MICROBANKING BULLETIN - Microfinance Information Exchange

CASE STUDIESFigure 2: Outreach of BURO, Tangail1995 1996 1997 1998 1999No. of Branches 20 30 40 41 41No. of Staff 198 312 424 448 513No. of Borrowers(’000)11.8 12.7 25.7 55.7 62.4No. of Savers (‘000) 0 0 45.0 71.9 71.8Outstanding Portfolio(‘000 US$)Avg. Loan Balance(US$)504 707 1,446 3,606 3,33931 47 50 65 57Depth (%) 13 18 14 18 16Total SavingsBalance* (‘000 US$)Avg. SavingsBalance* (US$)0 0 295.5 562.8 885.50 0 6.6 7.8 12.3No. of Loan Products 3 4 5 6 6No. of SavingsProducts*1 1 2 3 3* These represent all deposits that have open access byallowing unlimited deposit and withdrawal.By offering flexibility, BT has increased averagesavings balances, although not at first. When BTtransitioned to completely liquid accounts in early1998, it experienced a heavy withdrawal of savingsas customers tested whether they really couldaccess their money. In addition, the worst floodsoccurred in mid-1998 increasing the deposits’outflow. After the initial frenzy of withdrawals,however, balances soon began to increase throughincreased volume of deposits and reduced volumeof withdrawals. The net growth in yearly depositsbetween 1998 and 1999 was 108 percent (seeFigure 3) and the average savings balanceincreased by more than 50 percent. This trend,though short, suggests a demand for, and depositorconfidence in, the savings instruments offered byBT.It is to be noted that while growth in the averagesavings balance was accompanied by an increasein number of depositors in 1997-98, it occurredthrough larger deposits in 1998-99. Besidesconducting an educational marketing campaign, BTalso increased deposits by creating a category of“associate members” who want to save and notaccess loans, and by opening a “savings only”branch in an urban area.Another indication that BT serves particularly poorpeople is the small loan balances maintained by theborrowers. In 1999, average loan balance relativeto GNP per capita was 16 percent. About 55percent of the active borrowers carried a loanbalance of less than US$100, accounting for 42percent of portfolio outstanding. Approximately 92percent of BT’s clients live below the poverty line(earning less than US$1 per day).Million Taka706050403020100Figure 3: Yearly Deposits andWithdrawals, BT 1995-991995 1996 1997 1998 1999YearsYr.depositsProfitability and SustainabilityYr.withdrawThe outreach strategy since 1996, comprised of amassive expansion amidst competition and newproduct launches, has impacted BT’s financialperformance.Figure 4: Profitability and Sustainability of BT,1995-1999, and Peers (in percent)OperatingIncomeOperatingExpenses1995 1996 1997 1998 1999Peers:SouthAsia27.0 31.9 23.1 25.5 23.4 14.936.1 30.3 33.1 27.2 25.6 20.7AROA -9.1 1.6 -9.9 -1.6 -2.2 -5.6Portfolio Yield 41.7 43.7 34.4 29.4 31.5 21.6Operating SelfsufficiencyFinancial Selfsufficiency82.5 110.1 72.0 103.8 114.8 92.574.8 105.2 69.7 94.0 91.6 70.7While operating expenses relative to average totalassets steadily declined from 36 percent in 1995 to26 percent in 1999, operating income relative toaverage total assets fell from 27 percent in 1995 to23 percent in 1999. This decline was causedprimarily by a drop in portfolio yield. In response tocompetition, BT lowered its annual interest rate in1997 on several loan products from 25 to 20percent. As a result, portfolio yield declined from 42percent in 1995 to 32 percent in 1999.BT also experienced an increase in delinquency inearly 1999 due to the 1998 floods. Portfolio at riskover 90 days was 2.2 percent in 1999 comparedwith less than 1 percent in previous years. Inresponse to portfolio quality problems, BT tightened24 MICROBANKING BULLETIN, SEPTEMBER 2000