Measuring the Outreach Level of Micro-finance Institutions in Bangladesh

Naziruddin Abdullah

doi:10.5430/ijfr.v10n5p280

Abstract

Reaching the poor is one of the main objectives embedded in the programs of microfinance institutions (MFIs). However, there is the question of how well MFIs have fared in terms of meeting this objective, which has been heavily surveyed as an issue by many researchers. In Bangladesh, while not discounting other factors such as the financial assistance received from institutions such as the IMF/World Bank, Asian Development Bank (ADB), and Islamic Development Bank (IDB), the impetus for the speedy reduction in the number of poor people in the country can be attributed to the existence of MFIs. This study attempts to investigate the depth of MFIs’ outreach level in the country. Specifically, using an econometric model, it examines the determinants of the outreach level of MFIs operating in Bangladesh. Overall, this study looks at the eleven (11) biggest MFIs in Bangladesh in terms of their share of active borrowers. The data are compiled from the most reliable sources pertaining to the economic activities of MFIs. The results indicate that the number of years an MFI has spent serving clients, its ratio of borrowers to staff, the size of its assets, and the number of branches all has a positive effect on its outreach level. In contrast, the average loan balance per borrower and cost per borrower have a negative effect on the outreach level of MFIs in Bangladesh. Indeed, as far as outreach level and its relationship with the independent variables are concerned, all of the results obtained in this study are consistent with the expected signs, thereby implying that MFIs in Bangladesh are no different from the conventional wisdom.

Highlights

Bangladesh, a developing country with a large landmass in South Asia, is classified by the World Bank as a low-income economy
The pooled estimation method was used to assess the performance of the six control variables (ALOAN, Cost per Borrower (COSTPB), AGE, BORROWERPS, ASSET, and BRANCH) to predict the number of borrowers (OUTR) of microfinance institutions (MFIs) in Bangladesh
Using a sample of data from the top eleven (11) MFIs, we obtained convincing results that can be used to explain our research question, namely what are the variables that determine the outreach level of MFIs in Bangladesh? To summarize, with one exception, the relationship between the outreach level and other variables is consistent with the hypotheses

Summary

Introduction

Bangladesh, a developing country with a large landmass in South Asia, is classified by the World Bank as a low-income economy. While the country‘s economy saw annual growth of two percent during the first decades of independence, that rate increased to five percent per year in real terms from 1990 (Note 1). If it can sustain this level of growth, Bangladesh‘s aim of becoming a middle-income country by 2021 looks very promising. This is possible due to the fact that, since 1992, poverty has fallen quite drastically (by 30 percent), which in absolute terms equates to more than 15 million people (World Bank, 2012). Comparing the data from 2005 and 2010, there was a fall of 8.5% in the percentage of the population living below the national poverty line, with the figure decreasing from 40% to 31.5% (World Bank, 2012)

Objectives

Methods

Results

Conclusion