action track for impact metrics

Action Track forImpact Metrics

Why the Metrics

• A goal set - touching 1 billion lives by 2020

• Set up 5 action tracks to deliver by 2015

• The 5th Action Track – “Impact Metrics”

Slide 2

What our customers say...

3Ps delivered ... People

3Ps delivered ... Planet

3Ps delivered ... Profit

• Identify and validate impact metrics of small businesses

• Discuss and agree on a globally replicable metrics

Slide 7

Objectives

• Framework for Sustainable Development Indicators– Available Indicators

– Proposed Framework for Sustainability Indicators of Bank Finance

• Indicator Validation – The Methodology– Data Collection Method

– Method of Data Analysis

• Analysis of the Findings– Validation of Financial, Economic, Environmental, Social

and Market Development Indicators

– Validation of Effectiveness Indicators of BRAC Bank

Slide 8

Expected Outcomes

Available Indicatorsfor Sustainable Development

Literature/Study/ Dimension Covered

National/Local

Framework provided

Indicator suggested

Remarks

Hutchins and Sutherland (2008)

All All Yes No Some very limited indicators suggested

Labuschagn et al (2004)

All All Yes No Review of the available framework and a framework suggested

Omann & Spangenberg (2002)

All All No Yes Emphasis is given to social dimensions(both objective and subjective indicators)

Bossel (1999) All All No No Importance of indicators were emphasized along with their desirable characteristics

Bohringer and Jochem (2007)

All All No No All of the tools reviewed and most of them were criticized

Sepinskins et al (2006)

Banking Sector The importance of balance between profit and sustainability discussed

Lindlein (2008) All Mainly banking sector

No Yes Benefit of incorporating social dimension emphasized

Porteous (2005) Issue of double bottom line discussedUNESCO-SCOPE, 2006

All All No Yes

GIIN(IRIS Framework)

All All (applicable for social and development

sector)

Yes Yes Too much indicators with less focus. It is not very much suitable for financial or banking sector

• Focused on macro economy, rather than organizational level

• Differential framework, not concrete indicators

• Importance on Development sector, not Financial sector

• Unmanageable number of indicators

• Social dimension of sustainability less emphasized

Slide 10

Available Indicatorsfor Sustainable Development

Sl. No Financial Indicators

Specific Measurement indicators

Index/Formula

1Loan repayment

rate

Loan Recovery Ordering

Intensity of difficulty in repayment

Ordering of loan recovery: Full repayment (1), Partial repayment (2), and No repayment (3)

Intensity of difficulty ordered: Never (1); Rarely (2), Occasional (3), and Frequently (4).

2 Accumulation of assets

Growth rate of total assets

Average asset per firm

Change in total assets in 2010 as percentage of value of base year (year of first loan taken from BRAC Bank).

Total assets divided by number of firms Both the indicators are measured at cost.

3 value of all assets Growth rate of total assets

Average asset per firm

Change in total assets in 2010 as percentage of value of base year (year of first loan taken from BRAC Bank).

Total assets divided by number of firms Both the indicators are measured at market

price.

Proposed Framework(Matrix – Financial Indicators)

Sl. No

Financial Indicators Specific Measurement indicators

Index/Formula

4Utilization of resources

Growth rate of fixed assets

Growth rate of total assets

Ratio of fixed assets and total assets

Sales-fixed assets ratio

Change in fixed assets as percentage of base year (year of first loan from BRAC Bank)

Change in total assets as percentage of base year (year of first loan from BRAC Bank)

Fixed assets divided by total assets Sales volume divided by fixed assets

5 Long run earning potential

Growth in sales • Change in sales as % of base sales

6 Profitability Absolute profit per month

Rate of return Return on assets Growth rate of profit

Reported profit per month Rate of return: Profit as percentage of sales Return on assets: Profit as percentage of

total assets Change in annual profit from the base year

(year of first loan taken from BRAC Bank)


Sl. No

Financial Indicators Specific Measurement indicators

Index/Formula

7 Financial structure Debt-equity ratio BRAC Bank credit-

assets ratio Credit-assets ratio

Total debt as percentage of total equity Credit from BRAC Bank as percentage of

total assets or capital Total credit as percentage of total assets

8 Financial impact of BRAC Bank credit

Business expansion Increase in profit

Growth in business expansion due to BRAC Bank credit, as perceived by borrowers;

Increase in profit due to BRAC Bank credit as perceived by borrowers


Sl. No

Economic Indicators


Index/Formula

1

Employment

Creation

Full time employment – outside family

Number of male full- time employees created.

Number of female full-time employees created

part time employment – outside

Number of male part-time employees created.

Number of female part-time employees created

Full time employment – family

Number of male full-time employees created for the family

Number of female full-time employees created for the family

part time employment – family

Number of male part-time employees created for the family

Number of female part-time employees created for the family

Perceived impact of credit on employment

Percentage of employment created due to BRAC Bank credit as perceived by borrowers

Proposed Framework(Matrix – Economic Indicators)

Sl. No

Economic Indicators Specific Measurement indicators

Index/Formula

2 Generation of savings Incremental savings due to BRAC Bank credit

Percentage change in savings due to BRAC Bank credit as perceived by the borrowers

3 Income enhancement Incremental income

Incremental profit

Percentage change in income as perceived by the borrowers

Percentage change in profit as perceived by borrowers

4 Business expansion Expansion in size Growth in total assets

Percentage change in business expansion as perceived by the borrowers

Change in total assets as percentage of base year (year of first loan from BRAC Bank)

5 Creation of competitive environment or business

Number of new similar business enterprises developed.

Percentage of similar business developed

Number of new similar business firms emerged in the market

Percentage of similar business firms developed as perceived by borrowers


Sl. No

Economic Indicators Specific Measurement indicators

Index/Formula

6 Development of backward linkage enterprises

Expansion in size of the backward linkage enterprises

Percentage change in backward linkage enterprises started as perceived by the borrowers

7 Development of forward linkage enterprises

Expansion in size of the forward linkage enterprises

Percentage change in forward linkage enterprises started as perceived by the borrowers

8 Value chain development

Number of firms Percentage of firms for which company or dealer carry the products as of total firms


Sl. No

Environmental Indicators


Index/Formula

1 Environment friendly enterprises

The ratio of environment friendly enterprises to total enterprises

Percentage of environment free enterprises as of total enterprises reported by the borrowers

2 Discouragement of business using chemical

The ratio of the enterprises which do not use chemical in their business to total enterprises

Percentage of the enterprises which do not use chemical as of total enterprises reported by the borrowers

3 Discouragement of business creating health hazard

The ratio of the enterprises which do not create health hazard to total enterprises

Percentage of the enterprises which do not create health hazard as of total enterprises reported by the borrowers

4 Discouragement of using polythene bag

The ratio of the enterprises which do not use polythene bag to total enterprises

Percentage of the enterprises which do not use polythene bag as of total enterprises reported by the borrowers

Proposed Framework(Matrix – Environmental Indicators)

Sl. No

Social Indicators


Index/Formula

1 Women empowerment

Women employment due to BRAC Bank credit, outside family

Women employment from the family

Participation in business decision

Number of women employment created outside the family

Number of women employment created from the family

Ordering of perception of the borrowers (1 always, 2 occasional, 3 never)

2 Use of child labour

Lesser employment of child labour

Number of child labour employed

3 Education of children

Financing of child education

Family Literacy rate

Percentage of ease in financing child education, as perceived by borrowers

Percentage change in family literacy rate from the base year (year of first loan of BRAC Bank)

4 Interaction in the community

Enhancement in community interaction

Number of enterprises with greater participation in the community

Percentage of borrowers involved in social and professional organizations

Perceived increase in interaction with neighbors Percentage of borrowers involved in social activities

Proposed Framework(Matrix – Social Indicators)

Proposed Framework

• Primary data on SME borrowers of BRAC Bank

• Randomly selected 21 SME unit offices (5%), and 25 enterprises for each

• Secondary data collected from SME Banking of BRAC Bank

• Some information collected from loan application forms

• Conducted survey on all the selected samples

• Conducted interviews on all the selected samples

Slide 20

Indicator Validation(Data Collection Method)

• Technique used –

• Propensity Score Matching

• For some indicators “Mean or proportional differences test” were used

Slide 21

Indicator Validation(Data Analysis Method)

Analysis of the Findings


Sl. No.

Financial Indicators

Variable

Repeat Borrower

s(Treated)

New Borrowers(Control)

Difference

t-statDiff. as

% of Control

3Long Run profitability

Growth Rate Sales (%) 82 41 41 3.19 98

Sales (US Dollar) 15,800 8,960 6,840 4.43 76

4 Profitability

Profit (USD) 811 633 18 1.81 3

Growth rate of Profit (%)

54 31 23 2.68 75

ROA (%) 29 38 -9 -4.69 -23

Rate of Return on Sales (%)

7.8 10.8 -3 -6.38 -27

5Financial Structure

Total Capital (USD) 35,039 26,257 8,782 4.1 33

Total Debt (USD) 10,474 7,942 2,532 3.68 32

Equity Capital (USD) 24,498 18,306 6,192 3.45 34


Sl. No

Economic indicators(Perceptions)

Repeat Borrowers

New Borrowers

Difference

t-statPercentage

change

2Generation of savings (%)

75.95 72.24 3.70 0.37 -

3 Income enhancement (%) 52.21 30.88 21.34 6.60 69.12

4 Business expansion (%) 71.71 35.03 36.68 8.84 104.70

5Creation of competitive environment or business (%)

74.68 71.51 3.17 0.49 -

Sl. No

Economic indicators

Specific measurement

indicators

Repeat Borrower

s

New Borrowers

Difference

t-stat

% of change

over control

(N=134) (N=286)

1 Employment creation

Number of full time male employees

2.26 1.62 0.64 3.27 40

Number of full time female employees

0.31 0.29 0.02 0.23 -


Sl. No.

Environmental Indicators Specific Measurement indicators % (n)

1 Environment Friendly Enterprises

The ratio of environment friendly enterprises to total enterprises

84.19(442)

2 Discouragement of use of chemical

The ratio of the enterprises which do not use chemical in their business to total enterprises

98.67(518)

3 Discouragement of creating health hazard

The ratio of the enterprises which do not create health hazard to total enterprises

94.29(495)

4 Discouragement of use of poly bag

The ratio of the enterprises which do not use polythene bag to total enterprises

89.90(472)

Sl.

No

Environmental Impact criteria No. (%)

1 Affecting Environment 53 10.10

2 Creating Health Hazard 30 5.71

Total 83 15.81

3 Number of Enterprises not affecting Health & Environment 442 84.19

Total observation(n) 525 100%


Sl. No

Social indicators Repeat Borrowers

New Borrowers

Difference t-stat % -age of change

(N=134) (N=286)1 Use of child labor

(Number) 0.09 0.04 0.05 1.57 14.20

2 Education of children(%-age increase in expenditure)

51.88 28.52 23.35 4.30 81.89

3 Health (%-age increase in expenditure)

45.99 26.33 19.66 6.81 74.69

4 Television (%-age increase in expenditure)

15.64 6.53 9.11 4.04 139.46

• Three indicators – backward linkage, forward linkage and expansion of similar business.

• Borrowers are asked to respond to three statements since borrowing from BRAC Bank.

• Based on the perceptions of the borrowers, the growth rate of these three indicators are estimated below.

Slide 27


Sl. No

Market development indicators(Perceptions)

Growth rate (%)

1 Backward linkage 167

2 Forward linkage 128

3 Expansion of similar business 99

Analysis of the Findings(Summary)

Nature of Indicators

Name of Indicatorswith +ive Impacts (All Significant)

Name of Indicators with - ive Impacts

Financial Accumulation of Assets, Utilization of Resources, Long run Profitability, Profitability, and Financial Structure

-

Economic Full-time Male, Income Enhancement, and Business Expansion

-

Environmental Environment Friendly Enterprises, Discouragement of Use of Chemical, Discouragement of Creating Health Hazard, Discouragement of Use of Poly Bag

-

Social Education of Children, Health Expenditure, and Television

Use of Child Labor (Not Significant)

Market Development

Backward Linkage, Forward linkage, and Expansion of Similar business

-

• Until this study, impact of SME Credit on enterprise level has not been carried out.

• BRAC Bank SME credit program has positive impact on the borrowers by and large.

• Bank may influence environment positively through appropriate lending policy, strongly discouraging financing enterprises that directly affect environment.

• Indicators are found to be comprehensive

• The indicators have proven to be valid - significantly differentiate performance of repeat borrowers (participants) from the new borrowers (control).

• Possible to reduce number of indicators through factor analysis and developing some indices which may involve more time for estimation.

• We believe that the metrics are replicable.

Slide 29

Conclusion

• Can we arrive at a globally accepted single index?

• To measure impact by the member banks

• To use as a criteria to include other banks in the alliance

Slide 30

Next Steps & Discussion

Thank You

The Final Report will be available after June 1, 2011, upon mailing to <Syed Mahbubur Rahman>[email protected]

Slide 31

action track for impact metrics

Documents

available framework

base year year

development sectoryesyestoo

number of firmsboth

percentage of value

partial repayment

banking sectorfocused

action tracks