and 2atin !merica. /nternational ood $olicy %esearc'

/nstitute, Food consumption and nutrition division discussion paper =o. 8

2arson, B. !. "'9&. Sustainale *e+elopent %esearc' -d+ances. =ova #ublishers

2edgerwood, M. "


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/omoh, M. "'?& The Aole of /icro-financing in Aural #overty Aeduction in 1eveloping4ountries, 5isar *iscussion $apers, (niversity of Technology Business and1esign, Cismar, 5ermany

/orduch, M. "


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Seibel, 0. 1. "'?&. 1oes history matterH The old and new Corld of /icrofinance in uropeand !sia. -n interdisciplinary 4ors'op, -sia %esearc' /nstitute, *epartent o

#conoics and *epartent o Socioloy, =ational (niversity of Singapore, pp. -'

Servon, 2. M. "'& /icroenterprise 1evelopment in the (SE 4urrent 4hallenges and =ew1irections, #conoic *e+elopent Buarterly, ', p. ?

Srnec, )., Nyborna, /. and 0avrland, B. "'


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www.gov.u$IbrowseIbenefits Zonline[. !ccessedE February '

Corld Ban$ "'?&. -riculture in+estent sourceoo: ariculture and rural de+elopent. Corld Ban$ #ublications

Gaman 0, "


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Appen!ices

Appen!i A

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investigating the role of microfinance in developed and developing economies

Documents