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Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0

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Vol. 3, 4/2013 (6th Issue)

Editorial Board

Editor-in-Chief

Dr. Alim Al Ayub Ahmed

Faculty of Business, ASA University Bangladesh

Associate Editors

Irawan Febianto

Department Management and Business, Universitas Padjadjaran, Indonesia.

Reza Dehghan Change Management Department, Tehran University of Medical Sciences, Tehran, Iran.

Muhammad Mohiuddin President, AEDAUL, Laval University, Quebec, Canada.

Consulting Editors

Dr. Bilkis Raihana, Asian University of Bangladesh, Bangladesh (Economics)

Dr. Ataur Rahman, North South University, Bangladesh (Economics)

Dr. Lawrence Arokiasamy, Quest International University Perak, Malaysia (HRM)

Dr. R. Swaroop, University of Nizwa, Sultanate of Oman (HRM)

Dr. Jagpreet Kaur, Punjabi University, India (Accounting and Finance)

Dr. Mojtaba Moradi, University of Guilan, Iran (Statistics)

Dr. Halenar Igor, Slovak University of Technology in Bratislava, Slovakia (Information & Communication Technology)

Dr. Sharad Sharma, Bowie State University, USA (Marketing)

Dr. Gulzar A. Khuwaja, King Faisal University, Saudi Arabia (MIS & Business Technology)

Dr. Ekta Sharma, Ahmmedabad University, India (Organizational Behavior)

Dr. Santosh Singh Bais, Gulbarga University, India (Entrepreneurship Development)

Dr. Mohinder Chand, Kurukshetra University, India (Tourism and Hotel Management)

Dr. Ravi Kant Sharma, Charan Singh University, India (Marketing & International Business)

Dr.V.Mahalakshmi, Annamalai University, India (Industrial and Labour Law)

Faisal Jalal, Sinofeng Pakistan Private Limited, Pakistan (Finance)

Md. Tofael Hossain Majumder, Comilla University, Bangladesh (Accounting)

The Editorial Board assumes no responsibility for the content of the published articles.



Content Asian Business Review (ABR) Blind Peer-Reviewed International Journal

Vol. 3, 4/2013 (6th Issue) Print ISSN : 2304-2613; Online ISSN: 2305- 8730

Page No.

9 A Framework on Internet Banking Services for the Rationalized Generations

Md. Rahimullah Miah

71-77

10 Is Dhaka Stock Exchange (DSE) Efficient? A Comparison of Efficiency Before and After the Market Crisis of 2010

Maruf Rahman Maxim; Tasfia Awal Miti; & S.M Arifuzzaman

78-81

11 An Empirical Evidence of Corporate Social Responsibility by Banking Sector based on Bangladesh

Mahjabeen Ferdous; & Md. Moniruzzaman

82-87

12 Comparative Study on the Efficiency of Bangladeshi Conventional and Islamic Life Insurance Industry: A Non-Parametric Approach

Md. Azizur Rahman

88-99

13 Foreign Direct Investment as an Instrument for promoting Economic Development in Bangladesh

Md. Sajedur Rahman; & Md. Ali Ahsan

100-107

14 May E-Governance Create Digital Divide?

Rowshon Ara Romke

108-113

15 Role of Micro Credit Program in Empowering Rural Women in Bangladesh: A Study on Grameen Bank Bangladesh Limited

Dhanonjoy Kumar; Afjal Hossain; & Monto Chandra Gope

114-120

16 Total Quality Management as a Tool for Decision Making

Md. Abdus Sabur

121-125



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A Framework on Internet Banking Services for the Rationalized Generations

Md. Rahimullah Miah

Lecturer in MIS, Leading University, Sylhet, Bangladesh

ABSTRACT

The augmented Internet Banking Service is increasingly popular both in Bangladesh and elsewhere. This paper explores a predicted framework for global Internet Banking that emphasizes the transformative interaction among the effective customers around the regional, national and global banking indicating advanced on backend models, instructional strategies, and transaction technologies in the context on upcoming generations. We have to develop the framework on global enhanced transaction systems especially individual global account, effective online banking systems to fulfill the required method, implementing design and appraising the feedback with standard technology according to network topology for disseminating of global banking technological arena. Despite decades of development, electronic payments still need practical examples of how to use electronic payment technology within a uniqueness and rationalized way including global electronic transaction, language tools, currency converter and electronic workstation. This research focuses the major issues responsible for Internet Banking based on respondents’ perception through various internet applications. The author presents a theoretical framework for our represented method, taking into account previous models and characteristics of an effective Internet Banking Security. In addition, we illustrate the global technology that we have to expand and execute among the customers’ satisfaction within the expected model. We follow this with an evaluation of achievement, both in the global banking implementation and the amplitude

framework according to periodical requirements. Finally, we focus highly developed research trajectories of the model and recommendations for how to further avail the internet banking subscribers to design more secure alternatives.

Key words: Internet Banking, Currency Converter, Perception, Rationalized and Technological Arena

JEL Classification Code: G29

1 INTRODUCTION

nternet Internet banking is the term used for new

generations in up-to-the-minute banking system which is also named as online banking or electronic banking and it is an outgrowth of computer and

mobile banking. This type of banking utilizes the internet as the delivery channels by which to carry out banking

activities globally and nationally, viz. transferring electronic funds, paying bills, viewing checking and savings account balances, paying mortgages and purchasing financial instruments, certificates of deposits

[11], share market, PayPal and so on relevant phenomena. Internet banking is a consequence of explored possibility to use internet function in one of the

various domains of general and electronic commerce. This is complicated to conjecture whether the internet tools, techniques, software, hardware and appliance have been applied for expediency of bankers or for the

customers’ convenience. But eventually it makes a payment in increasing the efficiency of the banking operation as well providing more convenience to customers involving social media with updates technological arena. As a result, there are more

interacting among bankers, specialist, engineers and customers’ transact from one corner of the country to

another corner. Worldwide internet entrance exceeded

1018 million people till to 2005 [14], contributing new banking markets like e-commerce & e-business for internet-based services such as internet banking has

practiced unstable growth in many countries and has transformed traditional banking practices as a whole. By update offering internet banking services, the traditional financial organizations seek to inferior operational costs,

get better consumer banking services, maintain prompt consumers and enlarge share of customers. Recent evidence proposes that an internet-based consumers banking approach may be effective with more profitable, promptly, trustworthy and committed consumers

compared with traditional banking consumers [1]; [5] to follow just in time. Thus, smart banks now regard the internet channel as equally important to traditional

channels of branches, automated teller machines (ATM), telephone banking, call money and call centres (Gartner 2003a). In the update banking environment, internet banking is gradually more managed as an operational

activity and a vital constituent of a multi-channel

strategy [4]. The Internet Banking creates more advanced and rationalized for the present and future generations

I



not only economy but electronic exchangeability also.

2 CONTEXT OF INTERNET BANKING SERVICES IN

BANGLADESH FOR THE RATIONALIZED GENERATIONS Bangladesh is a developing country where a large

number of populations are led including less number of internet users mentioning about 750000 users of total populations including about 5% people are used internet in the year 2011, meanwhile 3.7% in 2010, 3.1% in 2009 and 2.5% in 2008 respectively which is increased in

subsequent year gradually [22]. On the other hand, Internet Banking users are less than internet users successively according to the availability, accessibility,

propinquity of user’s requirements and relevant demanded networks. Notwithstanding the considerable dissemination of consumer internet banking in many countries to date, banks seek further market growth.

Presently, traditional market growth trends are uncertain, time consuming and less customer satisfaction. We, all are bearing in mind the materialization of a society of persons, individuated utilization and new markets in the track for deep levels

of consumer sustain [24], whose prerequisite relies on new strategies of customer relationship management and

awareness management [10], and attention to the

customer familiarity [18] searching to advocate the

possibility that new influences on internet banking

adoption may be at play for rationalized generations.

Third, as the schooling of Lee and Colleagues [16] tinted,

there is a need to explore consumer decision-making in internet banking adoption across a wide assortment of demographics, rather than focusing only on the division

thought most likely to adopt – namely, the upper income

demographic [3]. As internet banking is a relatively new concept in banking service delivery, another theory that

may explain operative forces in consumer internet banking adoption is Rogers’ theory of innovation

diffusion [20]. It is [15] recognized the main individual

needs for using the internet as community diversion, information, interactive control, and socialization and economic motivations. The TAM (Technology

Acceptance Model) was developed by Davis [5] for the

customer choices in internet banking adoption which is ‘perceived usefulness’ and ‘perceived ease of use’ for the manipulation in user’s adoption of technologies.

Consumer behavior in the adoption of internet banking may parallel aspects of online consumer behavior in common which are affected on the Knowledge of the internet gateway, expediency, stillness, perceived user-

friendliness and effectiveness accordingly. Table 1: Potential influences on customer adoption of

internet banking [17].

Of these, convenience has increasingly been linked to

online consumer choices. This is mentioned that in order to grow consumer internet banking demand, banks must make key enhancements that address customer concerns. Thus, it would behoove financial institutions to gain an understanding of the key factors that influence consumer

internet banking adoption. This paper investigates the critical elements that shape the consumer decision to adopt internet banking for the rationalized generations which is the miraculous creation of modern technology

with the latest delivery channels for banking services.

Bangladeshi banks are desperately embracing this new distribution channel to organize themselves for global business rivalry. Internet banking gets impetus over

traditional banking due to this motto-‘Any time banking, any place banking and any where banking for uniqueness

rationalized users’ forwarding present and update generations. Even though the potential, there are various factors such

as security of internet transactions, technophobia, reluctance to change and preference for human interface

Rationalized patterns Control options

a) Technology Recognition

(i) Perceived helpfulness parameters, (ii) Perceived ease of use technology

b) Adoption of Internet Banking

(i) Convenience option, (ii) Service quality and quantity, (iii) Perceived relative advantage, (iv) Compatibility, (v) Trainability and complexity, (vi) Demographics, consumer attitudes and beliefs, (vii) Security, privacy, trust, risk, (viii) Needs already satisfied, familiarity, habit. (ix) Lack of relevant awareness, (x) Consumer, product and organization, (xi) Channel characteristics, (xii) Malleability, (xiii) Computer and technology combination, (xiv) Confidence, knowledge work, (xv) High levels of internet use at work, (xvi) Gender parity.

c) Function to mass media use: Prospective

gratification

(i)Custom strength and workability, (ii) Underprovided self-regulations, (iii) Self-efficacy and actuality

d) Transmission of innovation

(i) Relative improvement, (ii) Compatibility, (iii) Complication, (iv) Treatability, (v) Observability

e) Function to mass media use: Uses and

gratifications

(i) Social diversion, (ii) information looking for, (iii) interactive control, (iv)socialization, (v) Profitable motivations, (vi) Safety measures, privacy and trust

f) Service switching costs

(i) Procedural pattern, (ii) Financial options, (iii)Relational entity

g) Online consumer behavior and online service adoption

(i) Existing Familiarity, (ii) Channel knowledge, (iii) Cost effective, (iv) Convenience, (v) Perceived accessibility, (vi) Perceived utility, (vii) Time savings, (viii) Site waiting time, (ix) Security, privacy and expectation, (x) Service quality



which appear to impede the adoption of internet banking. Consequently these factors promoting or hampering the adoption have been the prime concern of

this study. Bangladesh is now in an infancy stage of internet banking where 63% banks are on the online track and the 10 banks are in the verge of becoming

online. [6]. It is a matter of joy that government has taken

some mountainous steps to facilitate the internet banking by developing the regulatory environment and infrastructure. Internet banking enables customer to

access his/her personal or business accounts anytime anywhere from home, office or when traveling. Through internet banking the customers can outlook his own account summary, third party transfer, paying bills, open/modify term deposit, loan repayments, statement

request, cheque status inquiry, standing instructions, stop payment cheque, interest rate inquiry, foreign exchange rate inquiry, change password, letter of credit and bank guarantee. The Internet Banking is mounting

popular day by day in Bangladesh tremendously. A number of private as well as local banks are departing online now considering the demand and necessity of fast

banking [25] to the rationalized generations. Internet

banking not only affords banking facility round the clock but also helps a country to get friendly to the international economy as well as business phenomena

[3]. People throughout the world are now getting occupied with more activity and business and hence need the fast and anytime access and availability to

his/her bank account as well as login user’s options. Internet banking also makes possible buying, selling and relevant exchange various products which varies country to country and geographic locations now a days. At present 48 scheduled banks out of 60 banks are in

Bangladesh but few banks have initiated Internet Banking systems viz. AB Bank Limited, Dutch Bangla Bank Limited, Janata Bank Limited, Bank Asia Limited, HSBC, City Bank Limited, BRAC Bank Limited, Jamuna

Bank Limited, Southeast Bank Limited, Premier Bank Limited, First Security Bank Limited and others few

govt. banks etc are taken in action already [3]. These are

known as online banking to provide various services viz. the facility of account check, 24/7 banking access, transactions, statement print including query about cheque book information, internal fund transfer facility along with bill payment, mobile phone recharge, VISA

card, loan account information, net-worth information, electronic transfer amongst accounts, personal information update, demand draft, ATM (Automated Teller Machine) info or PIN (Personal Identification

Number) replacement request, cheque book order and so

on [3].

3. METHODOLOGY

For the validation of above mentioned internet banking

for rationalized generations, a research survey was conducted through questionnaire among four banks in

Sylhet City Corporation, viz. Dutch Bangla Bank Limited, Sonali Bank Limited, Pubali Bank Limited and Bangladesh Islami Bank Limited. Various methods were

used among 24 respondents during the data collection period. These included observations, interviews and questionnaires. Semi-structured interviews were used and interviewees were selected based on the

representation point of view and additionally in regard to their relevance to the conceptual questions. Additionally, different interviews were taking from the key informants of relevant administrative, analyst, professional and local users of the existing phenomena.

In respect of resourceful materials of research in this paper mainly measured the references in the personnel and demo-official proceedings, published reports, newspapers, magazine, bulletin, souvenir, journals and

various relevant institutions’ reports to be related in internet banking technology. Secondly, some of the helpful literatures related to the topic in geographic area’s written by well-known researchers have been taken to compare, cross and justify against the objectives.

The above mentioned source-materials have been collected in government and private banks, and different university libraries etc in national and global geographic areas. We have also utilized modern technologies like

internet, websites, email, mobile, telephone, skype, conferencing and networks etc. to collect facts and information about our research field which was helped us to reach a further more accurate decisions and opinions. Feedback meeting carried out in order to share

the research findings with the respondents and staffs to get their feedback suggestions and comments of internet banking technology during the organized interview through questionnaires. The data were collected through

field visit and secondary level. After collection the data were arranged, organized, sorted and assemblage according to research theme for compilation and analysis. All data were checked properly in order to find

out their accuracy, by following the crossed checking method, i.e. checking the same information in different sources and verify the sources of information. This paper is the outcome of data sorting and assemblage through different relevant secondary information and field

survey, which are carefully compiled and evaluated. Then the information were included preparation of data sheet and their manipulation into convenient forms used in the result and discussion section subsequently.

Generally primary and secondary data were compiled with the renowned MS Excel and relevant software. After compilation of data/ information were analysed using standard data analysis softwares.

4. THEORETICAL FRAMEWORK OF INTERNET

BANKING FOR THE EFFECTIVE LOGIN

This is imperative for different banks offering online banking to recognize the user innovativeness related to

internet [21], intranet and extranet. It is also found that



prior computer experience and expertise have indirect

effect on perceptions of the users. [19]. Information-

Communication-Technology (ICT) and Accounting Information Systems (AIS) applications in the banking sectors gives competitive advantages to the banks by means of cost reduction, quick transaction, electronic

fund transfer (EFT), electronic payment systems, well-organized data management, analysis, safety, recovery management etc as well as it improves the competence of the users and trims down its traveling and waiting times

and gives more independence on the priority of the theoretical framework for the rationalized generations. This framework tends to the users friendly not only national but also global including uniqueness login option’s stalwarts within available internet accessibility

interlinked with central bank to the global bank networks. The effective online banking framework systems fulfill the required methods, executing design and appraising the feedback with standard technology

according to network topology for disseminating of global banking technological arena. The framework consists of core banking systems and outer banking

systems including global server station. This global server station varies either in the figure 1 or it may be scalable according to periodical requirements. The core

banking system implies national central bank and global central bank (proposed) interlinked with transaction indicating system security. The outer bank system includes presenting bank and remitting bank connecting

with SWIFT/STN (Society for World Wide Inter-Bank Financial Telecommunication/ SWIFT Transport Network) including internet availability. Besides, login for customer services and operations tends to disseminating knowledge and relevant support on the

means of verification and authentication for forwarding of electronic fund transfer (EFT) and payment system to the end user. However, all sorts of phenomena are providing internet connectivity with the gateway of

global server station which is shown in the figure 1 as below. This framework occupies individual login globally and forward to the right customer of the right transaction within the right support through internet availability.

Figure1: A Framework on Global Internet Banking through unique login

Asian Business Review, Volume 3, Number 4/2013 (Issue 6)

ISSN 2304-2613 (Print); ISSN 2305-8730 (Online)

Copyright © 2012, Asian Business Consortium |

5. FINDINGS

General summing up of the Survey Results The survey was organized among 24 respondents among four scheduled banks, viz. Dutch Bangla Bank

(DBBL), Sonali Bank Limited, Pubali Bank Limited and Bangladesh Islami Bank Limited (BIBL). The survey was conducted with different age gradation between 20 to above 60 years old. The maximum respondents indicated

in the age 31 to 40 years among these banks where as lower respondents at above 60s which are shown in the figure 2. Bangladesh is a developing country which has lower internet users viz. India is the pioneer country in

Fig-2: Age-gradation respondents Survey on Internet banking for reflection

Figure 3: Comparative Study on Internet Users among India, Bangladesh and Pakistan

Figure 4: Comparison Study between Internet Banking Users and Int

0

2

4

6

8

10

20-30 31

0.00%

5.00%

10.00%

15.00%

2007 2008

Internet General User

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

2007 2008

Internet Banking and General User

Volume 3, Number 4/2013 (Issue 6)

8730 (Online)

Asian Business Consortium | ABR

General summing up of the Survey Results The survey was organized among 24 respondents among four scheduled banks, viz. Dutch Bangla Bank Limited

(DBBL), Sonali Bank Limited, Pubali Bank Limited and Bangladesh Islami Bank Limited (BIBL). The survey was conducted with different age gradation between 20 to above 60 years old. The maximum respondents indicated

hese banks where as lower respondents at above 60s which are shown in the figure 2. Bangladesh is a developing country which has lower internet users viz. India is the pioneer country in

the subcontinent in 2011 (10%) meanwhile Pakistan is the second most (above 8%) as mentioned in the figure 3. Internet Banking Users are increased day by day

according to the figure 4. The figure expressed that the maximum internet users is 5% in 2011 while Internet Banking Users are above 2% in the same year. This value increased before the successive years. The expectation

from the 65% respondent opined their opinion for expansion of Internet Banking tremendously not only national but also global wide. According to figure 5, we can assume that maximum agreed for expansionInternet Banking.

gradation respondents Survey on Internet banking for reflection


Figure 4: Comparison Study between Internet Banking Users and Internet General Users in Bangladesh

31-40 41-50 51-60 >60

DBBL

Sonali_BL

Pubali_BL

BIBL

2008 2009 2010 2011

Internet General User

IndiaBangladeshPakistan

2009 2010 2011

Internet Banking and General User

Internet Banking User

Volume 3, Number 4/2013 (Issue 6) 8730 (Online) 0

75 | P a g e

the subcontinent in 2011 (10%) meanwhile Pakistan is the (above 8%) as mentioned in the figure 3.

Internet Banking Users are increased day by day

according to the figure 4. The figure expressed that the maximum internet users is 5% in 2011 while Internet Banking Users are above 2% in the same year. This value

creased before the successive years. The expectation

from the 65% respondent opined their opinion for expansion of Internet Banking tremendously not only national but also global wide. According to figure 5, we can assume that maximum agreed for expansion of

gradation respondents Survey on Internet banking for reflection


ernet General Users in Bangladesh

Sonali_BL

Pubali_BL

IndiaBangladeshPakistan

Internet Banking User

Asian Business Review, Volume 3, Number 4/2013 (Issue 6)

ISSN 2304-2613 (Print); ISSN 2305-8730 (Online)

Copyright © 2012, Asian Business Consortium |

Figure 5: Expansion of Internet banking tremendously for modernized generations

6. DISCUSSION

Overall, the above discussion, we can harangue the respondents are rationalized aged-gradation indicating Internet General Users are increased gradually as well as Internet Banking Users in the same. However, we want to

express that the scope of Internet Banking is increased day by day with update technological arena among the rationalized generations. General perception abanking was gauged by different items around the modern world. Out of which some items were related with

convenience and flexibility and few items were related with transaction related benefits. All items were measured on a convenient scale. From the questionnaire convenience and flexibility related items clubbed together and average score

taken to gauge the respondents’ perception about convenience factor. Out of total respondents 65 % respondents felt that internet banking is very convenientand flexible banking. And same percentage i.e. 65% from total users agrees or strongly agrees that internet banking is

convenient. They felt that it gives benefits now queuing in bank and one can do anytime and anywhere banking. Approximately 32% percent of total respondent agreed that internet banking has transaction related benefits. These

benefits include efficient and speedy transfer of funds with lower transaction cost. And, with internet banking one can check transaction details regularly without any

7. LIMITATIONS AND FUTURE WORK

Future sampling is suggested to be segmented in terms of demographic (age, sex, income, education etc) and

geographical distribution on Internet banking networking systems. Equal Sample sizes should be selected and comparative study should be done. Although this research is primarily based on the primary data from the users and

non users of Internet banking, the findings cannot be generalized, as the research is based on non probability sampling. This study has successfully examined the major factors responsible for internet banking based on respondents’ perception on various internet applications;

future research may include examined the banking transaction factors importance. Future research may also consider the impact of other demographic variable like banking education and else others.

65%

2%Expansion of Internet Banking

Volume 3, Number 4/2013 (Issue 6)

8730 (Online)

Asian Business Consortium | ABR


Overall, the above discussion, we can harangue the gradation indicating

ral Users are increased gradually as well as Internet Banking Users in the same. However, we want to

express that the scope of Internet Banking is increased day by day with update technological arena among the

General perception about internet banking was gauged by different items around the modern world. Out of which some items were related with

convenience and flexibility and few items were related with transaction related benefits. All items were measured on a

From the questionnaire convenience and flexibility related items clubbed together and average score

taken to gauge the respondents’ perception about convenience factor. Out of total respondents 65 % respondents felt that internet banking is very convenient and flexible banking. And same percentage i.e. 65% from total users agrees or strongly agrees that internet banking is

convenient. They felt that it gives benefits now queuing in bank and one can do anytime and anywhere banking.

of total respondent agreed that internet banking has transaction related benefits. These

benefits include efficient and speedy transfer of funds with lower transaction cost. And, with internet banking one can check transaction details regularly without any hassle.

Future sampling is suggested to be segmented in terms of demographic (age, sex, income, education etc) and

geographical distribution on Internet banking networking systems. Equal Sample sizes should be selected and comparative study should be done. Although this research is primarily based on the primary data from the users and

non users of Internet banking, the findings cannot be generalized, as the research is based on non probability

ssfully examined the major factors responsible for internet banking based on respondents’ perception on various internet applications;

future research may include examined the banking transaction factors importance. Future research may also

pact of other demographic variable like

8. CONCLUSION

User skill level could be a micro driver for the banks to devise their technological strategies. There is a lot of potential for the individuals to improve their Compu

/Internet skills; hence there is tremendous opportunity for banks to go online. Therefore these kinds of solutions must be designed by considering individual skill levels. Online banking should not be very simple that it does not

give value to highly skilled user and also it should not be so complicated so that the users with medium and Low level are unable to get benefits. Also trust and confidence of the user is inversely proportional to the level of complexity of the services. Online banking means to

web based banking. Today Banks are espousal web technology to offer more services at a cost effective rate within reduced. Although being late Bangladeshi scheduled banks put forward themselves to gain those

competitive advantages. If the Government Concerned Authority enhanced with tactics augmentation of global technology perfectly, it is not so far that Bangladesh will embrace the benefits of ICT in the full extent and get one of highest rates in the adoption of ICT

as well as Internet Banking throughout the world. According to the world economy is increasing faster and banking sector is making smear each and every day spontaneously, Internet banking is very significant and

effective to be a part of new technological arena. Bangladesh immediately started its expedition in internet banking and banks are coming forward to make it a triumph. Internet banking is clearly a huge benefit for the customers and saves a lot of time and things attain done

so straightforwardly. Bangladesh, as a developing cocan formulate the best out of Internet Banking and banks are completely augmented for rationalized generations.

ACKNOWLEDGEMENT

We are grateful to the Authority of Bangladesh Institute

of Bank Management (BIBM), Dhaka in Bangladesh to progress this paper with indispensable and expert guidance, suggestions, constructive criticism, encouragement and inspiration throughout the paper presentation to the Annual Banking Conference.

32%1%

Expansion of Internet Banking

Agree

Strongly Agree

Disagree

No comment

0

76 | P a g e


User skill level could be a micro driver for the banks to devise their technological strategies. There is a lot of potential for the individuals to improve their Computer

/Internet skills; hence there is tremendous opportunity for banks to go online. Therefore these kinds of solutions must be designed by considering individual skill levels. Online banking should not be very simple that it does not

killed user and also it should not be so complicated so that the users with medium and Low level are unable to get benefits. Also trust and confidence of the user is inversely proportional to the level of complexity of the services. Online banking means today,

web based banking. Today Banks are espousal web technology to offer more services at a cost effective rate within reduced. Although being late Bangladeshi scheduled banks put forward themselves to gain those

competitive advantages. If the Government and Concerned Authority enhanced with tactics augmentation of global technology perfectly, it is not so far that Bangladesh will embrace the benefits of ICT in the full extent and get one of highest rates in the adoption of ICT

throughout the world. the world economy is increasing faster and

banking sector is making smear each and every day spontaneously, Internet banking is very significant and

effective to be a part of new technological arena. y started its expedition in internet

banking and banks are coming forward to make it a triumph. Internet banking is clearly a huge benefit for the customers and saves a lot of time and things attain done

so straightforwardly. Bangladesh, as a developing country can formulate the best out of Internet Banking and banks are completely augmented for rationalized generations.

We are grateful to the Authority of Bangladesh Institute

of Bank Management (BIBM), Dhaka in Bangladesh to aper with indispensable and expert

guidance, suggestions, constructive criticism, encouragement and inspiration throughout the paper presentation to the Annual Banking Conference.

Agree

Strongly Agree

Disagree

No comment



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[3] BankInfo, (2011). Internet Banking in Bangladesh. URL: http://bankinfobd.com/blog/internet-banking-in-bangladesh.

[4] Black, N.J., Lockett, A., Ennew, C., Winklhofer, H., and S. McKechnie, (2002). “Modeling customer choice of distribution channels: an illustration from financial services”, International Journal of Bank Marketing, Vol.

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http://www.bangladeshbrandforum.com/magazine/042013/panorama.php

Asian Business Consortium is an independent research house committed to publishing and delivering superior, Peer-

reviewed standard research



Is Dhaka Stock Exchange (DSE) Efficient? A Comparison of Efficiency Before and After the Market Crisis of 2010

Maruf Rahman Maxim1, Tasfia Awal Miti2, & S.M Arifuzzaman3

1Post Graduate Research Studies, University of Western Sydney, Sydney, Australia 2South Asia Region Financial Management, World Bank, Dhaka, Bangladesh 3Senior lecturer, Department of Business Administration, East West University, Bangladesh

ABSTRACT

This paper tests for the weak form of efficiency in DSE. A major objective of this paper is to compare and analyse the efficiency of the market before and after the market crash of December,2010. The sample includes DSEGEN price index daily closing values. The data is divided among two time periods, year 2009-2010 is used to test the efficiency before the market crash and 2011-2012 is used to test the efficiency after the market crash. Kolmogorov-Smirnov and the Shaprio-Wilk tests are used to test the normality of returns and for both the time periods, the returns distributions are non normal. Runs test is used to test for the randomness of returns. The result of runs test is quite interesting. It shows that returns were not random before the market crash. Numerous other previous researches also show non randomness of returns in DSE. But surprisingly random walk is observed for the returns after the market crash. It requires further studies to understand such abnormality.

Keywords: Efficient Market Hypothesis; DSE; Random Walk Model; Weak Form of Efficiency.

JEL Classification Code: L11, H12

1 INTRODUCTION

ccording to the efficient market hypothesis no investor can employ any investment strategy to consistently beat the market. In other words at any

given time the market price of a stock reflects all available information and hence is the true value of it. Stock prices adjust swiftly with the arrival of new information and leave no opportunity for investors to capitalize on the news [1]. Weak form of efficiency (WFEMH) suggests that

past series of share prices cannot be used to foresee the future prices. It is widely believed that emerging markets experience this least form of efficiency and numerous researches have been conducted on testing the WFEMH in

emerging markets. Some of these studies are discussed in the literature review section of this paper. This paper will test for WFEMH in Dhaka stock exchange. The result of the test will determine whether DSE shows the least form of efficiency and whether it’s possible to beat the market

pursuing any particular investment strategy. One of the major significance of this research is that it tries to understand and compare the market efficiency of DSE before and after the stock market crash of December 2010.

December 2010, Bangladesh stock market crash The journey of Bangladesh stock market started from 28 April, 1954 when the East Pakistan Stock Exchange Association Ltd. was established. At the early stage there were very few enlisted companies. During 1976, there

were only 9 listed companies with total paid up capital of Tk.0 .138 billion and market capitalization of Tk. 0 .147 billion which was 0.138 percent of GDP [2].

The stock market of the country was growing at a slow pace at first but there was a large surge in the stock market in the summer and fall of 1996. According to

Mollik and Bepari [2] DSE general index grew from 832 in January 1, 1996 to 3567 in November 14. The market eventually crashed in December of 1996 and the index started to decline significantly since then, with the index of DSE assuming a value of 507.33 as of November of

1999, resulting in a cumulative decline of 83.44 percent from 1996 to 1999 with the annual rate of 27.82 percent. This was the first major crash in the history of Bangladesh stock market. The second one took place

very recently. The problem was initiated in 2009 and the market was unstable throughout that year. By the end of 2010 it was evident that the market was overheated. The central bank took a step and wanted to slow things down by controlling liquidity. The mayhem started on

December of 2010. On December 13th the DSE general index (DSEGEN) dropped by 285 points. The second fall was on December 19th which struck even harder. The DSEGEN fell by 551 points in a single day. That was the

largest fall in the 55 year history of Dhaka stock exchange [3]. The market stood at 5500 points on October 2010 compared to 8900 points on the previous year.

2. LITERATURE REVIEW

Random walk model (RWM) has been used very frequently over the years to test the market efficiency in

both developed and developing markets. Some of the

A



notable works would include Fama [1]; and Fama [4]. The random walk model says successive price changes are independent and identically distributed random

variables. It implies that future price changes cannot be predicted based on the historic price. A major problem for emerging markets is that they are very thinly traded and so are vulnerable to manipulation. The literature on

RWM and efficiency is widely divided among two major schools when it comes to emerging markets. One school advocates for RWM and WFEMH and their empirical evidence in emerging markets. See Paul [5]; Chan and Gup et al. [6]; Dickinson and Muragu [7]; Ojah and

Karemera [8] ; Claire and Gilmore al.[9]; Verma[10]; Asiri [11]. Where as the other group argues against it. See Chaudhuri[12]; Mobarek and Keasey [13]; Liu [14]; Ntim and Danbolt et al. [15]; Mishra [16].

Numerous researches have been conducted in the context of Bangladesh testing for weak form of efficiency. Alam [17] found that DSE follows a random walk testing data of 1986-1995. Mobarek [15] tested the price index between (1988-1997) and concluded it does not follow a

random walk. Hasan [18] and Rahman [19] found the same thing as Mobarek [15] and concluded that market does not follow a random walk. However none of the studies compared the efficiency of two different time

periods. Comparison is required to understand the trend of efficiency and the underlying reasons behind it. This understanding can result in better policy making. Moreover not much work has been done concentrating the post 2010 market crisis. This research will contribute

in covering such gaps in the literature. When it comes to the methods used for testing WFEMH the two methods used profoundly are filter test and statistical tests of independence between rates of return

such as autocorrelation tests and runs tests [20]. Filter test is used to figure out whether filter rule holds or not. Filter rule is a trading strategy where the investor makes a rule on when to buy and sell based on price changes from

historic lows and highs. The second type of test is used to determine the randomness of the rates of return [21].

3 DATA AND METHODOLOGY

All tables and figures will be processed as images. You need to embed the images in the paper itself. Please don’t send the images as separate files.

3.1 Data This research is aiming to test the market efficiency of two different periods and so the data is divided among two parts. The first part of this research will look at the efficiency of DSE before the market crash of 2010. For

this part the data used is from January 1st 2009-31st December 2010. The second part of the research focuses on the post crash efficiency of DSE and the data used here is from January 1st 2011-31st December 2012.

Instead of using every individual stock enlisted in DSE we used the DSE General index. The data used are daily closing values for the above mentioned periods.

3.2 Hypotheses The intention of this study is to do a comparative analysis of DSE’s efficiency before and after the market

crash of 2010. The null hypotheses for both these periods (before and after 2010) state that market movements are random and they are not predictable. If the null hypothesis holds then it proves weak form of efficiency in DSE. But before testing the randomness of returns it

tests the nature of their distribution. Understanding the distribution is required to decide what type of statistical tool should be used to test randomness. Certain statistical tests (such as the autocorrelation test) assume

normality of distribution. Using such tests when the distribution is not normal can give faulty results [22]. The hypotheses are listed below: First: (Before the market crash of 2010) H0: The DSE general index returns follow a normal

distribution. H1: The DSE general index returns do not follow a normal

distribution. Second: (Before the market crash of 2010) H0: The DSEGEN returns are random over the time period of

the study. H1: The DSEGEN returns are not random over the time period

of the study.

Third: (After the market crash of 2010) H0: The DSE general index returns follow a normal

distribution. H1: The DSE general index returns do not follow a normal

distribution.

Fourth: (After the market crash of 2010) H0: The DSEGEN returns are random over the time period of

the study. H1: The DSEGEN returns are not random over the time period

of the study.

3.3 Statistical methods As discussed in the literature review section,

autocorrelation test and runs test are the most popular statistical tools when it comes to testing the randomness of the returns. This research uses the autocorrelation test when the distribution of returns is normal. When the

distribution is not normal the research uses the runs test. The autocorrelation test or serial correlation test is used to test the relationship between time series and its own values over different time lags. If the autocorrelation is negative it implies that it is mean reversal and accepts



the null hypothesis. A significant positive autocorrelation means there is a trend in the series. A truly random data series will have a zero serial

correlation coefficient. The beta coefficient from the following regression equation measures the serial correlation of stock i with a lag of k periods:

r i,t = ∝i + Bi ri,t-k + εi,t (1)

Where ri,t represents the return of stock i at time t, ∝i and Bi

are constants, εi,t represents random error, and k represents

different time lags. The serial correlation tests assume normal distribution of returns. The runs test is a nonparmetic test of randomness in a series. It does not

require the normal distribution of returns. A run is defined as price change sequence of the same sign, e.g.,--0+++ would constitute three runs where ‘- -‘represents a price decrease, 0 represents no change, and “+ + +” represents a

price increase. For more on runs test see Moustafa [20]. The principle behind this test is that too few or too many runs, as compared with the number of runs expected in a random series, indicate non-randomness. If there are too few runs, it would mean that the stock returns in the

time series do not change signs frequently, thus indicating a positive serial correlation and in turn, may imply that the price changes do not follow a random walk model. Similarly, if there are too many runs, they

may suggest negative autocorrelation [23].

4 EMPIRICAL RESULTS

We calculated the returns using the following simple formula R=(Pt-Pt-1)/ Pt-1 Where R is the return of DSEGEN index, Pt is the value of the index on day t and Pt-1 is the value of the index a day before Pt.

The second step was testing the normality of the returns. For that we used the Kolmogorov-Smirnov test and the Shaprio-Wilk test. The normality of the returns was observed to determine what statistical method to be used

between serial correlation and runs test. Both Kolmogorov-Smirnov and the Shaprio-Wilk tests show that returns of DSEGEN index do not follow a normal distribution pattern before and after the market crash of

2010. So we reject the null hypothesis of normalcy for both time periods. Autocorrelation test could not be used due to the non existence of normality in the dataset. Runs test is used to test the randomness of returns.

DSEGEN1-Index returns of 2009-1010

DSEGEN2-Index returns of 2011-2012 The result of the runs test is quite interesting. It reveals that at the five percent level, Z-value is -3.039 which is beyond (±1.96) of DSEGEN for the returns of 2009-2010,

indicating non randomness. But surprisingly it shows randomness during the post collapse period. The Z score for DSEGEN index during the post collapse period is -1.567. For both pre and post crisis, Z score is negative

indicating fewer actual runs than expected. The results exhibit that DSE was not following the random walk model during the pre crisis bullish period. The market was overheated during that time but was not showing any form of efficiency. So the null hypothesis

that the index returns in DSE stock market are random is rejected. On the other hand DSE showed signs of WFEMH and followed the random walk model during 2011-2012, after the crisis took place. So the null

hypothesis for randomness for this time period of the study is accepted. The result of the study suggests that following any particular trading strategy could not result in higher than market return during the post crisis period.

5 CONCLUSION

The finding of the research is very fascinating and gives scope for further studies. Numerous studies in the past show non existence of WFEMH in the DSE and our result is on the same line with the previous studies. But surprisingly

based on the DSEGEN index data, DSE has shown significant level of WFEMH during this post crisis period. The market capitalization of DSE dropped significantly in 2011-2012 after the 2010 crisis. Investor confidence dropped drastically and most institutions and individual

investors left the market or minimized their investment. Thinly traded markets are usually more prone to inefficiency but in this case our finding contradicts with it. The results of the research should be interpreted very

cautiously. A lower degree of efficiency in less developed markets might be due to common characteristics of loose disclosure requirements, thinness and discontinuity in trading [24]. Further researches need to be conducted to find out the underlying reason

for such abnormality.



REFERENCES

[1] Fama. E, “Efficient Capital Markets : A Review of Theoty and Empirical Work,” Journal of Finance, vol.25,

pp. 383 – 417, 1970. [2] A. Mollik, and M. Bepari, “Weak- Form Market

Efficiency of Dhaka Stock Exchange (DSE), Bangladesh,” Social science research network, Available at:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1460536, 2009.

[3] E. Bhuiyan, “Reconstructing the market,” The financial

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Finance, vol.46, pp. 1575 – 1617, 1991. [5] B. Paul, “Thin trading and stock market efficiency: A case

of the Kuala Lumpur Stock Exchange,” Journal of Business

Finance & Accounting, vol.13, no.4, pp. 609-617. 1986. [6] K. Chan, B. Gup, and M. Pan, “An Empirical Analysis

of Stock Prices in Major Asian Markets and the United State,” The Financial Review, vol.27,pp. 289-307.1992.

[7] J.P. Dickson, K. Maragu, “Market Efficiency in Developing Countries: A Case Study of the Nairobi Stock Exchange,” Journal of Business Finance &

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efficiency tests of Latin American emerging equity markets,” The Financial Review, vol. 34, no. 1, pp. 57-72. 1999.

[9] G. Claire, Gilmore, and M.Ginette, “Random-Walk and Efficiency Tests of Central European Equity Markets,” European Financial Management Association Conference,2001.

[10] A.Verma, “The study of the weak form informational efficiency in Bombay Stock Market,” Finance India,

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stock market,” International Journal of Emerging Markets,

vol.3,no.1, pp. 38-53.2008. [12] S. Choudhuri, “Short-run Share Price Behaviour: New

Evidence on Weak Form of Market Efficiency,” vol.16,no.4, pp. 17-21. Available at: http://www.vikalpa.com/pdf/articles/1991/1991_oct_dec_17_21.pdf,1991.

[13] A. Mobarek, and K. Keasey, Untitled paper, proc.Weak-

form market efficiency of an emerging Market: Evidence from Dhaka Stock Market of Bangladesh, May,2000.

[14] B.Liu, “Weak-form Market Efficiency of Shanghai Stock Exchange: An Empirical Study,” available at http://www.sk.tsukuba.ac.jp/SSE/degree/h14/015361.pdf,2003

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Hypothesis of the Ghana Stock Market Using Variance-Ratios Tests,” African Finance Journal, vol.9,no.2.2007.

[16] P. Mishra, “Indian Capital Market - Revisiting Market Efficiency,” Indian Journal of Capital Markets, vol.2,no.5,

Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1

339901,2010. [17] M.I. Alam, T. Hassan, and P.Kadapakkam, “An

application of variance ratio test to five asian stock markets,” Review of pacific basin financial markets and

policies, vol.2,pp.301-315.1999. [18] M. Hassan, Kabir, and M. Anisul, “Market efficiency,

Time varying volatility and equity returns in Bangladesh stock market,”2000.

[19] S. Rahman, F. Hossain, “Weak form efficiency: testimony of Dhaka stock exchange,”Journal of business research, vol. 8,pp.1-12. 2006.

[20] M. Moustafa, “Testing the Weak-Form Efficiency of the United Arab Emirates Stock Market,” International journal of business, vol.9,no.3, pp. 316-317. 2004.

[21] F. Reilly, and K. Brown, Investment Analysis and Portfolio

Management. Mason, Ohio: South-Western, Thomson, 2003. [22] J. Urrutia, “Tests of Random Walk and Market

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Appendix A

Tests of Normality

Kolmogorov-Smirnova Shapiro-Wilk

Statistic df Sig. Statistic df Sig.

DSEGEN2 .066 472 .000 .955 472 .000

DSEGEN1 .115 472 .000 .655 472 .000

a. Lilliefors Significance Correction b. DSEGEN1 is the index returns of 2009-2010 and

DSEGEN2 is the index returns of 2011-2012 Appendix B

Runs Test

DSEGEN1 DSEGEN2

Test Valuea .00 .00

Cases < Test Value 243 236

Cases >= Test Value 244 236

Total Cases 487 472

Number of Runs 211 220

Z -3.039 -1.567

Asymp. Sig. (2-tailed) .002 .117

a. Median



An Empirical Evidence of Corporate Social Responsibility by Banking Sector based on Bangladesh

Mahjabeen Ferdous & Md. Moniruzzaman

Lecturer in Finance, Department of Business Administration, Stamford University Bangladesh

ABSTRACT

This paper present the current Corporate Social Responsibility practices by banking sector in Bangladesh. It also attempts to examine the importance of CSR (Gaining Competitive advantage, Customer’s and Employee’s Positive Behavior, Financial performance, etc) using open end questionnaire aims to collect respondent’s opinion. Data analyzed by Statistical tool hypotheses (Z statistic-Proportion Test) along with descriptive analysis. DBBL is one of the top most banks in practicing CSR activities. The most practiced area is Education; PCB may diversify CSR practices in women empowerment, poverty alleviation as it is not enough to contribute the overall development of the country as well as other sector such as telecommunication, manufacturing industry may come forward for CSR practices.

Key Words: Corporate Social Responsibilities, Private Commercial Bank, Bangladesh

JEL Classification Code: M14

1 INTRODUCTION

he Corporate Social Responsibility (CSR) is a blessing now a day and gradually it is achieving huge popularity among the businesses. For this reason

CSR is one of the most crucial topics to the business world as well as to the government. There is an old proverb, The old proverb, “Everybody talks about society, but nobody does anything about it” is not valid in this century

because Almona, C. P. (2005) alleged that the role of business worldwide and specifically in the developed economies has evolved over the last few decades from classical ‘profit maximizing’ approach to a social

responsibly approach, where businesses are not only responsible to its stockholders but also to all of its stakeholders in a broader inclusive sense. There are many reasons behind the scenario but negative impression of stockholders on the enterprise may get preferences among

others. Although the enterprise builds profit and job opportunities for the society but on the other hand, it damages the environment which impact falls on human health and nature. Now Corporate Social Responsibility

(CSR) is a prime concern to the society. Banking industry now a day plays a vital role and has large contribution to the society. The economy of Bangladesh is largely dependent on banking industry. The banking division of Bangladesh includes nationalized private banks, specialized

banks, private commercial banks, public commercial banks and foreign banks where there are more than thirty five private commercial banks; operating in Bangladesh. The research has focused on private commercial banks because

the research topic covers CSR practices of private commercial banks in Bangladesh. Like every business organization, banking industry is very competitive.

Corporate Social Responsibility (CSR) is considered one of the most powerful weapons to acquire the competitive advantage among different competitors. CSR is now closely

related with modern businesses. There are some advantages of CSR activities. To reduce risk, to get competitive advantage, to capture market share and reputation CSR is very helpful. Not only the private commercial bank are

concerned with the CSR activities now a day, but also the Bangladesh Bank (The central bank of Bangladesh) is giving its strong focus to facilitate CSR in the banking industry. But still, we are falling behind in this respect comparing to

developed countries of the world. Now CSR is a daily task for the private commercial banks like deposit currency, account opening, providing loan and they have gained a lot of success in this field. Every year each and every bank incurs good and big amount of money for the CSR purposes. The Bangladesh Bank (The Central Bank of Bangladesh)is now very concern about the CSR activities and various steps are already accumulated by Bangladesh Bank for the improvement of CSR activities such as encourage private commercial banks in CSR activities for this NBR issued rules on tax rebate for CSR activities. Today it is not an obligation, but a challenge too. In a word, to run the business effectively and competitively there is no alternative of CSR.

2 OBJECTIVES OF THE STUDY

The objectives of this research paper are to study the CSR

practices of different private commercial bank in Bangladesh. There are some specific objectives also which are given below:

To achieve knowledge about different CSR activities of private commercial banks in Bangladesh.

To identify the important areas where CSR activities

T



are performing Bangladesh and also future prospective areas where PCB can exercise.

To evaluate and examine the role of CSR activities of private commercial banks in Bangladesh.

3 LITERATURE REVIEW

CSR can be viewed as a comprehensive set of policies, practices, and programs that are integrated into business operations, supply chains, and decision making processes throughout the company and include responsibilities for

current and past actions as well as adequate attention to future impacts. CSR focuses vary by business, by size, by sector and even by geographic region. The area of CSR is quite big and it includes all the good practices that increase the business profitability and can preserve interest of all

stakeholders [1]. Ali Abbaas Albdour (2012) the early writings on CSR began with Bowen who published “Social Responsibility of the Business Man” in 1953 [5]. Subsequently many researchers during the 60s have

attempted to formalize or, more accurately, state what CSR means. Simply, corporate social responsibility means the responsibility or obligation of the firms or organization toward the society for society’s and environment benefits or like something. The European Commission has previously

defined Corporate Social Responsibility (CSR) as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”.

CSR’s goal is work for the society and environment. Niall Fitzerald, Former CEO, Unilever has defined "Corporate social responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing

us to do it, because it is good for our business". CSR is definitely costly activities for the business firm but it also brings long term sustainability for the firm and its target is to bring corporate image to the firm. As a result, increased consciousness with regards to sustainability issues for

financial institutions has been observed across the globe during the last decade. Banks across the globe have received the considerable amount of pressure from its diverse stakeholders including shareholders, investors,

media, NGOs and customers to carry out business in a responsible and ethical manner. It is a good sign for the country that now the banking sector of Bangladesh is engaged in various social businesses [8]. Now a day CSR is one of the most crucial subject matters for the financial

organizations. The financial organizations like banks, leasing companies, insurance companies especially the private commercial bank try to maintain the CSR. Trotta et al. in a conceptual paper; “Banking Reputation and CSR: a

stakeholder value approach” pointed out that, CSR is an important reputational driver, able to create economic value over time. The authors found in their study that there is relationship between CSR and corporate reputation [6]. Similarly a World Bank (2002) described CSR as the

businesses’ obligations to provide renewable economic

development through cooperation with employees, their families, the local community and society in a manner that enhances their livelihood and consequently leads to

beneficial business and development [7]. Now the Corporate Social Responsibility is a global concern but it is a matter of sorrow that though it is observed widely internationally but Bangladesh is lagging behind comparing

to developed countries of the world. Sustainable development is not possible without the help of corporate world. The author found and showed the importance of the involvement of CSR. Banks enjoy some benefits by engaging CSR activities include improve image, effective

risk management, enhanced employee performance and retention. Lind et el introduced tests Concerning Proportions where number of successes and the number of observations, so the proportion of success in a fixed number

of trials thus a sample proportion number of successes divided by number of observations.. To test a hypothesis about a population proportion, a random sample is chosen from the population. It is assumed that the assumptions sample data collected are the result of counts, results are

mutually exclusive such as yes or no. Independents trials and the probability of success is same for each trials.

4 METHODOLOGY

4.1 Sources of Data Primary Data A structured (open end) questionnaire was designed to investigate the level of users understanding and their perception towards CSR. The sample of the study covers the banking employees from ten selected private commercial banks in Bangladesh. Sample size was 400

respondents’ opinion were collected from top ten private commercial banks’ forty clients’ and employee’s opinion for each banks.

Secondary Data Banks’ websites, periodicals, Bangladesh Bank’s publications, newspapers are used as the secondary sources of the study. A list of related articles from various journals is also used to develop the basic idea about the particular

topic and several international efforts and initiatives for developing and implementing CSR standards and guidelines were examined.

4.2 Data Analysis Hypothesis Testing Data are analyzed through hypothesis testing including Z-

test. After reviewing the literature the researchers have identified the following hypotheses.

Hypothesis 01=CSR is a tool to gain competitive

advantages.

Hypothesis 02=CSR may influence the employees’

behavior positively.

Hypothesis 03=CSR has a significant role in establishing a corporate image.



Hypothesis 04=CSR may influence the customers’

behavior positively.

Hypothesis 05=CSR may influence the financial performance.

Hypothesis 06=CSR may be practice enough under regulation of the central bank.

The Hypotheses of the study were formulated in terms of null hypothesis and alternative hypothesis. The data got from the questionnaire had responses supporting either H0 (null hypotheses) or H1 (alternative hypotheses). The

researchers have also decided to use Z-test, because, the sample size is more than 30. The calculating formula of Z is

Z= Þ-π

and the level of significance for the test is 5%. This makes the tabulated Z to be ±1.96. Also no of observation is 400 and success x (support for the null hypothesis – No) by the respondent’s opinion given on each table. Þ = X/n, π is population proportion

is 20%, =√ π (1- π) ÷ n

5 ANALYSIS AND FINDINGS

5.1 Descriptive Analysis The respondents’ were asked to give their opinion regarding the level of importance of some important sectors of CSR practices. For descriptive analysis, the researchers

considered the mean and standard deviation of the sectors of CSR practices. On the basis of respondents significant opinion following table and graph are designed.

Table 1: Sector wise Patterns of CSR

Sector wise Patterns of CSR Mean SD

1. Education 3.80 1.89

2. Health 3.67 1.79

3. Sports 3.48 1.18

4. Others 3.33 1.15

5. Humiliates and disaster relies 3.12 1.10

6. Arts & Culture 2.95 0.96

7. Environment 2.76 0.89

From the above table and graph indicate that the private commercial banks have given the more concentrations in the sector of education followed by healthcare, sports, Humiliates & disaster relief and others. The CSR

initiatives has proved that the respondents opinion is accurate because in 2011 the sector wise pattern of CSR

expenditure BDT (million) private commercial banks in Bangladesh is given below with a chart.

Figure 2: Sector wise Patterns of CSR Expenditure BDT (million)

(Source: “Review of CSR initiative of banks; Bangladesh

Bank 2011)

In the year 2011, the ‘Education’ and ‘Health Care’ sectors were getting more attention and appeared to be the most popular sectors for CSR activities as huge investments are being made by several banks in these segments. Besides

these two important sectors large concentrations are found in the field of sports, humanities and disaster relief. As earlier the researchers mentioned, the banks are spending in CSR purpose is increasing gradually. The following table

has proved the statement.

Table 2: CSR Expenditures by Banks (Annual)

Year 2008 2009 2010 2011

BDT(Million) 410.7 553.8 2329.8 2188.33

(Source: “Review of CSR initiative of banks; Bangladesh Bank 2011)

Corporate Social Responsibility (CSR) is a form of corporate self-regulation integrated into a business model. The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers,

stakeholders, communities, public and employees as well. CSR activities of banks broadened substantially in last three years. As of December 2011 all 47 banks have adopted CSR as mainstream extending direct

expenditure of total BDT 2188.33 million which is fourfold larger than in 2008 (BDT 410.7 million). CSR Practices by the Ten Selected Private Commercial Banks

The banking sector of Bangladesh has a long history of involvement in benevolent activities like donations to

different charitable organizations, to poor people and religious institutions, city beautification and patronizing art & culture, etc. Recent trends of these engagements indicate that banks are gradually organizing these



involvements in more structured CSR initiative. The researchers have selected ten special areas of CSR practices and made a comparison between the banks on

the basis of respondents’ significant opinion. For such comparison, the researchers assumed the selected areas of CSR to be 100% and it is shown in the next page.

Table 3: Comparison of Selected Private Commercial Banks of Bangladesh

Here, 1 means Yes and 0 means No measured as 10% and 00%.

From the above table, it is clear that DBBL (Dutch Bangla Bank Ltd), covers the more areas than the other private commercial banks and its percentage is 90% out of 100%. It also indicates, DBBL practices CSR in diversified areas

of the society. The FSIBL, Trust bank and EXIM bank have also a good contribution to CSR and deal with different areas of CSR. The rest of the private commercial banks have also contribution to CSR which is less than 50%. This makes a clear picture that the banks are not

concerned with all the areas of CSR including technical and vocational training to labor for export of HR, accommodation for slum dwellers and feeding &

clothing & rehabilitation of rootless children. They are very concerned only about three or four areas. Although, most of the banks are giving more priority on education, sports and natural digester, there are many important

areas which should also be considered. The review of CSR initiative of banks (2011) has mentioned the top five private commercial banks of Bangladesh on the basis of the contribution of CSR which is shown in the following chart.



Figure 3: Top Five Private Commercial Banks

(Source: “Review of CSR initiative of banks; Bangladesh

Bank 2011) This figure also proves that the respondents’ opinion is

accurate because if the table analyzed the top five banks DBBL (90%), FSIBL (70%), Trust bank Ltd (60%), EXIM (50%) and IBBL (40%) are same which has mentioned by CSR initiative of Bangladesh Bank, 2011.

5.2 Hypotheses Testing

Hypothesis one “Whether CSR is a tool to gain competitive advantages”

H0=CSR is not a tool to gain competitive advantages. H1= CSR is a tool to gain competitive advantages.

Table 4: Opinion of The respondents on Competitive Advantage of CSR

Responses No of Responses Percentage (%)

Yes 368 92%

No 32 8%

Total data collected 400 100%

(Source: Survey conducted on the research) The calculated value of Z is │-6│and is │-1.96│ (Using the formula). Here, calculated value is greater than the

table value. So, it can reject the null hypotheses and accept the alternative hypotheses, CSR is tool to gain competitive advantage.

Hypothesis Two “Whether CSR may influence the employees’ behavior

positively” H0=CSR may not influence the employees’ behavior

positively. H1= CSR may influence the employees’ behavior positively. Table 5: Opinion of The respondents on employee’s behavior


Yes 375 94%

No 25 6%


(Source: Survey conducted on the research) The calculated value of Z is │-7│and is │-1.96│ (Using the formula). Here, calculated value is greater than the

table value. So, it can reject the null hypotheses and

accept the alternative hypotheses, CSR may influence the employees’ behavior positively.

Hypothesis Three “Whether CSR has a significant role in establishing a

bank’s image” H0=CSR has no significant role in establishing a bank’s image.

H1= CSR has a significant role in establishing a bank’s image.

Table 6: Opinion of The respondents on Creating Bank’s image


Yes 380 95%

No 20 5%


(Source: Survey conducted on the research) The calculated value of Z is │-7.5│and is │-1.96│ (Using

the formula). Here, calculated value is greater than the table value. So, it can reject the null hypotheses and accept the alternative hypotheses, CSR has a significant role in establishing a bank’s image.

Hypothesis Four “Whether CSR may influence the customer’s behavior

positively” H0= CSR may not influence the customer’s’ behavior positively. H1= CSR may influence the customer’s’ behavior positively. Table 7: Opinion of The respondents on Customer’s behavior


Yes 387 97%

No 13 3%


(Source: Survey conducted on the research) The calculated value of Z is │-8.5│and is │-1.96│ (Using

the formula). Here, calculated value is greater than the table value. So, it can reject the null hypotheses and accept the alternative hypotheses, CSR may influence the customer’s’ behavior positively.

Hypothesis Five “Whether CSR may influence the financial performance”

H0= CSR may not influence the financial performance.

H1= CSR may influence the financial performance.

Table 7: Opinion of The respondents on financial performance of Bank


Yes 360 90%

No 40 10%


(Source: Survey conducted on the research) The calculated value of Z is │-5│and is │-1.96│ (Using

the formula). Here, calculated value is greater than the table value. So, it can reject the null hypotheses and accept the alternative hypotheses, CSR may influence the financial performance.



Hypothesis Six “Whether CSR may be practice enough under

regulation of the central bank.” H0= CSR may not be practice enough under regulation of the central bank. H1= CSR may be practice enough under regulation of the central bank.

Table 7: Opinion of The respondents on central bank’s regulation


Yes 340 85%

No 40 15%


(Source: Survey conducted on the research) The calculated value of Z is │-2.5│and is │-1.96│ (Using the formula). Here, calculated value is greater than the table value. So, it can reject the null hypotheses and

accept the alternative hypotheses, CSR may be practice enough under regulation of the central bank.

6 POLICY IMPLICATIONS AND CONCLUSION

The study reveals the importance of corporate social responsibility as a tool to gain competitive advantage,

has positive impact on employees’ behavior, customers’ behavior and in establishing a bank’s image. These all may create reputation and long term interest by all the parties related to the bank. On the basis of the perception of the bank employees, the study identified

the level of importance of some core areas of CSR

performance. Among the selected core seven sectors, the

respondents have given more importance on the area

‘Education’.

Finally, the study attempted to find out the selected ten

private commercial bank’s performances of CSR in some

selected important areas. In this case Dutch Bangla Bank

(DBBL) is one of the top most position and The FSIBL,

Trust bank and EXIM bank have also a good contribution to CSR and deal with different areas of CSR. Therefore the most of the private commercial banks fall under the

average rate. They consider only a few areas. The banks should diversify their CSR practices and considered the other

important areas of the society, such as women

empowerment, Sanitation in rural areas, rural

development activities related to the poverty alleviation.

This can ensure the overall development of the country.

For this reason, the central bank ,Bangladesh Bank

monitoring the CSR adoption and performance of banks and also give some directions to the banks and provide some priority areas for CSR practice. According to Bangladesh Bank’s instruction PCB’s are working for

CSR which are mentioned in annual reports. As a result now a day’s CSR practice has an upward trend which is less than compared to any other first world countries.

ACKNOWLEDGEMENT

At the very beginning we want to show our best regards to the Almighty because the Almighty gives us the chance to prepare this report. During the period of research and survey, we had gained

altruistic assistance from number of persons and organizations. Without their assistance it was not possible for us to conduct the research. This work was supported in a part by the Bangladesh Bank (The Central Bank of Bangladesh) and top private commercial banks

in Bangladesh which are concerned for CSR activities and for our research purpose we have picked them from all other banks in Bangladesh. All the employees of the banks helped us through providing a lot of their internal

information which was made our research uncomplicated and convenient. Finally, we are grateful to Asian Business Review (ABR) where we are finally going to send our research paper for the publication. They also helped us a lot through providing a template

where all the techniques and steps are given with examples of a sophisticated research paper and some information like submission process, editing process, etc.

REFERENCES

[1] Abdul Kaium Masud, 2011, CSR practices of private commercial bank's in Bangladesh: A comparative study, MPRA Paper No. 35496

[2] A. A. Abbaas, & A.I. Ibrahim. 2012, ,International Journal of Business and Management, Corporate Social Responsibility and Employee Engagement in Jordan, Vol. 7, on.16, ISSN 1833-3850 E-ISSN 1833-8119

[3] European Commission, 25.10.2011, Communication from the commission to the European parliament, the council, the European economic and social committee and the regions.

[4] Bhattacharya et al., 2004; Ogrizek, 2001; Frenz , 2005; Jeucken, 2001; 2004; Coupland, 2005.

[5] Almona, C. P. 2005, ‘A Review of The Business Case for Corporate Social Responsibility in the UK Financial Services Sector, A dissertation presented in part consideration for the degree of MBA in Corporate Social Responsibility’.

[6] Trotta, A., A., Iannuzzi, G., Cavallaro & S., Dell’atti, ‘Banking reputation and CSR: a stakeholder value approach’. Available: http://www.google.com

[7] World bank. 2002, ‘Corporate social responsibility and sustainable competitiveness’. Retrieved from http://www.worldbank.org/wbi/copgov /csr/index.htm

[8] Edi. I.I. and I.I., Etu 2011,‘CSR activities of banking industry in Bangladesh’. Financial Express, Bangladesh.

[9] Niall Fitzerald, “Quotations from Business and Thought Leaders on Ethics and CSR”. Retrieved from http://www.interpraxis.com/quotes.htm

[10] Douglas A. lind, William G. Marchal & Samuel A.Wathen. Statistical Techniques in Business and

Economics. McGraw-Hill/Irwin. Pp.349-352, 2010



Comparative Study on the Efficiency of Bangladeshi Conventional and Islamic Life Insurance Industry: A Non-Parametric Approach

Md. Azizur Rahman

Faculty in Finance, Department of Business Administration, International Islamic University Chittagong, Bangladesh

ABSTRACT

This study endeavor is to examine the efficiency in the both life insurance and life Takaful industry of Bangladesh. The study used Data Envelopment Analysis (DEA) to explore the contributions of technical and efficiency changes to the growth of productivity in the life insurance industries of Bangladesh by using descriptive statistics such as mean, median, standard deviation, minimum & maximum and efficiency concerning the generalized output-oriented Malmquist index for the years 2009-2011. The output-input data consists of a panel of 13 Life Insurance and Takaful Life companies (10 life insurance and 03 Takaful life) in Bangladesh. This study utilizes two inputs and two outputs, namely, commission and management as well as premium and net investment income, respectively. In the DEA technique, efficiency is measured by the Malmquist index. The Malmquist efficiency measures have two components: the efficiency change and technical change index. Efficiency change is again combined by pure efficiency and scale efficiency. It is found that, on geometric mean, the TFP of the Conventional life industry is better than Takaful life mainly due to both efficiency and technical changes where the main source of the efficiency change is scale efficiency rather than pure efficiency. Finding of this study indicates that Conventional and Takaful life industry of Bangladesh, the smaller the size of the companies, the higher the probability for the companies to be more

efficient in utilizing their inputs to generate more outputs. This work will beneficial for researchers as well as practitioners to better understand the Bangladeshi life insurance industry.

Keywords: Data Envelopment Analysis (DEA); Takaful; Malmquist Index; Efficiency; Technical Efficiency; Scale Efficiency; Pure Efficiency

JEL Classification Codes: C14, C67, D57, G22

1 INTRODUCTION

ltimate intention is to find the efficiency of life insurances industry in Bangladesh both the conventional life and Takaful life insurances and this study try develop the whole work also to

seek the potentiality of this sector. The primary function of insurance is to act as a risk transfer mechanism to provide peace of mind and protect against the future losses (Sabbir, 2002). In addition to this, there have been available studies both locally and internationally in other

financial fields especially depository institutions only a handful has been concerned with the insurance industry in Bangladesh on the performance. This work tries to find the lacking of Life Insurances Company. That is why

it feels interest to study in this industry. As maximum percentages of total population are Muslim and where Islamic finance and Takaful insurance products are growing worldwide in a way that is encouraging their adoption by Islamic as well as non-Islamic countries to

support economic growth. Recently, Islamic finance has become one of the most rapidly growing segments of the global financial system. The reason it works here in this industry why people are feeling less keen about life

insurance? This is because they freely use general insurance in their export and import business. What is the hindrance behind this? These are the most considerable research questions of this study.

The developing country like Bangladesh has very much potentiality for this sector in near future. Efficiency comparisons at the international level have received significant attention in the insurance literature. This result indicates that insurance industries have a great

potential to further increase their TFP through improvements in both efficiency and technical component such as enhancing the use of information and communication technology in order to provide good

services to customers (Jesmin et al. 2013) .This study expect certainly contribute to their economy. In the present globe, Islamic banking industry has assets worth over $900 billion, and Islamic finance has spread to 75 countries from East to West, extending from Muslim to

non-Muslim countries. The introduction of an Islamic model of insurance has boosted the Islamic world economy, according to many reports. Insurance has become the biggest industry in

U



Saudi Arabia's economy having overtaken the banking, real estate and manufacturing sectors. Bangladesh is trying to do well in this sector. It will find how she may

be able to improve in insurance, what are steps taken by govt. and organization etc. This study works attempt to seek these questions in this research. If it abide by that the people of this country are fully Islamic minded then

why they don’t use Takaful life insurance? The world’s first Takaful insurance company was established in

Sudan in 1979, and since then Takaful insurance companies have spread around the world. On the contrary, the first Takaful insurance company was established in Bangladesh in January, 2000 and then no other Takaful insurance company has been established

after 2007. Why Takaful life insurance or even conventional

life insurance doesn’t grow up at the desire level though this is an enormous demanded industry in Bangladesh? Is the life insurance companies can’t satisfy their expectation or the life insurance industries are inefficient to ensure them? Because of this, the researcher wants to examine

main reasons behind this stagnancy by measuring efficiency. The diversification of insurance models and types has encouraged customers to choose between them according to their needs, perceptions and beliefs.

Identification of customers’ reasons for acquiring particular forms of insurance helps to highlight the weaknesses and strengths of the different forms. There are vast probabilities of success in life insurance industry in this country. Hence, this study makes to

evaluate the efficiency. The efficiency of financial institutions has been widely and extensively studied in the last few decades. For financial institutions, efficiency implies improved profitability, greater amount of funds

channeled in, better prices and services quality for consumers and greater safety in terms of improved capital buffer in absorbing risk (Berger et al., 1993). As there have

sound possibilities of improvement, so why existing life insurance companies cannot reach their ultimate goal. To find these matters this works have sought. This study measure the actual productivity of life insurances

industries. Furthermore, it also tries to search the relationship with industries. This work will help to understand and reorganize about life insurances companies in Bangladesh. People will be keen to use life insurance very

soon. In various researches seen that financially developed countries accustom with life insurance in their practical life like study of their children’s health insurance is mandatory and so on. However, interestingly here in Bangladesh is not practiced. This study is also tried to identify the relationship

with financial literacy. Government may help them to improve their performance. By encouraging people huge investment can be possible in this sector which will certainly contribute in total economy. The narrow objectives

of this study are to measure the efficiency of Islamic and conventional life insurance of this country. Is there any wanting in insurance company themselves? Which

insurance sector is doing well? How they are correlated and difference in their actions. By this work try to define that’s problem and way to get the elucidations.

There are wide fields of research in financial industries. Study may be taken different industries but there are sound works in this sector than other industries. As Bangladesh is least developing country where there lot

of potentiality especially in life insurance. Due to require steps both govt. and non govt. organizations she cannot show her productivity. That is why this study focuses on life insurances. It may assist the concerned department to rethink about life insurance. Emphasis is given to bring

the actual potentiality of this field. The study of efficiency of life insurance companies is important for the Bangladesh dual financial system where the Takaful

operators are operating alongside their conventional counterparts. Furthermore, the Bangladeshi financial system has undergone major structural changes in the

era of globalization with various liberalization measures being introduced during the last decade. These factors are expected to have an impact on the efficiency of the life and non-life Takaful operators. Therefore, this study

focuses on two aspects of Takaful industry in Bangladesh. Firstly, it aims to extend the established an

individual sector by investigating the efficiency of the whole Takaful operators for the period 2009-2011. Secondly, it seeks to compare the performance of conventional life and Takaful life operators in Bangladesh.

For the Takaful operators, the information obtained on

the evaluation of the institutions’ performance may be used to improve the overall efficiency of their operations and in turn, may contribute towards achieving its competitive edge. In this context, the objective of this

study is to analyze the sources of efficiency and technical changes in both the life and non-life Takaful companies in Bangladesh. By using the non-parametric approach of Data Envelopment Analysis (DEA) together with

Malmquist Index, this study isolate the contributions of technical change, efficiency change, the pure and scale changes to total factor productivity growth of different life and non-life Takaful operators in Bangladesh.

This study is organized by the combination of multi-sections such as Section-2 reviews the relevant literature;

Section-3 discusses the methodology of DEA and Malmquist Index; Section-4 presents the results and analysis, and finally Section-5 presents conclusion with some recommendations.

2 LITERATURE REVIEW

There are sufficient studies on measuring performances

of financial efficiency in various sectors but few in insurance field especially when the country faces several challenges political unrest, rate of inflation is in dual digit, risen competition, problem in solvency and

devaluation of taka (local currency). Like other developed countries Bangladesh is also trying to create



more efficient market in insurance sector. Though there are some hindrances like unconsciousness about insurance, poverty and disinterest in money etc. but the

neighboring country like India is far better position in savings tendency. Nevertheless, interestingly it is seen that people are getting conscious about their future. In spite of these challenges there still remain incredible

opportunities for increasing market penetration in the core markets of leading Muslim countries in Asia, Africa and some non Muslim countries with significant Muslim populations. ITS 'New Frontiers' will investigate the obstacles faced by the industry and seek to provide

constructive solutions to nurture the continued development of the global industry. Though this is not an Islamic state but maximum or near about ninety percent people is Muslim. That is why Takaful concept is

developing here in Bangladesh though there is an established conventional life insurance industry. The question of the efficiency of the firms in insurance industry is very important in order to determine how the insurance industry will respond to various challenges

and which firms are likely to survive (Berger et. al, 1993). There are some previous studies on the efficiency of insurance industry using DEA provided evidence to understand the performance of the insurance sector in

certain countries, e.g. those studies which analyze insurance in national markets such as the case in the United States done by Berger et al. (1997), Cummins et al. (1999), Meador et al. (2000), Gardner and Grace (2002), and Cummins and Weiss (2002), Cummins et al. (2010)

and the insurance industries in other countries like in Japan, Italy, United Kingdom, Australia, Spain, and Germany have been studied by Fukuyama (1997), Cummins et al. (1996), Diacon (2001), Worthington and

Hurley (2002), Cummins and Rubio-Misas (2001), and Mahlberg and Url (2010) respectively. Besides that, there are also studies that conduct analyses of the insurance industry in multi-markets such as Rees and Kessner

(2000) and Diacon et al. (2002) where they have conducted studies by internationally comparing the efficiency of insurance companies in Europe. A study undertaken by Cummins et al. (1996) measured technical efficiency and productivity growth in the

Italian insurance market by estimating production frontiers based on a sample of 94 Italian insurers for the period 1985-1993. In this study, they found that technical efficiency in the Italian insurance industry ranged from

70 to 78 percent and measured total factor productivity gains of about 3.4 percent during the sample period. There was almost no efficiency change over the sample period, i.e. on average, Italian insurers operated at about the same distance from the production frontier

throughout the sample period. However, productivity declined significantly over the sample period, with a cumulative decline of about 25 percent. The decline was attributable almost exclusively to technological regress,

implying that the Italian insurers needed more inputs to produce their outputs at the end of the sample period than at the beginning.

Comparing the results of the three countries’ insurance industries with their United States counterparts, in terms of total factor productivity growth which is measured by the Malmquist index, the Japanese life insurers

(Fukuyama, 1997) and the Italian life and property-liability insurers (Cummins et al., 1996) indicate efficiency gains that are considerably higher than in the U.S. In the case of the Spanish insurance industry, Cummins and Rubio-Misas (2001) found that cost efficiencies for Spanish

insurers are low compared to the U.S insurers. Besides studies on a country-level basis, there are studies on the international comparison on the efficiency of insurance companies such as in Europe. Rees and Kessner (2000)

found that the average efficiency level of the German firms was about 48 percent and the average efficiency level of the British firms was markedly higher, with a mean of around 57 percent and median of 52 percent. On the other hand, Diacon et al. (2002) found that, when a

comparison was made between insurance companies in the U.K., Spain, Sweden and Denmark, U.K. insurers appear to have particularly low levels of scale and mix efficiencies. The measurement of insurance efficiency is

mostly focused on the efficient frontier approach. This has been used widely to assess the efficiency levels as both approaches allow the use of multiple inputs and outputs from a sample of institutions to develop an efficiency frontier and evaluate the efficiency of a decision-making

unit (DMU) relative to other DMUs in the sample. According to a survey conducted by Berger and Humphrey (1997) on 130 past studies that apply frontier efficiency analysis to financial institutions in 21 countries,

there are various methods used to measure efficiency. These methods are divided into two approaches namely parametric and non-parametric. The most commonly used parametric approaches are the Stochastic Frontier

Approach (composed error), Distribution Free Approach (different composed error) and the Thick Frontier Approach. For non-parametric approaches, the most commonly used are the Data Envelopment Analysis and the Free Disposable Hull [Cummins et al. (1999);

Cummins and Zi (1998)]. In addition, considering the Malaysian dual financial system environment where the Takaful operators are operating in parallel with their conventional

counterparts, another study was undertaken by Md. Saad et al. (2007) found that on average, the total factor productivity growth of the insurance industry in Malaysia is mainly due to technical change while efficiency change contributed a negative change. While

Takaful presents a below average in total factor productivity but slightly above average for technical change as well as an equal to industry average in scale efficiency. However, this result is still inconclusive on



the Takaful industry as a whole since only one Takaful company is included in the study. Fukuyama (1997) investigated productive efficiency and productivity

changes of Japanese life insurance companies by focusing primarily on the ownership structures (mutual and stock) and economic conditions (expansion and recession) where he found that productive efficiency and

productivity performances differ from time to time across the two ownership types under different economic conditions. Fukuyama (1997) found that stock and mutual life insurers in Japan have approximately equal technical efficiency scores. For the sample period

1989-1992, Fukuyama (1997) found the average technical efficiency in the Japanese life insurance industry to be about 0.91 (Cummins et al., 1996) and a total factor productivity gains of about 19 percent.

The Takaful industry is facing strategic challenges as the market establishes itself. Significant investments are required to establish the Shari’ah board, develop technical expertise on Shari’ah compliance, train staff, create brand awareness among customers, as well as

implementing the appropriate technology. To ensure the success and sustainability of the Takaful and re-Takaful industry, the companies will need to work with their respective national regulator to address impediments

facing the industry. Despite all the challenges, Takaful is a viable alternative to conventional insurance and is expected record gross Takaful contribution of $17.2bn by end of 2012. (Source WTR, 2012)

3 DATA SOURCES AND METHODOLOGY

This study intends to measure the comparative efficiency

between conventional life and Takaful life operators of the insurance industry of Bangladesh. There are 02 public insurance companies these are Jibon Bima Corporation and Sadaron Bima Corporation both are

established in1973.There were no insurance company except these two till 1985. There are now 43 privately owned general companies and 17 life insurers in Bangladesh. Met Life American Life Insurance Company

was the first private company in Bangladesh established in 1974. There are 09 Takaful operators are operated in Bangladesh, out of which the data of three foreign companies namely First Takaful Insurance Company, Noor Takaful insurance company limited and National

Takaful Insurance Company operators were not accessible. The data of remaining 17 companies 03 Takaful Life Operators and 10 Life Insurer has been considered for efficiency analysis in this study. Two

inputs and outputs are used in this study. The inputs are commission and management expenses and the outputs are premium and net investment income. These inputs and outputs are used to observe the efficiency of three (03) life Takaful operators in Bangladesh, namely Fareast

Islami Life Insurance Company, Padma Life Islami Insurance Limited and Prime Islami Life Insurance

Limited and ten (10) conventional life Insurance Operators in Bangladesh , namely: National Life Insurance Limited, Delta Life Insurance Limited, Baira

Life Insurance Limited, Meghna Life Insurance Limited, Popular Life Insurance Limited, Pragoti Life Insurance Limited, Progressive Life Insurance Limited, Rupali Life Insurance Limited, Sandhani Life Insurance Limited,

Sunlife Insurance Limited. Inputs and outputs data are collected from period of 2009 to 2011. The data are gathered from the respective Takaful annual reports, websites and chief finance officer (for Islami Commercial Insurance Company and Delta life Insurance Company

because of unavailable audited annual report). To examine the contributions of technical and efficiency change to the growth of productivity in the both life and non-life Takaful industries the generalized output-

oriented Malmquist index, developed by Fare et al. (1989) is adopted in this study. The Malmquist indexes are constructed using the Data Envelopment Approach (DEA) and estimated using Coelli’s (1996) DEAP version 2.1. Malmquist index was chosen as there are a number

of desirable features for this particular study. The DEA does not only require input prices or output prices in their construction, which make the method particularly useful in situations in which prices are not available

publicly or non-existent, but it also does not require a behavioral assumption such as cost minimization or profit maximization in the case where the producers’ objectives differ, unknown or achieved. This is first demonstrated by Fare et al. (1989) using the geometric

mean formulation of the Malmquist index. Following this, Forsund (1991) derived the decomposition of the simple version of the Malmquist productivity index into technical change and efficiency change. Following Fare et

al. (1989), the Malmquist index of total factor productivity growth is written as follows:

��(��, ��, ��, ��) = ��

��(��, ��)

��(��, ��)

× ��

�(��, ��)

��(��, ��)

� ��

�(��, ��)

��(��, ��)

�� (1)

Where, ��

�(��, ��) , denoted the distance from the period t+1 observation to the period t technology. The first part of the right hand side of equation (1) measures the change in firm’s relative efficiency (i.e., distance between the observed productions from maximum potential production) between year t and t+1. On the other hand, second parts of this equation within the brackets (geometric mean of the two ratios) shows the firms’ relative change in technology (i.e., movements of the frontier function itself) between the two periods evaluated at xt and xt+1. Basically, the change in relative efficiency measures how well the production process



converts inputs into outputs (catching up to the frontier) and the later reflects enhancement in technology. According to Fare et al. (1994a), improvements in productivity yield Malmquist index values greater than unity. Deterioration in performance over time is associated with a Malmquist index less than unity. The same interpretation applies to the values taken by the components of the overall TFP index. The positive change in the efficiency component yielded index values greater than one and is considered to be evidence of catching up (to the frontier). Values of the technical change component greater than one are considered to be evidence of technological progress. Following Fare et al. (1994), this study uses an enhanced decomposition of the Malmquist index by decomposing the efficiency change component calculated relative to the constant returns to scale technology into a pure efficiency component (calculated relative to the VRS technology) and a scale efficiency change component which captures changes in the deviation between the VRS and CRS technology. The subset of pure efficiency change measures the relative ability of operators to converts inputs into outputs while scale efficiency measures to what extent the operators can take advantage of returns to scale by altering its size toward optimal scale.

4 FINDINGS AND ITS ANALYSIS

4.1 Measures of some Descriptive Statistics This works aspires to evaluate some descriptive statistics such as mean, median, Standard Deviation, minimum and maximum before run data envelopment analysis.

Table-1 reveals the descriptive statistics of the outputs and inputs of all the Takaful Life Insurance and Conventional Life Insurance companies during the study period. The overall success rate of conventional life insurance are good than Takaful Life insurance

companies .By investing more conventional firm makes higher output where Takaful shows less input and results is a low amount of output. Though some conventional life Insurance like Sun life Insurance

Company makes only 586.27 and 15.73 million BDT premium and investment income on the other hand Takaful shows 1111.90 and 116.07 million BDT respectively. Hence, the performance of Takaful companies is indicating better results.

In terms efficiency conventional life insurance are in much position compare to Takaful life insurance companies due to managing the money more perfectly. So the ultimate output of conventional life insurance are

60488 million BDT and 9535 million BDT as premium and investment income respectively where Takaful life insurance companies shows only 6908 million BDT and 1131.33 million BDT respectively which means near about 9% higher than Takaful life insurance companies.

Table 1: Descriptive Statistics, 2009-2011

Source: Annual Reports of respective Companies 4.2. Production Frontier and Efficiency In this section, the study is to outline a number of

commonly used efficiency measures and to discuss how they calculated relative to an efficient technology, which is generally represented by some form of frontier function. Tables 2 and 3, reports efficiency change for both life insurance and Takaful life insurance companies

from 2009-2011 under constant returns to scale (CRS) and variable returns to scale (VRS) respectively, since the basic component of the Malmquist productivity index is related to measures of efficiency. For the values of unity,

the firm is implied to be on the industry frontier in the related year, while the values that are less than unity imply that the firm is below the frontier or technically inefficient. Thus, the lower the values from unity, the firm is said to be more inefficient compared to the values

closer to one. According to portrayed result in tables 2 and 3, all the Takaful companies and life Insurance are consistently efficient during the study periods 2009 to 2011 in two

types of Insurance operators, under constant returns to scale (CRS) except Padma Islami Life insurance Limited in Takaful life where Baira Life Insurance and Pragoti Life Insurance Company in terms of Conventional life insurance. Meanwhile, the efficiency (CRS) of Padma

Islami life insurance Limited increased to standard within the study periods but the efficiency (CRS) position is going to little bit risen in terms of Conventional Insurance Company.

Thus the overall Takaful life insurance companies are more constant to their performance, but the study shows conventional life insurance companies are not sound enough as Takaful life insurance with less average consistency. In contrary, all the Takaful operators are

consistently efficient under Variable Return to Scale (VRS) except Padma Islami Life Insurance Limited in 2009 and Baira Life Insurance Limited and Pragoti Life Insurance Limited in 2009.

Types Of Insurance

Statistics

Inputs (In million BDT)

Outputs (In million BDT)

Commi ssion

Manage ment

Expenses Premium

Invest ment

Income

Takaful Life

Mean 931.44 458.95 3298.26 490.50

Median 538.45 368.80 1791.83 356.07

SD 744.94 227.06 2476.69 316.08

Minimum 325.75 240.30 1111.90 116.07

Maximum 2213.71 849.04 6908.76 1131.33

Life Insurance

Mean 3266.99 3030.37 14031.2 2113.87

Median 884.87 842.59 5110.57 1168.96

SD 4343.19 3672.68 17376.51 2743.25

Minimum 197.04 85.83 586.27 15.73

Maximum 14206 13218 60488 9353



Table 2: Efficiency of the Insurance Firms, 2009-2011 (Constant Returns to Scale) Types of

Insurance Name of the Insurance Company 2009 2010 2011

Takaful Life

Fareast Islami Life Insurance Co. Ltd. 1.000 1.000 1.000

Padma Islami life insurance Ltd. 0.746 0.756 0.991

Prime Islami life Insurance Ltd. 1.000 1.000 1.000

Mean 0.915 0.919 0.996

Life Insurance

National Life Insurance Co. Ltd. 1.000 1.000 1.000

Delta Life Insurance Bangladesh Ltd. 1.000 1.000 1.000

Baira Life Insurance Ltd. 0.175 0.258 0.249

Meghna Life Insurance Company Ltd. 0.644 0.797 0.781

Popular Life Insurance Company Ltd. 1.000 0.800 0.722

Pragoti Life Insurance Company Ltd. 0.285 0.292 0.388

Progressive Life Insurance Co. Ltd. 1.000 1.000 1.000

Rupali Life Insurance Company Ltd. 0.795 0.961 0.906

Sandhani Life insurance Co. Ltd. 0.936 0.824 0.724

Sunlife Insurance Company Ltd. 1.000 0.98 0.933

Mean 0.783 0.791 0.77

Tables 2 and 3 depict the percentage of the realized output level compared to the maximum potential output level at the given input mix. In 2009, Baira Life Insurance Company produced 17.5 percent and Pragoti Life

Insurance 28.5 percent of their potential output level and Padma Islami Life Insurance Limited produced 74.6 percent of its potential output under CRS. On the other hand, under VRS in the same year, the Padma Islami

insurance Limited produced the potential output 84.4 percent whereas Baira Life Insurance Company produced at their maximum potential output, which was at 100 percent where Pragoti Life Insurance made 62.9

percent. In 2010 Baira Life Insurance Company produced 25.8 percent of its potential output level and further extensive decrease in 2011, while Pragoti Life Insurance made 29.2 percent of its potential output level and later increased and Padma Islami Insurance Limited produced

75.6 percent of its potential output under CRS. Under the VRS, Baira Life Insurance Bangladesh Limited produced 29.6 percent of its potential output level but fall by 2.2 percent in later year which was minimum potential

output of used year in insurance operators. Under VRS in the same year, the Padma Islami Life insurance Limited produced the potential output as same as percent whereas Baira Life Insurance Company produced at their maximum potential output, same as

2009. As indicated by the weighted geometric mean in Tables 2 and 3, the average efficiency for the Takaful life insurances industries increases and decreased for conventional life insurances industries for the period

2009 to 2011 under CRS. Meanwhile, under VRS, the average efficiency for Takaful life insurances industries has seems to be value of unity reached at maximum potential output, which was at 100% percent in the year 2010 and 2011 and shows slightly lower in 2009. The

mean efficiency of conventional life insurances was good in 2009 but later less than Takaful life insurances

companies due to Baira Life Insurance and Pragoti Life Insurance in 2010 and 2011. Except this twos overall performances of both life insurances industries are at

satisfactory level On average, efficiency performance of the Takaful life insurances industry is relatively higher based on VRS than CRS.

Table 3: Efficiency of the Insurance Firms, 2009-2011 (Variable Returns to Scale)

Types Name of the Insurance Company 2009 2010 2011

Takaful Life

Fareast Islami Life Insurance Co Ltd. 1.000 1.000 1.000

Padma Islami life insurance Limited 0.844 1.000 1.000

Prime Islami life Insurance Limited 1.000 1.000 1.000

Mean 0.948 1.000 1.000

Life Insurance

National Life Insurance Company Ltd. 1.000 1.000 1.000



Meghna Life Insurance Company Ltd. 1.000 1.000 1.000

Popular Life Insurance Company Ltd. 1.000 1.000 1.000

Pragoti Life Insurance Company Ltd. 0.629 0.292 0.400

Progressive Life Insurance Co Ltd. 1.000 1.000 1.000

Rupali Life Insurance Company Ltd. 1.000 1.000 0.922

Sandhani Life insurance Co Ltd. 1.000 1.000 1.000

Sunlife Insurance Company Ltd. 1.000 1.000 1.000

Mean 0.963 0.859 0.860

4.3. Productivity Performance of the Life Insurances Company As Malmquist Total Factor Productivity (TFP) index to measure productivity change and to decompose these

productivity change into technical change and technical efficiency change. Table-4 and table-5 report the performance of the firms from 2009 to 2011 in terms of TFP change and its two subcomponents which are technical change and efficiency change respectively.

Note that a value of the Malmquist TFP productivity index and its components of greater than one imply improvements of productivity in the relevant aspects, while values less than one indicate a decrease or

deterioration in productivity. Subtracting 1 from the number reported in the table gives an average increase or decrease per annum for the relevant time period and relevant performance measure. These measures also capture the performance relative to the best practice in

the relevant performance or relative to the best practice in the sample.

Table 4: Insurance Firms Relative Malmquist TFP Change between Time Period t and t + 1, 2009-2011

Types Name of the Insurance Company 2009- 2010

2010- 2011

Mean

Takaful Life

Fareast Islami Life Insurance Co Ltd. 0.868 0.837 0.853

Padma Islami life insurance Limited 0.982 1.259 1.121


Mean 0.919 1.018 0.9690

Life Insurance




Meghna Life Insurance Co. Ltd. 1.007 1.018 1.0125



Popular Life Insurance Co. Ltd. 0.848 0.950 0.8990

Pragoti Life Insurance Co. Ltd. 0.773 1.400 1.0865


Rupali Life Insurance Co. Ltd. 1.165 0.872 1.0185


Sunlife Insurance Co. Ltd. 0.922 0.881 0.9015

Mean 0.979 0.970 0.9745

Table 4 portrays considered changes in the Malmquist-based Total Factor Productivity index. As shown in the

results, Progressive Life Insurance Bangladesh Limited and Rupali Life Insurance have positive productivity changes during the adjacent years of 2009-2010, 2010-2011. And Meghna Life Insurance does well from 2009 to 2011.

Moreover, Padma IslamiI Insurance Limited recorded slight corrosion in TFP for the year 2009-2010 where in the next year recorded noticeable advance in TFP at 2010-2011. Though both life insurance operators have positive glowing change for the adjacent years 2009-2010, 2010-

2011 but conventional life insurance makes slightly sound. On the other hand, Fareast Islami Life Insurance Limited and Sandhani Life Insurance Limited have little positive productivity changes for the adjacent years of 2009-2010,

but they ended descent in efficiency in 2010-2011. Meanwhile, Prime Islami Insurance Limited has faced affirmative productivity changes during the adjacent years of 2009-2010 and 2010-2011. In addition, Padma Life Insurance Limited has taken up the first rank with 27.7

percent average TFP annual growth rate followed by Prime Islami Life Insurance Limited with an annual rate of 4.9 percent and Fareast Islami Life Commercial Insurance Company with 3.1% deterioration in the period of 2010-

2011. At the same year in case of conventional life insurance, Pragoti Life insurance Limited occupied first rank with an annual rate of 62.7 percent while Rupali Life Insurance vivid falls by 29.3 percent. In addition, in terms of Takaful life insurances TFP change, on average, only

showed significant deterioration of growths in the periods of 2009-2010, with 08.10 percent. However, it improved in 2010-2011, which is 01.8 percent. On the other hand, in terms of conventional life insurance, the TFP change, on

average, only showed significant improvement in growths for the periods of 2009-2010, but it deterioration in 2010-2011, which is 0.9 percent. The Malmquist TFP index is further decomposed into its two components, technical change and efficiency change.

The results of technical change and efficiency change are showed in Tables 5 and 6. Table 5 portrays the index values of technical advancement or retreat as measured by average shifts in the best-practice frontier from period t to t+1.

According to the results, both types of Takaful operators experienced technical progress and retreat. However, all

conventional life insurance have experienced technical progress for the periods of 2009 to 2011 except Rupali Life Insurance Limited and Sunlife Life Insurance Limited companies. In contrast, all three Takaful life insurance are experienced technical retreat for the periods of 2009 to 2011.

During the study period Takaful Life Insurance have positive productivity changes for the years of 2009-2010, but they faced a notable improvement in productivity in 2010-

2011. On the other hand, Delta Life Insurance Limited has been achieved the maximum change in technical progress (18.2 percent) in the period 2009-2010 and maximum retreat in 2010-2011 , while Popular Life Insurance Limited

achieved the highest technical growth between the period 2010-2011 with 6.7 percent. During the study period, all conventional life insurance have achieved positive average technical progress but on the contrary all three Takaful life insurance have

experienced average technical retreats. By considering the mean, Delta Life Insurance Bangladesh Limited occupies first rank with 99.5%, followed by Popular Life Insurance Company with 1.85%. In contrast, Fareast

Islami Life Insurance Company was found as the most technical regressive firm (14.7 percent). Table 5: Insurance Operators Relative Technical Change, 2009-2011


2010- 2011

Mean

Takaful Life

Fareast Islami Life Insurance Co Ltd 0.868 0.837 0.853



Mean 0.915 0.915 0.915

Life Insurance







Progressive Life Insurance Co Ltd. 1.109 1.090 1.0995




Mean 1.018 0.981 0.9995

As this study shows, table 6 reveals the changes in relative competence for each individual insurance operator. The results indicate significant variation across companies and time. It is very good to see that all the Takaful companies have been found to be consistently efficient, except Delta life Insurance Company through the year 2009 to 2011. During the entire period of study, the results indicate that, on average, the only Takaful operator under study, i.e. Padma Islami Life Insurance Limited experienced the highest efficiency change with16.8 percent, Pragoti Life Insurance Company that experienced efficiency decline by (-52.0 %). Finally, in case of Takaful operators the result shows that improvements have seen in positive improvement relative efficiency with 5.1% and deterioration with 2.5% in terms of life insurance companies throughout the study period 2009-2011.Maximum efficiency showed 7.55 percent by Rupali Life

Insurance Limited.



Table 6: Changes in Operators Relative Efficiency, 2009-2011


2010- 2011

Mean

Takaful Life

Fareast Islami Life Insurance Co. 1.000 1.000 1.000



Mean 1.004 1.098 1.051

Life Insurance











Mean 0.961 0.989 0.975

In order to test a change in scale efficiency, the efficiency change is further decomposed into two subcomponents, namely pure efficiency change (PECH) and scale efficiency change (SECH) in which the results are reported in Table

7. The results indicate that the pure efficiency and scale efficiency appear to be a uniformly important source of growth to efficiency change. Two Takaful life insurance companies recorded no changes in annual growth for both the scale and pure efficiencies, except Padma Life

Insurance Limited but it has made sound change compare to standard. Sunlife Life Insurance, Rupali Life Insurance, Meghna Life Insurance and popular life Insurance pure efficiency change was same to standard but differ in scale

efficiency change during the period 2009 to 2011. Relative to other conventional insurance firms, Sandhani Life Insurance Company have attained the highest deterioration of scale efficiency at (-12.1) percent in scale efficiencies during the 2010-2011 study period and

Popular life insurance Limited have opined the lowest growth of scale efficiency at (-13.9) percent during the study period through 2009-2010.And in case of Takaful life insurances, Padma Islami Life Insurance deteriorate by 3.3

percent. Baira Life Insurance change positively by 4.3 percent in case of conventional life insurances and in Takaful life insurance 5.9% by Padma Life Insurance Limited during the study period 2009 to 2011. In terms of average Takaful industries showed more efficiency in

scale changes. Table 7: Changes in Efficiency Components by Firms between Time Period t and t + 1, 2009-2011

Types Name of the Insurance Company

2009- 2010

2010- 2011

PECH SECH PECH SECH

Takaful Life

Fareast Islami Life Insurance Co. 1.000 1.000 1.000 1.000

Padma Islami life insurance Ltd. 1.048 0.967 1.249 1.059

Prime Islami life Insurance Ltd. 1.000 1.000 1.000 1.000

Mean 1.016 0.989 1.083 1.020

Life

Insurance

National Life Insurance Co. Ltd. 1.000 1.000 1.000 1.000

Delta Life Insurance Bangladesh Ltd. 1.000 1.000 1.000 1.000

Baira Life Insurance Ltd. 0.296 3.375 0.927 1.043

Meghna Life Insurance Co. Ltd. 1.000 0.979 1.000 0.983

Popular Life Insurance Co. Ltd. 1.000 0.861 1.000 0.903

Pragoti Life Insurance Co. Ltd. .464 1.654 1.370 0.970

Progressive Life Insurance Co. Ltd. 1.000 1.000 1.000 1.000

Rupali Life Insurance Co. Ltd. 1.000 1.209 0.922 1.021

Sandhani Life insurance Co. Ltd. 1.000 0.880 1.000 0.879

Sunlife Insurance Co. Ltd. 1.000 0.980 1.000 0.952

Mean 0.820 1.172 1.016 0.974

Note: PECH = Pure Efficiency Change, and SECH = Scale Efficiency Change.

In terms of pure efficiency, Padma Islami insurance Limited have achieved the highest increase by 4.80

percent in 2009-2010 and 24.90 percent in 2010-2011. There are no notable growths by conventional life insurances but dramatic drop by Baira Life Insurance in 2009-2010 and Pragoti Life Insurance made sound improvement by 37 percent. During the entire period of

study, this research have identified as the years of pure efficiency improvement, while deterioration are recorded to be the years of scale efficiency.

4.4 Productivity Performance of the Industry Table 8 summarizes the performance of the Malmquist productivity index of the whole life insurance (both conventional life and Takaful life) industry in Bangladesh during the year 2009 and 2011. In terms of

conformist life insurances, Progressive Life Insurance Limited occupied first rank having highest growth in both TFP and TECH by same 9.9 percent and no change in efficiency and Rupali Life Insurance Limited recorded

maximum increase in efficiency change with 6.7 percent during the study period. Moreover, Pragoti Life Insurance Limited has occupied second rank with 4.10% improvement in both TFP and TECH but no change in efficiency. Furthermore, Sandhani Life Insurance

Limited has experienced with 15.6 percent deterioration in TFP 12 percent and 4.1 percent in efficiency change and TECH respectively. In case of Takaful life insurances industries, on average,

Padma Islami Life Insurance Limited recorded the highest growth in TFP and efficiency change with 11.20 % and 15.80% respectively and negative technical changes with (-4.oo%). In contrast Fareast Islami Life Insurance Company has shown result the lowest growth

in TFP and same as technical change with (-14.80) percent and interesting see that no change in efficiency. In addition, Prime Islami Life Insurance Limited has experienced 6.8% retreats growth in TFP because of same

deterioration in technical changes. On average, the TFP of the Takaful life insurances industry is just below the pure efficient level, mainly due to both efficiency and technical changes with 5.30 and (-08.50) percents, respectively. Additionally, the efficiency

change is largely contributed by PECH compare than scale efficiency. In comparison, the TFP of the rational insurance industries is below the scale efficient level, mainly due to both efficiency and pure efficiency

changes negatively with 2.5 percents and 8.7 percents respectively. Additionally, the efficiency change is



largely contributed by SECH rather than PECH. This indicates that the size of the companies is not a factor in affecting efficiency changes. This study found that there

were very substantial growths in efficiency components and pure efficiency change which suggest that TFP in the Takaful life insurances industry is better than conventional life insurances operators due to the

innovation in technical components coupled with a considerable improvement in the efficiency aspect. In case of life Takaful life insurances industry of Bangladesh has faced more negative impact of technical changes than a positive efficiency, the overall TFP for

these firms within the period of study is maintained at a value slightly lower than 1 (reflected by the mean 0.965 of TFP change). In contrary, in case of non-life Takaful Industry of Bangladesh has faced same direction impact

of technical changes than a negative efficiency change; the overall TFP for these firms within the period of study is maintained at a value a little bit lower than by 0.02 percent.

Table 8: Summary of the Malmquist Productivity Index of Insurance Operators, 2009-2011 Types Name of the Insurance Company EFFCH TECHCH PECH SECH TFPCH

Tak

afu

l

Lif

e

Fareast Islami Life Insurance Ltd 1.000 0.852 1.000 1.000 0.852

Padma Islami life insurance Ltd 1.158 0.960 1.144 1.012 1.112

Prime Islami life Insurance Ltd 1.000 0.932 1.000 1.000 0.932

Mean 1.053 0.915 1.048 1.004 0.965

Lif

e In

sura

nce

National Life Insurance Ltd. 1.000 0.990 1.000 1.000 0.990

Delta Life Insurance Ltd. 1.000 0.972 1.000 1.000 0.972

Baira Life Insurance Ltd. 0.983 1.025 0.524 1.877 1.007

Meghna Life Insurance Ltd. 0.981 1.032 1.000 0.981 1.012

Popular Life Insurance Ltd. 1.010 1.018 1.000 0.882 0.889

Pragoti Life Insurance Ltd. 1.000 1.030 0.797 1.266 1.041

Progressive Life Insurance Ltd. 1.000 1.099 1.000 1.000 1.099

Rupali Life Insurance Ltd. 1.067 0.944 0.960 1.111 1.008

Sandhani Life insurance Ltd. 0.880 0.959 1.000 0.880 0.844

Sunlife Insurance Ltd. 0.966 0.933 1.000 0.966 0.901

Mean 0.975 0.999 0.913 1.069 0.974

Note: TFPCH = Total Productivity Change; EFFCH = Efficiency Change; TECHCH = Technical Change; PECH = Pure Efficiency

Change; and SECH = Scale Efficiency Change.

It may conclude, by measuring the efficiency of life insurances operators in Bangladesh that Takaful life insurances performed better except pure efficiency change than traditional life insurance industries during the taken study period.

Figure 1(a) reveals the mean evolution over time of TFP and its components for the Takaful life insurances measured by the geometric mean of the Malmquist productivity index for each period. The figure displays

that on average, TFP occupied the maximum growth in efficiency change during the 2009-2010 and decrease of TFP in the subsequently periods of 2010-2011 which was largely contributed by the improvement of efficiency change rather than technical changes.

Figure 1 (a): Changes in Mean TFP and its components for Takaful life insurances, 2009-2011.

To evaluate the efficiency of Takaful life and conventional life insurances in this work try to use

graph. By which may assess productivity easily. Figure 1 (b) presents the visual synopsis of changes in the mean efficiency and its components which are scale and pure efficiencies for the entire study periods. For the study

period of 2009-2011, the mean efficiency changes improve within the study period which has made a significant impact on the overall of TFP change.

Figure 1 (b): Changes in Mean efficiency and its components for Takaful life insurance, 2009-2011.

On the other hand, in case of PECH and EFFCH is experienced by a significant amount of improvement then 2009-2010.And there seen that there are positively change in all criteria of Takaful life insurances. According to the figure, it seems that the change in efficiency has superior by a positive changes in scale efficiency and pure efficiency.

Figure 2 (a): Changes in Mean TFP and its components for conventional life insurances, 2009-2011.

In figure 2 it attempts to emphasize measure the productivity of conventional life insurance in Bangladesh. It represents the visual summary of changes



in the mean efficiency and its components which are scale and pure efficiencies for the entire study periods. For the study period in 2010-2011, the mean efficiency change increase then previous study year which has made a significant impact on the overall of TFP change. Here is seen that technical efficiency change dramatically in 2010-2011 which was in much better previous study year and TFP change as same direction but very few. Figure 2 (b): changes in Mean efficiency and its

components for rational life insurances, 2009-2011. On the other hand, in case of pure and scale efficiency, scale efficiency is experienced by a significant amount of

improvement in 2009-2010 but the situation changed a little bit in case of scale efficiency. According to the figure, it seems that the change slightly higher by a change in pure efficiency rather than a change in scale efficiency.

Finally, Figure 2 presents the visual summary of changes in the mean efficiency and its components which are scale and pure efficiencies for the entire study periods. For the study period of 2009-2011, the mean efficiency change decline within the study period which has made

a significant impact on the overall of TFP change. On the other hand, in case of pure and scale efficiency, scale efficiency is experienced by a significant amount of deterioration but the situation unchanged in case of scale

efficiency. According to the figure, it seems that the change in efficiency has declined by a change in scale efficiency rather than a change in pure efficiency.

5 CONCLUSION

This report attempts to develop the work aspires is to test the competence for Takaful life and conventional life

insurances industry of Bangladesh. Data Envelopment Analysis (DEA) is used to explore the contributions of technical and efficiency changes to the growth of productivity in the conventional life and Takaful life

industries of Bangladesh by using descriptive statistics such as mean, median, standard deviation, minimum & maximum and efficiency (Constant Returns to Scale & Variable Returns to Scale) applying the generalized output-oriented Malmquist index for the years 2009-

2011. ).In this evaluation seen Takaful life insurance played efficiency except in technical efficiency change by 8.4 percent less compare to conventional life insurance as per Malmquist index. This report reveals

there are some inefficient life insurance companies in the conventional one. For these poor performances

conventional industries show less productivity then Takaful life insurances operators. As there are dual financial system are practicing Takaful show efficient

performance. This result indicates that Takaful life insurance industries have a great potential to further increase their TFP through improvements in both efficiency and technical component such as enhancing

the use of information and communication technology in order to provide good services to customers. However, this study also found that there were diminutive significant growths in technical components and no improvement in efficiency change which suggest that

TFP in the Islamic Insurance industry is due to the less innovation in technical components coupled with a insignificant improvement on the aspect of efficiency. The focal finding of this study indicates that in the life insurances industry of Bangladesh, the smaller the size of the companies in Takaful life insurances, the higher the probability for the companies to be more efficient in utilizing their inputs to generate more outputs. Among them Padma Life Insurance Limited is making better performance in Takaful life insurances and Delta Life insurance tried to keep their consistency where Pragoti Life Insurance Limited is lees inconsistent other competitors. Baira Life insurance Limited falls greatly from their performance in 2010-2011 in VRS. Overall, Progati Life Insurance Limited has recorded the highest growth in TFP with 66.7 percent and efficiency change (just 1) and technical changes with 19.4 percent. Fareast Islami Life Insurance Company, on the other hand, recorded the lowest growth in TFP with (-12.9) percent, which is mainly due to technical regress (-12.9 percent. The findings of this study give significant benefits to the life insurances industry in assisting them to take strategies in terms of the operations and management in order to improve the efficiency of both industries in utilizing their inputs to generate more outputs, thus, improving their competitive edge and strengthening their positions in the industry further. In the DEA technique, efficiency is measured by the Malmquist index. The Malmquist efficiency measures have two components: the efficiency change and technical change index. . On average, the insurance firms are found to be experiencing a technical progress. In contrast there was a slight decline in efficiency change, the subcomponent of this efficiency change, namely pure efficiency, did show a slight improvement .Efficiency change is again combined by pure efficiency and scale efficiency. It is found that, on geometric mean, the TFP of the Takaful life insurance industry is mainly due to both efficiency and technical changes where the main source of the efficiency change is pure efficiency rather than scale efficiency. So this works shows despite having potentiality due to inefficient operator’s life insurances companies can’t gain success in this country. In these sense, Takaful life insurances is doing well. This works expect this effort will be helpful for researchers and practitioners to better comprehend the Bangladeshi life insurances industry.



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K., (2001), Non-Parametric Production Frontier Approach to the Study of Efficiency of Non-Life Insurance Companies in Greece. Journal of Financial Management and Analysis 14 (1), 19–26.

[29] Rees, R., & Kessner, E., (2000), Regulation and efficiency in European insurance markets. Economic Policy, 29, Centre for Economic Policy Research, London.

[30] Saad M., N., Abd. Majid, M.S., Mohd. Yusof, R., Duasa, J., & Abdul Rahman, A.R., (2007). Measuring efficiency of insurance and takaful companies in Malaysia using data envelopment analysis (DEA). Review of Islamic Economics, 11(1), 5-26.

[31] Saad M., (2012), An Analysis on the efficiency of TAKAFUL and insurances companies in MALAYSIA: A Non-Parametricc Approach, Review of Interdisciplinary Business Research, 1 (1), 33-56.



[32] Sabbir, P. (2002). Takaful and poverty alleviation, www.icmif.org/takaful

[33] Saeidy & Kazentipour, (2011), Compare the Performance Public and Private Insurance Companies in Using Data Envelopment Analysis, World Applied Sciences Journal, 13(3), 988-992.

[34] Tone, K., Sahoo, B. K., (2005). Evaluating Cost Efficiency and Returns to Scale in the Life Insurance Corporation of India Using Data Envelopment Analysis. Socio-Economic Planning Sciences 39 (4), 261–285.

[35] Weiss, M. A., (1991a). Efficiency in the Property-Liability Insurance Industry. Journal of Risk and Insurance 58 (3), 452–479.

[36] Worthington, A. C., Hurley, E. V., (2002). Cost Efficiency in Australian General Insurers:A Non-Parametric Approach. The British Accounting Review 34 (2), 89–108.

[37] Wu, D., Yang, Z., Vela, S., Liang, L.,(2007). Simultaneous Analysis of Production and Investment Performance of Canadian Life and Health Insurance Companies Using Data Envelopment Analysis. Computers & Operations Research 34 (1), 180–198.

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Foreign Direct Investment as an Instrument for promoting Economic Development in Bangladesh

Md. Sajedur Rahman1; & Md. Ali Ahsan2

1Lecturer, School of Business, University of Information Technology and Sciences (UITS), Bangladesh 2Lecturer, School of Liberal Arts & Science, University of Information Technology and Sciences (UITS), Bangladesh

ABSTRACT

A healthy financial sector is very much crucial for economic growth, especially for economies like Bangladesh. Because, growth in Bangladesh must come largely from exports and its enterprises must, therefore, be internationally competitive. But unfortunately, Bangladesh has a financial system in which borrowers fail to repay loans, foreclosure is almost unheard of, and the government has to bail out banks. However, the Foreign Direct Investment (FDI), the most powerful weapon for accelerating economic development in Bangladesh. To attain an economic growth rate in the seven to eight percent range, investment has to be increased significantly, Because of declining levels of official development assistance in recent years and inadequate domestic savings, FDI presents opportunities for overcoming domestic resource constraints. The Board of investment (BOI) was created as market mechanism where investors can cut through red-tape associated with foreign trade and business start-ups. FDI basically helps to fill-up the capital gap and shortage of a country. Foreign Direct Investment is one of the vital forces to boost up the economy. In this study paper I

would like to draw a current scenario of Foreign Direct Investment in Bangladesh. In this regard I present the most updated data, avoid the uncompleted data and use the best judgment at the time of presenting the data to better knowing the current trend about the Foreign Direct Investment in Bangladesh. The benefits of FDI in terms of physical capital formation, transfer of technology, and know-how are sufficient to justify sustaining these flows. Capital controls are not the answer to a rising flow of FDI. Foreign Direct Investment (FDI) will help the country in further developing infrastructures, creating more employment, developing capacity, enhancing skills of the labour force of the host country through transferring technological knowledge and managerial capability. To ensure that resulting payments liabilities remain within the country’s debt-servicing capacity, it is essential to develop an effective non-intrusive reporting and monitoring system the main ingredients of which are presented in the study.

Keywords: Foreign Direct Investment status in Bangladesh, Economic growth, Prospects & problems of FDI, Impact of FDI, Foreign Direct Investment (FDI), Development, Growth benefits.

JEL Classification Code: G11, O24

1 INTRODUCTION

or a resource poor country like Bangladesh Foreign Direct Investment (FDI) can play a crucial role in industrial financing through gathering scattered

funds from various global investors in this connection Foreign Direct Investment (FDI) has played a key role in the modernization of the Bangladesh economy for the last 15 years. The total trend in the FDI flows of the developing countries shows an encouraging

picture in general terms. More investment is coming from private sectors in the developing countries from the develop one through licensing, franchising, merging, joint venture, contract manufacturing and so forth. Most

of the time developing countries become investors among themselves. The situation for LDC’s (Least Developed Countries) do not look that bright. Viewed in this context Bangladesh is one of the most populous LDC’s needs to make own stock taking of the

contemporary global economic situation as far as the FDI flows are concerned. Government of Bangladesh revised

its industrial policy of 1991 and offers a number of good facilities and incentives by 1999 to attract FDI. Though the policy has changed, FDI flows to Bangladesh are so

far been negligible. Its reform program for outwards looking economics activities have failed to attract FDI a sizeable in comparison with other Asian Countries. Actually success of any policy or organization achievement depends on its ability to establish and

maintain a good fit between itself and environment where it will appropriate and on identifying the competitive advantages and exploiting the opportunities in the more efficient manner than that of the competitors.

The world economy is in stream of change in order to integrate itself to achieve desire objectives of the economic globalization for the growth and prosperity for the irrespective of region in all parts of the world. Trends in economic policies in both developed and developing

countries have been greatly influenced by the globalization that is free market economy and as a matter

F



of fact foreign investment and trade labialization have become its prime impulses. The existences of market opportunities, development of communication,

information technology and comparative advantages in international level motivate foreign investor in the international business operation. Researchers have marked FDI as an important factor in accelerating

economic success and wealth of a country as well as a door in creating jobs, facilitating economy, and creating more competitive environment and contributing productivity to the host country. In Bangladesh, FDI plays a significant role in GDP

acceleration and economic growth (Mottaleb 2007). FDI has a mentionable role in the modernization of the Bangladesh economy for last two decades. It helps the country in building up infrastructure, creating more

employment, developing capacity, enhancing skills of the labor force of the host country through transferring technological knowledge and managerial capability, and helping in integrating domestic economy and the global economy. Various positive attributes of Bangladesh is

now drawing the attention of the investors from both developed and developing countries. In Bangladesh, it is available to get skilled labor at relatively low wages. Moreover, there is reasonably stable macroeconomic

environment. These two important factors can make Bangladesh an alluring destination for foreign investors. Lowest wage rates among the Asian countries, tolerable inflation rate, reasonably stable (except previous year) exchange rate, investment friendly custom regulations

and attractive incentive packages make Bangladesh a favorable investment destination. Bangladesh became more open toward FDI policies over the last decades. These above features will certainly maintain the recent

advancement in FDI investment in Bangladesh by the foreign investors.

2 OBJECTIVES OF THE STUDY

To evaluate the contribution of FDI to the economic development in Bangladesh

To analyze the impact of FDI inflow on GDP, Export and private investment of Bangladesh

To measure the status of FDI in Bangladesh

To identify the problems & prospects of FDI and try to prescribe some issues for their solution

3 METHODOLOGY OF THE STUDY

The methodology includes an econometric model as well as simple statistical tools such as mean, standard deviation and percentage. This paper is primarily based on secondary information. The relevant secondary data are

collected from Statistics Department and Research Department of Bangladesh Bank (Central Bank of Bangladesh), Board of Investment (BOI), Bangladesh,

Bangladesh Bank Bulletin, Economic Trend, Bangladesh Economic Review, World Investment Report 2010 published by UNCTAD, websites, journals, books and

newspapers etc. By using these data, the study at first has figured out the present condition of FDI of Bangladesh. Thereafter, these data were analyzed to assess the impact of foreign direct investment in the economic development

of Bangladesh. Lastly, some policies are suggested for the efficient and useful utilization of FDI by removing existing obstacles to achieve the desired level of economic development for the country.

4 LITERATURE REVIEW OF THE STUDY

Muhammad Azam (2010) examined the impacts of exports

and FDI on economic growth of South Asian countries namely Bangladesh, India, Pakistan and Sri Lanka with simple log linear regression model using secondary data

ranging from 1980 to 2009 and found that due to promotion of exports, economic growth of each country would increase. He also found FDI as positively significant at 1% level of significance for Bangladesh and Pakistan, while for

India it's insignificant and in case of Sri Lanka though it is significant but with unexpected negative sign.

Quader, Syed Manzur (2009) applied extreme bounds

analysis to the data of the various catalyst variables of FDI inflows in Bangladesh. They found FDI and domestic investment have a positive effect on economic growth.

Abdul Rehman, Orangzab, Ali Raza (2009) conducted

an analysis by using the data collected over the period of 1975-2008 and identified the determinants of FDI and its impact on GDP growth in Pakistan through different

statistical tests and found positively significant impact of FDI on GDP growth of Pakistan. Furthermore, these results indicate that market size, trade openness / access to international market and quality of labor are the major determinants that have significant affect on the FDI

inflow. The study also found no affect of market potential and communication facility on the attraction of FDI inflow in Pakistan.

Mottaleb (2007) studied the determinants of FDI and its

effect on economic growth in developing countries. He studied panel data of FDI flows of sixty low-income and lower middle income countries and found that FDI has an

important effect on economic growth of third world countries by creating bridge between the gap of domestic savings and investment and familiarizing the up to date technology and management skill from developed countries.

5 CURRENT SCENARIO OF FDI IN BANGLADESH

Foreign Direct Investment (FDI) is the acquisition of

managerial control by a citizen or corporation of a home nation over a corporation of some other host nation. Corporations that widely engage in FDI are called multinational companies, multinational enterprises, or

transnational corporations. FDI traditionally implies



export of real capital from home to the host nation, but even when economic investment results from FDI, capital may not be transferred from the home nation to the host

one. Rather, multinational corporation may acquire/utilize real capital from local (or a third-nation) sources foreign capital” means capital invested in Bangladesh in any industrial undertaking by a citizen of

any foreign country or by a company incorporated outside Bangladesh. In the form of foreign exchange, imported machinery and equipment, or in such other form as the government may approve for the purpose of such investment; Bangladesh invites FDI for industrial growth,

in particular welcoming establishment of manufacturing firms and service sector enterprises that would sell their products within the country and also export outside it. Bangladesh is a high performing LDC, which has made

significant progress in the 1990s. This represents Bangladesh as an interesting case for FDI destination for the other countries. Bangladesh currently accelerates her GDP growth rate (from 1980s: 3.84% to 1990s: 4.88%), decline in population growth rate (from 2.32% in early eighties to 1.5%

in late nineties), achieved near full self-sufficiency in foodgrain production through expansion of HYV rice cultivation (17.85 MlnMT in 1991 and 23.07 MlnMT in 2000), performed high growth of export sector (12.98% per

annum during 1990s), made subsequent improvement in human development index (Infant mortality rate declined from 153 per thousand live births in 1975 to 94 in 1990, and to 66 in 2000), achieved considerable success in mainstreaming of women by achieving gender parity in

primary education, and almost removed gender gap in secondary education, demonstrated significant progress towards a viable democratic structure – change of government through three successive national elections.

Share of private investment in GDP increased from 10.3% in FY91 to 16.5% in FY03. However, there is little room of exercise if the country desires to accomplish her targets as mentioned in the Millennium Development Goal (MDG)

and MTMF (Medium-Term Macroeconomic Framework) of its Poverty Reduction Strategy Paper (PRSP) - the implementation framework of the National Strategy for Economic Growth, Poverty Reduction and Social Development. For sustained development with equity,

Bangladesh desperately needs both domestic and foreign direct investment to boost the present trend of growth. The FDI mentioned US$ 768.7 million in FY 2007-08. During FY 2008-09; the actual FDI recorded US$ 960.6 million, which

was higher than the previous fiscal year. The key feature of this increasing flow of investment during FY 2008-09 was a favorable investment environment and political stability. In FY 2009-10(up to Dec‟10) the actual FDI recorded US$ 342.2 which is lower than the previous fiscal year because of

world economic recession. Table 1 presents the recent trend in FDI inflow in Bangladesh:

Table 01: Recent Trend in FDI Inflow in Bangladesh. (US$ Millions)

Source: Enterprise Survey, Bangladesh Bank *July-Dec 2009-10, *Estimated

The Table shows that FDI inflow to Bangladesh was $1086 million in 2008, the highest so far in its history, but it fell significantly thereafter, falling by 34.1 percent to $716 million in 2009.

Table 02: Foreign Direct Investment Inflow Countries FDI Inflows

(Million US$) FDI Stock

Million US$) 1995-2005 (Annual

Avg.)

2009 2010 2011 1995 2009 2010

Bangladesh 427 1086 716 >1billion 600 4816 5139

India 4137 40148 34613 - 5641 123294 163959

Pakistan 732 5438 2387 - 5408 16473 17789

Vietnam 1657 8050 4500 - 7150 48325 52825

Source: UNCTAD, World Investment Report, 2012 The decline occurred across all three sectors of FDI – primary, manufacturing and services, and most FDI components – equity investment, intra-company loans or reinvested earnings – contracted. In the first half of 2010,

the global FDI witnessed a modest recovery, sparking some cautious optimism for FDI prospects in the short term and for a full recovery further on, but these prospects are fraught with risks and uncertainties,

including the fragility of global economic recovery. (UNCTAD, op. cit) The table 3 shows that United Kingdom has gained the top most position among the top 10 investing countries

in Bangladesh during 2006-2010 in investing in various sectors of economy. Out of total FDI inflows from the top 10 investing countries during this period, 17.4% was from United Kingdom, 13% from USA, 8% from Egypt, 7.7% from South Korea, 6.4% from Netherlands, 6.2%

from Singapore, 5.6% from Hong Kong, 5.2% UAE, 4.8% from Japan, 3.5% from Malaysia, 3.2% from Australia, 2.1% from Denmark, 2.1% from Switzerland.

Table 03: FDI Inflows (in million US$) by Countries during 2006-2010.

Country 2006 2007 2008 2009 2010

Australia 0 0 0 0.22 13.95

China 0.92 0.48 4.5 3.24 8.66

Denmark 15.38 8.99 1.91 9.09 5.91

Egypt 105.36 75.17 373.4 72.71 3.01

Hong Kong 47.43 55.45 39.85 75.6 63.84

India 6.09 1.67 11.29 7.99 43.19

FY 2001 -02

FY 2002 -03

FY 2003 -04

FY 2004 -05

FY 2005 -06

FY 2006 -07

FY 2007 -08

FY 2008 -09

FY 2009 -10*

393.8 379.2 284.1 803.8 744.6 792.8 768.7 960.6 342.2*



Japan 22.79 36.61 57.15 17.47 21.79

Malaysia 44.46 19.54 70.72 43.84 7.45

Netherlands 13 18.67 31.67 49.62 64.92

Norway 82.95 25.68 33.47 45.63 39.16

Pakistan 5.14 3.49 12.51 30.14 18.88

Saudi Arabia 0.52 1.73 2.66 2.62 11.91

Singapore 35.89 10.68 32.28 19.12 317.19

South Korea 53.86 27.68 44.64 46 40

Sri Lanka 2.63 3.55 7.19 7.37 8.85

Switzerland 2.8 13.39 69.25 29.06 5.89

Taiwan 2.36 0.17 1.96 11.1 7.59

UAE 88.02 83.27 102.2 67.08 24.5

U.S.A 175.72 120.36 40.92 42.89 56.95

U.K 70.47 142.55 130.57 88.08 105.68

A.D.B 0 0 0 0 0

I.F.C 0 0 0 0 0

Others 16.69 17.23 18.17 31.29 44 Source: Board of Investment, Bangladesh.

Sector-wise analysis of FDI reveals the fact that a shift has been made by the foreign investors in their investment in Bangladesh (Annex Table-3.4). The table

shows the trend of FDI towards power and energy, manufacturing and telecommunications, whereas the neglected sectors were agricultural, Services and trade and commerce. In 2005, the main focus of investment was in the manufacturing sector. The success in textiles

through the ready-made garments (RMG) industry was a vital part of this investment. In the table 4 and 5 it is clearly shown that the percentage

of investment in various sectors has changed quite a lot.

The percentage of telecommunication investment was

2% in 2006-2000 was only 2%, which increases to 21%

during 2001-2005 and finally it topped to 43% during

2006-2010. On the other hand, the portion of investment

in the gas & petroleum sector has declined gradually

during the year of 1996 to 2010. It was 28% in 2006-2000,

18% in 2001-2005 and only 13% in 2006-2010. It is also a

matter of great concern that the investment in energy

sector has decreased from 12% to only 3%, which is very

alarming. The government should take a close look in

this matter and take necessary steps to identify the

causing factors and to rectify those to improve our

present energy sector conditions.

Table 04: FDI Inflows (in million US$) by Sectors in Bangladesh during 2006-2010.

Sectors 2006 2007 2008 2009 2010

Agriculture & Fishing 1.3 7.3 14.4 11.8 13.6

Power 21.1 25.8 27.8 30.9 38.5

Gas & Petroleum 187.1 190.2 73.3 20.3 53.6

Textiles & Wearing 70.1 102.3 126.4 134.0 145.2 Chemicals & Pharmaceuticals 5.2 4.2 3.9 10.4 6.3

Metal & Machinery Products 0.0 0.0 0.0 1.3 3.1

Leather & Leather Products 0.0 1.5 1.6 7.2 10.5

Banking 117.7 80.0 141.8 142.6 163.1

Insurance 6.4 7.3 4.6 10.4 16.7

Telecommunication 346.5 201.9 641.4 250.1 359.8

Computer Software & IT 0.2 0.0 0.4 1.8 5.0

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment.

Figure 3.3.1 reveals that despite the initial increase and

steady continuation, FDI inflows in Non-EPZ areas was

in declining trend during the period of 2001-2003. In 2004

it increased to 800 million USD and this trend continued

up to 2005.The FDI inflows in Non-EPZ areas in 2010

recorded to USD 795.15 million which is 87 percent of

total inflows whereas in the beginning of this period (in

1996) it was USD 189.3 million which is 82 percent of

total inflows. In the EPZ areas, the FDI inflows were

always in a steady direction.

Table 05: FDI Inflows by Areas. (in million US$)

Year Area

EPZ Non-EPZ Total

1996 42.31 189.3 231.61

1997 69.25 506.04 575.29

1998 88.31 488.15 576.46

1999 154.43 154.69 309.12

2000 81.2 497.44 578.64

2001 56.06 298.41 354.47

2002 87.53 247.94 335.47

2003 59.31 290.94 350.25

2004 42.68 417.72 460.4

2005 110.82 734.44 845.26

2006 71.03 721.44 792.48

2007 105.44 560.93 666.36

2008 118.55 967.76 1086.31

2009 141.88 558.28 700.16

2010 118.17 795.15 913.32

FDI in Bangladesh consists of three components: Equity capital, Reinvested Earnings and Intra-company loans. These components have fluctuated considerably in the last two decades. In the early year of 1996, the total FDI inflow was only 210 million USD where reinvested earnings were

the bigger portion. This trend continued up to 1998. Then there is a sudden decline in terms of total inflow as well as component wise inflow of FDI. Beside a slight increase in 2000, this declining trend continues up to 2003. After then

total inflow continues to rise with some ups and downs. The portion of equity capital continues to have a bigger part in the total FDI inflows. In 2008 the total inflows was 1100 million USD which is the highest ever.



Table 06: FDI Inflows by Components (in million US$)

Year Equity

Capital

Reinvested

earnings

Intra-

company Loans

Total

Inflows

1996 69.63 121.65 40.33 231.61

1997 332.06 163.45 79.78 575.29

1998 280.51 189.88 105.07 576.46

1999 137.47 76.23 95.42 309.12

2000 350.18 77.77 150.69 578.64

2001 233.78 65.01 55.68 354.47

2002 133.81 116.82 84.84 335.47

2003 156.14 170.13 23.98 350.25

2004 155.89 239.79 64.72 460.4

2005 425.59 247.48 172.19 845.26

2006 503.65 264.74 24.09 792.48

2007 401.61 213.24 51.51 666.36

2008 809.25 245.73 31.33 1086.31

2009 218.55 364.94 116.67 700.16

2010 519.98 364.62 28.72 913.32

From table 7, it is found that the overall scenario of the trend of the private investment in Bangladesh is increasing.

Table 07: Private Investment Statistics

Year Proposed Local

Investment

Proposed Foreign

Investment

Total Proposed

Investment

Growth%

Project BDT Project BDT Project BDT

2005-2006

1754 18370 135 24986 1889 43356 124.62

2006-2007

1930 19658 191 11925 2121 31583 -27.15

2007-2008

1615 19553 143 5433 1758 24986 -20.89

2008-2009

1336 17117 132 14749 1468 31867 27.54

2009-2010

1470 27414 160 6261 1630 33678 5.67

2010-2011

1298 39976 148 26935 1446 66912 98.71

2011-2012 1604 497078 209 338910 1813 835989 212

In the year 2009-10 (February), there were 89 new foreign and joint venture investment projects registered to BOI which amount to $590m. The projects were invested to mainly in the service, engineering, clothing and agricultural sectors.

Table 08: Country wise foreign and joint venture investment during 2009-2010*

Country No. of

Projects Proposed

Investment (US$ m)

Saudi Arabia 3 478.652

Australia 4 2.036

USA 5 2.990

Finland 2 3.023

India 9 8.451

South Korea 12 33.768

Malaysia 3 3.056

Netherlands 5 8.544

China 12 21.000

United Kingdom 5 3.507

Pakistan 2 0.990

Japan 8 2.624

Denmark 1 1.217

Sri Lanka 2 0.646

Canada 2 1.017

Taiwan 1 0.502

Singapore 4 1.929

Turkey 1 0.150

Greece 1 0.156

Italy 2 1.039

Hong Kong 5 14.805

Total 89 590.102

Source: Bangladesh, Ministry of Finance as of February, 2010

6 FACTORS AFFECTING FOREIGN DIRECT

INVESTMENT

Although Bangladesh is trying to be as friendly as possible to FDI, she is facing some problems regarding investment from foreign sector. The FDI friendly policies of the government and a culture of hospitality to foreigners are very much positive to welcome FDI in

Bangladesh. But it is a matter of concern that FDI records in the country in terms of the number of projects implemented as compared to those officially registered is frustrating. Only 72 FDI projects went into production in

end of 1999 and 27 were in process of implementation of the 365 FDI projects registered during the year of 1996 - 1998, while the remaining 266 projects languished only as the file-cases. The problems that have restricted FDI potentials in the country are as follows:

Bureaucratic interference

Irregularities in processing papers

Overlapping administrative procedures

Absence of a transparent system of formalities Continuity and prevent timely implementation of strategic, procedural, and even routine duties

Frequent power failures

Poor infrastructure support

Labor unrest

Political unrest

Lack of professional personnel

lack of commitment on the part of local investors

Unexpected delays in selecting projects in studying feasibility



Frequent changes in policies on import duties for raw materials, machinery and equipment etc.

Because Foreign Direct Investment can significantly affect a country’s economy, the most influential factors

are Inflation, National income, Government restriction, and Exchange rates.

Impact of Inflation: If a country’s inflation rate increases

relative to the countries with which it invests, its capital account would be expected to decrease, other things being equal. Consumer and corporations in that country will most likely purchase more goods or invest more in

overseas (due to high local inflation), while the country’s exports to other countries & flow of investment from foreign will decline.

Impact of National Income: If a country’s income level

(national income) increases by a higher percentage than those of other countries, its capital account is expected to decrease, other things being equal. As the real income

level (adjusted for inflation) raises does consumption of goods. A percentage of that increase in consumption will most likely reflect an increased demand for foreign investment.

Impact of Government Restrictions: A country’s

Government can prevent or discourage investment from other countries. By imposing such restrictions, the Government disrupts investment flows. Among the most

commonly used investment restriction are bureaucratic tangles, projection of intellectual property right and fiscal policy changes. In addition to these, a Government can reduce its country’s investment by enforcing laws, or

a maximum limit that can be invested.

Impact of Exchange Rates: Each country’s currency is valued in terms of other currencies through the use of

exchanges rates, so that currencies can be exchanged to facilitate international transaction. The values of most currencies can fluctuate over time because of market and government forces. If a country’s currency begins to rise in value against other currencies, its capital account

balance should decrease, other things being equal. As the currency strengthens, Investment by that country will become more expensive than the receiving countries.

Prospects of FDI: Bangladesh has been promoting FDI

for decades with the most liberal investment policy and incentive regime in South Asia. The Foreign Private Investment (Promotion and Protection) Act, 1980,

ensures equal treatment for local and foreign Investors. This act also provides legal protection to foreign investment in Bangladesh against nationalization and expropriation. It also gives the guarantee of repatriation

of capital and dividend. Bangladesh has achieved a consistent GDP growth of over 5% in the last decade and never experienced a negative growth. Even Bangladesh sustained growth of over 5% during the recent global economic crisis. In 2009

Bangladesh achieved a 5.9% GDP growth. Various

necessary steps like generation of huge number of SMEs, success in micro credit and NGO activities, rapid spread of telecommunications services, record level of foreign

remittances, acceleration of export earnings are taking the economy at a higher level of growth. Its investment friendly climate offers generous and attractive packages of incentives for foreign investors like 100% ownership, tax

and duty exemptions and others. Actually, Bangladesh has gained a higher ranking than many developing countries in terms of incentive package. A lot of additional fiscal incentives are offered to export oriented industries. The government has created Export processing zones

(EPZs) to attract private investment. The government targets foreign investors to invest in EPZ. The vision is that the unique opportunities in energy and power, infrastructures, manufacturing and knowledge-

based sectors will attract substantial investment. Bangladesh has become a least cost producer in the world with various positive factors like industrious low-cost workforce, strategic location, regional connectivity and worldwide access, strong local market and growth,

low cost of energy, proven export competitiveness, competitive incentives, export and economic zones, positive investment climate. Bangladesh is ranked 119th position globally and 4th in the SAARC region in the

Ease of Doing Business Ranking by World Bank and IFC report entitled "Doing Business in 2010".

7 FACILITIES SHOULD BE PROVIDED BY THE

GOVERNMENT OF BANGLADESH FOR

ATTRACTING FDI

The world has seen a spectacular wave of global corporate activity particularly during the second half of the last decade. This has been facilitated by advances made in the information technology. This trend,

strengthened with the direction toward border less Economies, is drawing more and more TNCs (Trans National Corporation) into the global operation. FDI is no longer only a strategic option of corporations; it also

plays a key role in the national economic development strategies. Various countries are attempting to attract foreign investors through a variety of measures, i.e. liberalization of investment environment, fiscal reforms and a package of incentive offers. FDI can transform a

country’s economic scenario within shortest possible time. It is not merely access to fund, but also provide transfer of technical know-how and management expertise. It is also a stabilizing factor in any economy,

because once TNCs have made an asset-based direct investment, they cannot simply pull out overnight like in the case of portfolio investment. Normally the benefits accruable from FDI are inclusive of-

Transfer of technology to individual firms and technological spill-over to the wider economy,



Increased productive efficiency due to competition from multinational subsidiaries

Improvement in the quality of the factors of production including management in other firms, not just the host firm,

Benefits to the balance of payments through inflow of investment funds,

Increase in exports

Increase in savings and investment and

Faster growth and employment.

5 to 7 years corporate tax holiday for selected sectors.

Private power companies enjoy corporate income tax exemption for a period of 15 years.

Tax exemption on royalties, technical know-how and technical assistance fees and facilities for their repatriation.

Tax exemption on foreign loans regarding interest.

Tax exemptions on capital gains from transfer of shares by the investing company.

Remittances of up to 50% of salaries of the foreigners employed in Bangladesh and facilities for repatriation of their savings and retirement benefits at the time of their return.

No restrictions on issuance of work permits to project related foreign nationals and employees.

Facilities for repatriation of invested capital, profits and dividends.

Provision of transfer of shares held by foreign shareholders to local investors.

Reinvestment of remittable dividends would be treated as new investment.

An investor can wind up on investment either through a decision of the AGM. Once a foreign investor completes the related formalities to exit the country, he or she can repatriate the sales proceeds after securing proper authorization from the Central bank.

Thus, foreign direct investment is viewed as a major

stimulus to economic growth in developing countries. Its ability to deal with two major obstacles, namely, shortages of financial resources and technology and skills, has made it the centre of attention for policy-

makers in low-income countries in particular.

8 CONCLUSION

Despite the presence of natural calamities like floods and political feud between the country’s two major political parties, the investment situation of Bangladesh remains attractive to foreign investors. One of the major causes of

such attraction is high return to investment ratio. According to business analysis Bangladesh remains as one of Asia’s most attractive business place where return to investment is in many cases 3 to 4 times higher than

many other South Asian or South East Asian countries in specific sectors. Bangladesh with its widely available

English educated but cheap manpower, operational and close to land sea ports and liberal economic policies is believed by experts to attract more foreign investment,

specially from middle eastern nations, in the post 9/11 world scenario. The government initiated fiscal reforms, undertook ambitious scheme to improve general literacy in general and female literacy in particular, started

creating conducive environment for investment and above all established rule of law in the country. Improvement in various social development indicators during the last ten years is the testimony of all these efforts. Beyond these steps some other incentives are

essential for accelerating FDI. Moreover government as well as oppositions should adopt national policy on investment under natural discussion, so that whoever comes to power will not reject the policy of previous

ruling party and pay high positive attentions to the views of the prospective investors.

REFERENCES

[1] ADB (2010): Quarterly Economic Update, Bangladesh,

September.-2010, Dhaka. [2] Aitken, Brian J. and Harrison, Ann E., 1999, ‘Do

Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela’, American Economic Review, Vol. 89, pp.605–18.

[3] Alfaro, L., Chanda, Kalemli-Ozcan, S., and Sayek, S., 2006, ‘How do foreign direct investments promote economic growth? Exploring the effects of financial markets on linkages’, NBER Working Paper Series 12522: 1-58.

[4] Athukorala P. A W., 2003, ‘The Impact of Foreign Direct Investment for Economic Growth: A Case Study in Sri Lanka’ 9th International conference on Sri Lanka Studies, 28th- 30th November 2003, Matara, Sri Lanka,

Full Paper Number 092. [5] Agosin, Manuel R. and Mayer, Ricardo, 2000, ‘Foreign

Investment in Developing Countries: Does It Crowd In

Domestic Investment?’ UNCTAD Discussion Paper 146, Geneva. [6] Balamurali, N. and Bogahawatte, C., 2004, ‘Foreign

Direct Investment and Economic Growth in Sri Lanka, Sri Lankan Journal of Agricultural Economics’, Vol. 6, No. 1, pp. 37-50.

[7] BB: Bangladesh Bank Annual Report, (Various Issues),

Bangladesh Bank, Dhaka. [8] BB: Economic Trend, (Various Issues), Bangladesh Bank, Dhaka. [9] BBS (1993): Twenty Years of National Accounting of

Bangladesh, Bangladesh Bureau of Statistics, Dhaka. [10] GOB: Economic Review, (Various Issues), Ministry of

Finance, Dhaka. [11] Misztal, Piotr, 2010, ‘Foreign Direct Investments, As a

Factor for Economic Growth in Romania’ Journal of

Advanced Studies in Finance,. Vol. 1, Issue. 1, pp. 72-82. [12] Quader, Syed Manzur, 2009, ‘Foreign Direct Investment in

Bangladesh: An Empirical Analysis on its Determinants and

Impacts’, Retrieved from http://mpra.ub.uni-muenchen.de/26134/MPRA Paper No.26134.



[13] Rehman Abdul, Orangzab, Raza Ali, 2011, ‘Determinants of Foreign Direct investment and its impact on GDP Growth in Pakistan’, Interdisciplinary

Journal of Contemporary Research in Business Vol. 2, Issue. 9, pp. 198-205.

[14] Rahman, Atiur (2006) “Measures to make FDI work”, The

Daily Star, February 16, 2006. [15] Rothgeb, John M., Jr, 1984, ‘The Effects of Foreign Investment

On Overall And Sectoral Growth In Third World States’,

Journal of Peace Research, Vol. 21, No. 1, pp. 5-15. [16] Teanravisitsagool, Pattama, 1998, ‘Trade-off between

Foreign and Domestic Investment: Theoretical Analysis and Empirical Investigation for the Case of Thailand’,

Department of Economics, Carleton University.

[17] UNCTAD (2011): World Investment Report, United

Nations, New York. [18] UNCTAD (1999): Foreign Portfolio Investment (FPI) and

foreign Direct Investment (FDI): Characteristics, Similarities, complementarities and Differences, Policy Implications and

Development Impact, United Nations, New York.

[19] Xiaohui L., Chang S. and P. Sinclair, 2009, ‘Trade, Foreign Direct Investment and Economic Growth in Asian

Economies’, Applied Economics, Vol. 41, pp. 1603 - 1612 [20] www.boi.gov.bd, retrieved on 31 May 2013

[21] www.bangladesh-bank.org, retrieved on 27 May 2013

[22] www.mof.gov.bd, retrieved on 27 May 2013

[23] www.tcb.gov.bd, retrieved on 25 May 2013

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May E-Governance Create Digital Divide?

Rowshon Ara Romke

Lecturer, Department of Applied Sociology, ASA University Bangladesh

ABSTRACT

Developing country (DC) governments have been using information and Communication technologies (ICTs) supporting and transforming the external Workings of governance by processing and communicating data. E-Governance should be seen to encompass all ICTs, but the key innovation is computer networks. Bangladesh has failed to progress towards achieving its target as envisaged in its information Technology (IT) policy documentation. Besides, the unequal access to computers and other digital technologies in the developing world from the developed world creates digital divide. Closing the technology gap would lift people out of poverty, while creating a large business opportunity for the high technology industry (World Resources Institute, 2000). My aim in this paper is to present an outline of E-Governance which create digital divide in Bangladesh. This type of research is rare and it would help the society and the country to understand the problem of digital divide and the progress of E-Governance. The paper concludes some problems designed to stimulate farther thoughts and advanced research.

Key words: E-Governance, Digital Divide, Digitally Wealthy, Digitally Poor

JEL Classification Code: G39

INTRODUCTION

vailable ICTs infrastructures with government’s willingness to implement e-governance have already brought success in e-government initiatives. Some

developing countries are trying to improve their governance structure. Therefore, they are facing some barriers. For example, lack of ICTs resources and infrastructure such as high speed broadband network connection, unequal access of technology (resulting into ‘digital divide’), low literacy

rate, corruption, lack of government policy initiatives. A strong political will and commitment are required to combat these barriers and achieving success. The emergence of Information and Communication Technology (ICT) has

provided faster and better communication, efficient storage, retrieval and processing of data and exchange and utilization of Information to its users (Planning Commission, 2001). E-governance or ‘electronic governance’ is basically the application of Information and Communication Technology

to the process of government functioning in order to bring about ‘Simple, Moral, Accountable, Responsive and transparent (SMART) governance (Rahman & Naz, 2006). From the above discussion it can be seen that e-governance

or i-governance is basically ICT based and digital divide is creating for imbalance penetration of ICTs. Both the term (e-governance and digital divide) is relevant to ICTs. Here e-governance is cause and digital divide is effect. In this study, there are two variables: dependent and independent

variable. Overall, e-governance is the ICT enabled route to achieving good governance. Same time, to ensure this e-governance or good governance-digital divide creates a major problem in the developing countries. Many

researchers show that digital divide creates poverty, corruption, etc.

OBJECTIVES OF THE STUDY The main objectives of the study are as follows:

To analyze the reasons which are created digital divide by e-governance.

To recommend some suggestions in order to overcome the barriers of e-governance.

CONCEPTUAL FRAMEWORK OF E-GOVERNANCE AND

E-GOVERNMENT

E-government and e-governance can be defined as two very distinct terms. E-governance is a broader topic whereas e-government is actually a narrower discipline dealing with

the development of online services to the citizen.

E-Governance Some widely used definitions are listed below:

The Council of Europe has taken e-governance to mean: “The use of electronic technologies in three areas of public action: - relations between the public authorities and civil society - functioning of the public authorities at all stages of the democratic process (electronic democracy)

- the provision of public services (electronic public services)” (http://www.coe.int). From this meaning it is said that, with a view to encourage better interaction between government and

citizens, promote democracy and provide public services electronic technologies are using. The US E-Government Act of 2002 defines “electronic Government” to mean-

A



“The use by the Government of web-based Internet applications and other information technologies, combined with processes that implement these technologies, to-

(A) Enhance the access to and delivery of Government information and services to the public, other agencies, and other Government entities; or (B) Bring about improvements in Government operations that

may include effectiveness, efficiency, service quality, or transformation” (E-government Act 2002).

This definition reflects the strategy of the US Government regarding the use of ICT in improving Government

operations on the one hand and enhancing the access and delivery of information and services to citizens and government entities on the other. There are three main domains of e-governance,

· Improving government processes: e-Administration · Connecting citizens: e-Citizens and e-Services · Building interactions with and within civil society: e-

Society (Bhatnagar, 2004).

Three domains of e-governance should be recognized as overlapping, as shown in the figure 1.

Figure 1: Overlapping domains of e-governance

These overlapping domains of e-governance focus on the problems that government is too costly, too inefficient and too

ineffective; too self-serving and too inconvenient; and too insular.

Figure 2: Focal Domains for e-governance Initiatives External Interactions

Mentioned above figure indicates the connectivity of the focal domains of e-governance.

Dr. APJ Abdul Kalam, former President of India, has visualized e-Governance in the Indian context to mean: “A transparent smart e-Governance with seamless access,

secure and authentic flow of information crossing the interdepartmental barrier and providing a fair and unbiased service to the citizen” (International Conference).

E-Government E-government is a generic term for web-based services

from agencies of local, state and federal governments. In e-government, the government uses information technology and particularly the Internet to support government operations engage citizens, and provide government services. The interaction may be in the form

of obtaining information, filings, or making payment and a host of other activities via the World Wide Web. Definition of the Working Group on E-government in the Developing World:“E-Government is the use of information

and communication technologies (ICTs) to promote more efficient and effective government, facilitate more accessible

government services, allow greater public access to information, and make government more accountable to citizens.E-Government might involve delivering services via the internet, telephone, community centers (self-service or facilitated by

others), wireless devices or other communications systems.”(www.pacificcouncil.org).

In short e-government and e-governance is:

E-Governance vs. E-Government

E-Government E-Governance Electronic service delivery Electronic consultation

Electronic workflow Electronic controllership

Electronic voting Electronic engagement

Electronic productivity Networked societal guidance

ANALYSIS OF THE CONCEPT ‘DIGITAL DIVIDE’

The term Digital divide is used as digital poverty,

information poverty, and digital gap. Digital poverty is defined as a lack of ICT with regards to access and use of the information and communications allowed by the technology. Mark Warschauer (2003) argues that the term

should not be used at all, instead it should be replaced by ‘social inclusion’ which sounds more positive and does not presuppose that there is a separation between those who are ‘inside’ or ‘outside’ or on ‘this side’ or ‘that side’ of the divide.

Digital divide is a cause of social inequality, the access and usage of information technology is good. Divide between the rich and the poor is created by the fact that the former have the money, whereas the latter do not, and

this becomes a problem because money or wealth seems to be universally desired. On the other hand, having access to information technology means that one gains a significant advantage over those who don’t, because having access means one is able to acquire benefits such as

information, access to up-to-date data, knowledge, and so on, which would not have been possible if she/he did not have the access. The 1999 United Nations Human



Development Report, for example, observed the following

about Internet use worldwide: The typical Internet user worldwide is male, under 35 years old, with a college education and high income, urban-based and English-speaking—a member of a very elite minority

worldwide. The network society is creating parallel communications systems: one for those with income, education and literally connections, giving plentiful information at low cost and high speed; the other for those

without connections, blocked by high barriers of time, cost and uncertainty and dependent on outdated information. With people in these two systems living and competing side by side, the advantages of connection are overpowering. The voices and concerns of people already living in human poverty, less

income and education and access to public institutions are being increasingly marginalized. (UN 1999, p. 63). This observation gets to the heart of what social scientists call the “digital divide,” or the gap between those with access to

the Internet and those without. In the United States, for example, the National Telecommunications and Information Administration (NTIA) has tracked Internet access and developed policy recommendations to close gaps in such

access (NTIA 1995, 1998, 1999, 2000, 2002). Among the “Digital divides” noted by the NTIA is a divide between urban and rural areas, between whites and non-whites, between the young and old, and between the economically active inactive (DiMaggio et al. 2001). Perhaps an individual

has Internet access at home, but their dial-up speed is slow and hence their Internet usage is limited. Perhaps an individual has high-speed Internet, but little knowledge of search engines and how to “surf” the Internet, narrowing the

scope of what they can get out of being online. The research and policy agenda must be broad enough to tackle these differences and the inequalities they produce (Witte & Mannon, 2010). It shows how Internet inequalities are manifesting among the online population and the overall

population. From the above concept of digital divide of different experts it can be said that, digital divide is a kind of social stratification. There are two groups living side by side: one group is connected to the modern digital technology and

other group is disconnected.

THREE STAGES OF DIGITAL DIVIDE

The digital divide is manifested in the fact that some people can't afford to buy a computer. We should recognize that for truly poor developing countries, computers will remain out of the average citizen's reach for 20 years or more. In areas

like North America, Europe, Australia, and Asia's advanced countries, computer cost is no longer an issue.

Stage 2: Usability Divide Lower literacy is the Web's biggest accessibility problem,

but nobody cares about this massive user group. Senior

citizens face the second-biggest accessibility problem.

Even though seniors are the main remaining source of growth in Internet use, companies are still endlessly fascinated by young users and ignore older, richer users who would be more active in economics and thus they

can easily get or purchase digital technology. On the other hand the poor are disadvantaged group. Not everybody would make full use of the opportunities

that such technology affords. Participation inequality is

one exponent of the empowerment divide that has held constant throughout all the years of Internet growth: in

social networks and community systems, about 90% of users don't contribute, 9% contribute sporadically, and a tiny minority of 1% accounts for most contributions.

LEVELS OF DIGITAL DIVIDE

Figure 3: Levels of digital divide

From the figure I can summarize that, it is the few who have access to ICTs, to digital information and knowledge, and to

the benefits of reform in governance. We can thus talk of an 'e-governance divide' that is increasingly separating developed and developing countries, and elites and ordinary citizens within developing countries.

GLOBAL SCENARIO OF DIGITAL DIVIDE Arrival of internet is a positive impact on various parts of

life such as business, personal and governmental level. Information and Communication Technologies (ICT) have played a major role in late 20th century. As it is obvious that the largest part of the world remains unconnected.

While Asia has almost 61% population of world and Africa 14%, their share of internet penetration is very low.

Internet penetration across geographies Continent Internet penetration %

Asia 10.4%

Middle East 9.6%

North America 68.6%

South America 14.7%

Europe 36.4%

Africa 2.6%

Oceania 52.6% Source: www.internetworldstats.com



World population distribution

Continent Population as % of world population

Asia 60.67%

Africa 13.82%

Europe 11.31%

North America 7.94%

South America 5.76%

Oceania 0.51% Source: U.S. Census Bureau, International Programs Centre, 2009

Digital divide is becoming evident (Devraj, 2000) in developing countries. Due to poor purchasing power even

the same or lowered cost remains a cause for digital divide. Slow speed of internet penetration and disappointing growth-rate of broadband adoption is also an important aspect of the whole scenario.

E-GOVERNANCE AND DIGITAL DIVIDE IN BANGLADESH

Bangladesh has not kept up with ICT Developments worldwide, even compared to other nations in a similar economic position, and the overall ICT infrastructure is poor. Public sector ICT infrastructure and usage is quite merging, with inadequate hardware resources and a lack of

information technology (IT) expertise in most government offices. Many of the existing PCs are outdated and insufficient for every 100 employees there are 30 computers at the ministry level and 8 computers at the division level.

On an average at the ministry and division level, only 48 percent of PCs are connected to the internet. The World Economic Forum (WEF) prepared “Global Information Technology Report (GITR) 2009-2010” reviewed Bangladesh’s placement on three key ICT

Indicators: 1. Environment (infrastructure, market and political), 2. Readiness and 3. Usage. These indicators gauge preparedness to leverage ICT advancement for increased competitiveness and development in general,

and in comparison to other nations. Bangladesh ranks 118 out of 133 countries. The country’s overall low ranking highlights the urgent need for improvements in areas such as 1. Improving the regulatory framework, 2.

Developing human resource capacity, 3. Providing greater access and increasing usage of ICT by citizens and 4. Investing in ICT infrastructure.

Bangladesh’s ICT status

Criteria Bangladesh India Srilanka Pakistan Nepal

Overall rank 118 43 72 87 124

Overall, Bangladesh ranks 118 among 133 countries but

fares worse than most of its South Asian counterparts in the ICT sector. Individual usage takes stock of ICT penetration and diffusion at the individual level, whereas business and government assesses ICT penetration in

business and government respectively. Bangladesh fares worst in South Asia at usage by all the different stakeholders, highlighting this as the area that requires

significant government focus. It ranks 130th (out of 133) in the presence of ICT tools in government agencies, showing extremely poor penetration and diffusion of ICT

in government agencies. India ranks highest at 64, followed by Srilanka at 82 and Pakistan at 93.

Criteria Bangladesh India Sri Lanka Pakistan Nepal

Usage 126 64 82 94 129

Citizens 127 109 101 102 125

Business 126 26 61 80 121

Government 115 48 59 91 124 Source: WEF-INSEAD GITR (2009-2010).

Info Ladies from Pallitathya Kendras: Info Ladies are a group of young women on bicycles equipped with net books, phones, and medical equipment who deliver ICT access to rural people. They are the bearers

of information in an information-scare society. Their net books come loaded with village-relevant content that is translated to Bengali. “Form agriculture to health, sanitation and disaster management, the content follows simple text, pictures and engaging multimedia animations

to include all users, many of whom are illiterate.” (Kumar 2009)They also carry items like blood pressure monitors and pregnancy kits in their bags, and are able to send pictures of simple diseases and skin conditions to Dhaka

for diagnosis. Because rural women suffer most from a lack of knowledge about medical, legal and social issues, a female information provider bridges the divide, making them more likely to be open. While in the past the young, modern Info Ladies were regarded as something of a

‘scandal’, they have now become the source of information for individuals looking requiring disparate information such as their blood pressure reading or ways to increase crop yield (The state of Governance of BD 2009).

REASONS FOR CREATING DIGITAL DIVIDE

From the above discussion I can find out some points:

1. Technological problems: Inadequacy of ICT infrastructure is a common problem in most

government offices of Bangladesh. This situation is marked the absence of technical infrastructure planning and sub-optimal utilization of whatever infrastructure is available. And this aspect is

increasing the digital divide between developed countries and LDC, between urban and remote areas in a country. Integration problem is one of the reasons for this gap.

2. Problem of Human Resource management: Due to lack

of utilized the skill, knowledge of the experts; many e-government implementation projects suffer from lack of skilled human capital. Only ICT skill courses

available for the civil servants are not enough to bridge the gap. Absence of incentive for acquiring ICT skill is also considered as one of the reason for lacking of ICT skilled human resources in the government.

3. Financial problem: Absence of pro-private sector policies impedes this other potential source of



investment. Indeed the lack of managerial acumen and technical know-how to analyze the cost-benefit scenario and return on investments to assess financial

sustainability of a project is hurting the country’s e-governance aspirations. It is also an important reason why the private sector remained as a skeptic bystander rather than an active partner in e-

governance (Morshed, 2007).

4. Social disparity: In Bangladesh, a country where ‘disparities’ between haves and have-nots are ever

increasing, introducing ICT in the governance mechanism faces the challenge of ensuring equitable access to e-governance services by all strata of the society. The other social disparity challenges are lack of literacy and a weak basic education standard;

standardization of Bangla for official use; and the ‘Brain Drain’ of ICT skilled human resources from the government.

5. Administrative problem: It is mostly due to this lack of

awareness that e-governance systems lack buy-in from the senior management of government organizations. Such lacking of acceptability often

means lack of sustainability of the system and even failure to implement such a system.

6. E-service delivery problem: Digital divide is

considered one of the main barriers to implementing e-services; some people do not have means to access the e-services and some others do not know how to use the technology (or the e-service). According to

Helbig. (2009), “we suggest e-government and the digital divide should be seen as complementary social phenomena (i.e., demand and supply). Moreover, a serious e-government digital divide is that services mostly used by social elites."

7. Slow Paced IT and the Digital Divide: Even with the slow paced IT revolution in Bangladesh, around 50% or more of our villages are still without telephones.

75% or more of our population resides in the rural areas and do not have adequate exposure to technology. A vast majority lives below the poverty line and 35% or more are illiterate. Like any other

developing country a vast majority of Bangladesh population will be vulnerable to the risk of getting marginalized in the IT revolution. Logically citizens will be getting divided into people who do and people who don't have access to ICT and the

capability to use modern information technology. This divide exists and shall remain to exist between the cities and rural areas, between the rich and the poor, and between the educated and uneducated

(Alam, 2010).

8. Third Generation: 3-G Technology is recently entered into our country. Those people who are not able to

fulfill their fundamental rights, they will be the extreme victim of digital divide.

FINDINGS OF THE STUDY

1) Generation gap is one of the effects of digital divide. 2) The problem of e-service delivery system of e-

government is increasing digital gap between the poor and rich, young and old, senior and junior, rural

and urban etc. 3) Usability and empowerment divide is the direct cause

of digital divide and this type of divide is occurring only for mismanagement of e-government.

4) Lack of responsibility and accountability of govt. is

one of the major barriers of e-government and this problem is creating digital divide.

5) Poverty is another cause of digital divide.

CONCLUSION AND RECOMMENDATIONS

Of course e-governance is blessing and inevitable for the

current internet base technology and development. We are benefited and developed by e-governance. But due to this process it brings a gap between developed and underdeveloped countries, between urban and local areas. E-governance is ICT based system and digital divide is

creating for unequal access and use of ICT. Digital divide has attracted much attention as a possible cause of

economic disparities in the new economy, but it is more probable that the digital divide is itself an effect of

disparities that have long existed. Any serious solution to poverty will have to reach beneath the digital divide and confront the underlying gap between rich and poor. To bridge the gap computer based training and education

must need. It is evident that e-governance is intrinsically linked with the development of computer technology, networking of computers and communication systems. Through time digital gap and divide is seen every

generation, society and country. But it is accepted when its degree and level become tolerable. If government and other agencies are concerned to the success of e-governance, then the total process will get a golden structure. Proper application and implementation of

policy, honesty and patriotism is needed to minimize the digital divide. Government and other agencies should work according to ethics.

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Role of Micro Credit Program in Empowering Rural Women in Bangladesh: A Study on Grameen Bank Bangladesh Limited

Dhanonjoy Kumar1; Afjal Hossain2; & Monto Chandra Gope3

1Assistant Professor, Department of Management, Islamic University, Kushtia, Bangladesh 2Assistant Professor, Department of Marketing, Patuakhali Science and Technology University, Patuakhali, Bangladesh 3Guest Faculty & Former Senior Lecturer, Department of Business Administration, Metropolitan University, Sylhet, Bangladesh

ABSTRACT

Bangladesh is one of the high density countries of the world. 40% of its population lives below the poverty level of which rural women are poorer. The rise of the Micro Credit Institution in the global context is identified as an important phenomenon which has implication for the development prospects of the poor. The paper was designed to identify the role of Grameen Bank (GB) and to analyze rural women’s economic empowerment as the outcome of micro-credit interventions. In this regard, an exploratory research has been made to focus on the activities and impacts after receiving micro-credit from GB. A sample size of 100 respondents has been interviewed through a structured questionnaire, in-depth interview and observation from Jhenaidah and Kushtia districts. The result shows that the women are more independent and can engage in decision making process after receiving and using micro credit.

Keywords: Grameen Bank, Micro Credit, Women, Empowerment, Bangladesh

JEL Classification Code: M19

INTRODUCTION

omen Women represent around 50% of the world population, and in many regions of the developing world, their contribution is immense in all the sectors of development. But

still in today’s world, women’s position is not the same

as their counterparts. Due to gender based discrimination and socially constructed sub-ordination women have inferior status everywhere in all the aspects of life i.e. political, economic, familiar or social. In

Bangladesh like many other developing countries women’s access to positions of influence and power is limited. Their occupational choices are narrower, and their earnings lower than those of men; and they must struggle to reconcile activities outside the home with

their traditional roles. While men particularly among the poor also find themselves disenfranchised, it is a far more common experience among women. This experience is rooted in the failure to value women for

anything but their reproductive role. The need for empowerment of women in Bangladesh arises from this harsh social scenario (Goswami, 1998: 45).

LITERATURE REVIEW

Literatures suggest that NGO interventions positively contribute to women empowerment (Ullah AKM, 2003:

21). NGOs central goal is empowering the powerless women folk or helping them to bloom their hidden

potentialities which is power of thought, power of word, and power of organization with a view to helping them to participate in the socio economic development for their emancipation from less human condition to more human condition (Haider and Aktar, 1999: 57). The most

extreme example of this discrimination can be seen in the third world countries. Bangladesh is a glaring example of this lowered status of women as well as of all sorts of gender based segregation. More than 60 million people

of Bangladesh live below the poverty line among them 74% are women (Khan, Z. H 1998). In Bangladesh, the situations of rural women are more painful. Most of the rural women are deprived, to fulfill their basic needs. They become the victims of acid throwing, dowry, high

mortality malnutrition, higher illiteracy etc. Now it is a dire need to let them raise their voice regarding human rights, decision making process, and moreover socio cultural and economic issues. One of the best ways of

enabling women empowerment is access to credit, so that they can start to earn money. Bangladesh economy is characterized by unfavorable per capita land, low per capita income, glaring and accentuating income disparity, high level of unemployment, low productivity

and persisting high levels of poverty and deprivation. Under the circumstances, micro credit has been promoted to help the poor especially the women to take self-employment on tiny or micro scales with a view to

improving their living conditions. When income flow

W



begins, then the right of food, shelter and everything also becomes a reality (Yunus, 1987). Rural poor women have little or no property of assets to offer as collateral which

is required in formal banking system, micro credit has responded to the predicament by offering collateral free loans. Considering the role of creating self-employment opportunities, creating self-confidence, increasing

awareness among women in Bangladesh, GB led the way, starting in the mid 1970s. Now there are hundreds of micro-credit providers of different operational sized throughout the country, mostly in rural areas but also some in urban areas. The large ones include GB, BRAC,

ASA and PROSHEKA. Among them GB earned respectable status for Bangladesh in the international arena because of its poverty reduction strategies through which poor rural women are moving in the path of

empowerment and development. Presently in its wider dimension micro credit is known as microfinance and seen as a legitimate economic tool in the fight against poverty. The impact of giving credit to women has been a controversial issue. At one end of the

spectrum, some argue that micro credit has positive impacts on gender equality, women’s empowerment and households’ well-being. On the other end of spectrum, microfinance is thought to bring negative impacts for

women (Hulme, 2000). Concerning the positive impacts of microfinance on women, microfinance is claimed to help to reduce poverty by increasing consumption among microcredit program participants and their families, improving children’s schooling, nutrition,

increasing income and self-employment (Khandker, 1998, Pitt at al., 2006). Microfinance can reduce intimate partner violence in the household through participation of women in the credit programs and generate social

capital for the participants (Julia et al., 2007; Pronyk et al., 2008) and access to credit can enhance women’s economic independence, leading to women’s self-esteem and status in the households and wider community

(Goetz and Gufta, 1996; Kabeer, 2001). Moreover, women participating into micro credit programs improve their ability to exercise agency in the intra-household processes, to increase women’s welfare resulting in decreasing male bias in welfare outcomes in the

household; to increase the contraceptive use by women (Mahmud, 2003; Schuler & Hashemi, 1994). Microfinance savings and MFIs also potentially help families in developing countries to cope with financial risks from

main illnesses resulting from the cost of medical care and loss of income during illness (Gertler and Moretti, 2008).

OBJECTIVES

The objectives of this study are-

1. To identify the role of micro credit as a strategy for

empowering women in Bangladesh.

2. To describe the ability of women as micro credit

beneficiaries to take part in decision making process at the family level.

3. To examine their economic empowerment

considering ability to increase their income level.

METHODOLOGY OF THE STUDY

Methodology plays an important role in any research. Appropriate methodology enables the researcher to collect valid and reliable information and to analyze the information properly to draw a clear-cut conclusion. The

study used both qualitative and quantitative methods and 03 different data collection instruments. The research is a survey based exploratory research which was conducted using primary data. To collect primary data for the study

several methods such as questionnaire, in-depth interview and observation as well as Focus Group Discussion (FGD) were used. Collected data was analyzed and interpreted through statistical techniques. Secondary data are used for

the reanalysis of previously collected and analyzed data. Secondary sources were simply published books and articles by scholars. In this study, Jhenidah and Kushtia districts have been selected for some reasons. Several numbers of micro credit institutions especially selected GB

is working and providing micro credit to landless women, divorced women, and widow women for many years. By collecting a list from regional GB Manager and officers’ two branches were selected from GB. Among 5000 micro

credit recipients approximately 2% households were the sample size of the study. The sample size (100) was selected randomly by simple random sampling method using random number.

KEY CONCEPTS OF THE STUDY

Micro-credit program plays an important role in socio-

economic development of rural poor especially for women. This study will help the selected organizations to know about the impact of micro credit on women empowerment.

Women: A woman is an adult female human being, as

contrasted to men, an adult male, and a girl, a female child. The term woman (irregular plural: women) is used to indicate biological sex distinctions, cultural gender

role distinctions, or both (Wikimedia, 2005:1). Women constitute about half of the total population of the country. Apart from the household activities, they are contributing substantially to the national economy.

Empowerment: Empowerment means the

transformation of structures of subordination, through radical changes in law, property rights, control over women’s labor and bodies, and the institutions that

reinforce and perpetuate male domination (Batliwala, 1993:5). But more specifically, the outcome of empowerment should manifest itself as a redistribution of power between individuals, genders, groups, classes,

castes, races, ethnic groups or nations. Empowerment of



women is now a global issue. Although this term is usually used for improving women’s condition, in real sense it may be applied to any disadvantaged group of

society for bringing them to the same level of advanced section. In simple sense, empowerment is a process which redistributes power from the powerful to the powerless. In the context of Bangladesh, empowerment

of women means women should be given freedom of choice for fulfillment and self-development, as well as equal access to domestic and community resources, opportunities and power. In this study focus will be given on the strategic needs (decision making ability in

the family, economic freedom like ability to make small and big purchases for her, children and family as well as her gendered position in the family and society).

Economic empowerment: Women’s access to savings and

credit gives them a greater economic role in decision-making through their decision about savings and credit. When women control decisions regarding credit and

savings, they will optimize their own and the household’s welfare. The investment in women’s economic activities will improve employment opportunities for women and thus have a ‘trickle down and out’ effect. The financial

sustainability and feminist empowerment paradigms emphasize women’s own income generating activities. In the poverty alleviation paradigm, the emphasis is more on increasing incomes at the household level and the use of loans for consumption.

Social and political empowerment: A combination of women’s increased economic activity and control over income resulting from access to micro-finance with

improved women’s skills, mobility, and access to knowledge and support networks. Status within the community is also enhanced. These changes are reinforced by group formation, leading to wider movements for

social and political change. The financial self-sustainability paradigm and the poverty alleviation paradigm assume that social and political empowerment will occur without specific interventions to change gender relations at the household, community or macro-levels. By contrast, the

feminist empowerment paradigm advocates explicit strategies for supporting women’s ability to protect their individual and collective gender interests at the household, community and macro-levels (Mayoux, 2001).

Micro credit: The word credit’ comes from Latin word’

credo’ meaning ‘I believe or to trust’. Hence “credit” entails some one, the lender, to believe or trust some one, the

borrower with funds to be used by the borrower for his /her purposes, to be repaid to the lender with interest at a later stage on agreed terms and conditions. Micro credit is the extension of very small loans (micro loans) to those in poverty designed to spur entrepreneurship. These

individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional

credit. Micro credit is a part of microfinance, which is the provision of a wider range of financial services to the very poor. Microcredit (mI-[*]Kro'kre-dit); noun; programmes

extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families. Micro credit is a financial innovation that is generally considered to have originated

with the GB in Bangladesh (Parvin, 1995). Micro-credit is based on a separate set of principles which are distinguished from general financing or credit. Micro-credit emphasizes building capacity of a micro-entrepreneur, employment generation, trust building and help to the

micro entrepreneur on initiation and during difficult times. Micro credit is a tool for socio-economic development. United Nations former Secretary General Koffi Annan comments Micro credit is a critical anti-poverty tool-a wise

investment in human capital. When the poorest especially women receive credit, they become economic actors with power, power to improve not only their own lives but in a widening circle of impact, the lives of their family, their communities and their nations. Micro credit loan cycles are

usually shorter than traditional commercial loans-typically six months to a year with payments plus interest, due weekly. Shorter loan cycles and weekly payments help the borrowers may current and not become overwhelmed by

large payments. Now in Bangladesh there are hundreds of micro credit providers of different operational sizes throughout the country, mostly in rural areas but also some in urban areas.

Grameen Bank: GB has reversed conventional banking

practice by removing the need for collateral and created a banking system based on mutual trust, accountability,

participation and creativity. GB provides credit to the poorest of the poor in rural Bangladesh without any collateral. At GB, credit is a cost effective weapon to fight poverty and it serves as a catalyst in the overall development of socio-economic conditions of the poor

who have been kept outside the banking orbit on the ground that they are poor and hence not bankable. GB, the creation of Professor Dr. Yunus, began working in Jobra, Chittagong in 1976 as an action research project and

became a full-fledged bank in 1983. It began up as a specialized financial micro credit providing institution offering services to rural poor (specially the women) without collateral. As the poor women is the most vulnerable group and have no access to formal banking

system. As of October, 2011, it has 8.349 million borrowers, 97% of whom are women. With 2,565 branches, GB provides services in 81,379 villages, covering more than 97% of the total villages in Bangladesh.

Micro-enterprise Loans: Many borrowers are moving ahead in businesses faster than others for many favorable reasons, such as, proximity to the market, presence of

experienced male members in the family, etc. GB provides



larger loans, called micro enterprise loans, for these fast moving members. There is no restriction on the loan size.

Table 1: Top 25 Items in order of microenterprise loan amounts

For Female Amount (Order Descending)

Serial Activity Name Female

No

Female

Amount

1 Grocery shop 69,519 2,905,256,609

2 Milch cow 77,213 1,941,600,917

3 Cow fattening 85,165 1,653,469,667

4 Rice/Paddy trading 55,603 1,571,737,050

5 Miscellaneous business 59,606 1,282,521,942

6 Paddy cultivation 40,435 986,523,759

7 Land lease 26,000 723,757,874

8 Vegetables trading 30,723 707,683,291

9 Bamboo works 17,857 662,514,854

10 Cloths trading 17,800 615,207,116

11 Stationery shop 16,711 584,570,161

12 Pisciculture 21,784 535,886,563

13 Fish trading 16,298 461,406,362

14 Plantation 15,616 450,028,464

15 Vegetables cultivation 14,121 377,374,523

16 Cane works 9,198 335,213,688

17 Rickshaw purchase 11,353 287,138,995

18 Poultry raising 13,172 285,286,838

19 Garments making 5,764 281,336,474

20 Cloths shop 8,219 246,358,706

21 Goat 9,503 246,097,348

22 Land cultivation 10,572 244,679,717

23 Farming 9,911 242,891,372

24 Rabi crop cultivation 6,678 231,924,194

25 Garden lease 7,199 222,617,276

Source: Grameen Bank Annual report, 2010

Figure 1: Disbursement of Microenterprise Loans

Source: Grameen Bank Annual report 2010.

MEASUREMENT AND ANALYSIS OF THE STUDY

Demographic Characteristics: Demographic characteristics determine the characteristics of a person i.e. age, marital status, occupation, number of household members, sex, income level etc. Marital status of

women is used to know the empowerment status and socio-economic condition in this study. In the table 3, it is shown that married respondents mostly contribute (92% alone) in the socio-economic condition of the country with the help of micro credit. Education is another important

variable for economic development. Class I-V is the large portion (28%) of the total respondents who contribute for the economic development rather than others. It is evident that educated woman is much more conscious and aware

about his economic condition than an illiterate woman (42% can sign only). Table 2: Demographic characteristics of the respondents

Frequency Valid (%)

Cumula tive (%)

Marital Status Group

Married Single Divorced Widow Separated

Total =

92 02 01 04 01

100

92 2 1 4 1

100

92 94 95 99

100

A. Educational Status Group

Illiterate Can sign only Class I- V Class VI-X SSC Below HSC HSC

Total =

20 22 28 0

27 00 03

100

20 22 28 0

27 00 03

100

20 42 70 70 97 97

100

B. Occupational Status Group

Housewife Unemployed Self-employed Wage-labor Service holder Student

Total =

87 02 05 01 04 01

100

87 02 05 01 04 01

100

87 89 94 95 99

100

C. Income Source Group

Agriculture Maid Servant

Ricks puller Resp. Service Husband Job Husband Business Sons Job Husband Massion Livestock Firm Own Business Father in laws Service

03 01

08 03 25 40 03 04 01 00 01

03 01

08 03 25 40 03 04 01 00 01

03 04

12 15 40 80 83 87 88 88 89



Day Labour Electrician Van Puller

Total =

03 02 06

100

03 02 06

100

92 94

100

D. Monthly Income (Tk.) Group

1,000 – 2,000 2,001 – 4,000 4,001 – 6,000 6,001 – 8,000 8,001 – 10,000 10,001 – 12,000 12,000 + No comments

Total =

06 30 20 04 06 0

04 30

100

06 30 20 04 06 0

04 30

100

06 36 56 60 66 66 70

100

Source: Field Survey, 2012

In the occupational perspective it is shown that housewife alone 87% is the contributors for his/ her development of the economic condition with the help of micro credit in Bangladesh. The income source of the

female is largely on the husband business (40%) because of their occupation is housewife. In case of monthly income it is shown that about 30% of the total respondents didn’t say about their income level due to unwillingness. But it is also shown that 30% of the

respondents income level is just within Tk. 2,001 – 4,000/= which is not satisfactory as today’s cost of living. That’s why it is needed to engage with micro credit which

is explained in the following tables (Table 3 and 4). Table-03: Change of income source of the respondents after receiving credit

Sources

of Income

Frequency Valid (%) Cumula

tive (%)

Agriculture 16 16 16 Maid Servant 01 01 17 Ricks puller 08 08 25 Resp. Service 03 03 28 Husband Job 10 10 38 Husband Business 25 25 63 Sons Job 05 05 68 Husband Massion 01 01 69 Livestock Firm 08 08 77 Own Bisness 14 14 91 Father in laws Service

01 01 92

Day Labour 01 03 95 Electrician 02 02 97 Van Puller 03 03 100

Total = 100 100 Source: Field Survey, 2012

Sources of income play a vital role for the socio-economic

development. Table 3 indicates that the highest number of income source is husband business is 25% decreased by 15% after receiving micro credit from GB. It is also shown that own business is increased by 14% because of taking this

advantage. So, it is to say that GB members try to increase their individual income and engaged individual business.

Table 4: Change of monthly income of the respondents after receiving micro credit.


Table 4 denotes the changes of income level due to receive the micro credit from GB. It explains that the respondents didn’t make any comment is 25% reduced by 5%. It also

explains that the highest level of income is Tk. 4,001 – 6,000/= of 31% whereas Tk. 2,001 – 4,000/= was the highest income level before receiving micro credit. So, comparing before and after receiving credit from GB member’s it can

be said that income level is increased in each level of the followings (From Tk. 6,001 to Tk. 12,000 +).

ROLE OF MICRO CREDIT PROGRAM

Micro-credit play a vital role for women socio-economic development, as it affects on all aspects of their life. GB is involved in micro-credit operation by providing credit for various purposes to the women especially in empowering the poor rural women in Bangladesh. With the help of different sectors they are just focusing empowerment of the women in case of decision making process in the personal, family, social and even in national level, improvement of the life style and also in socio-economic development etc. From the study it is shown that most of

the members (81%) are satisfied about their (GB) credit facilities (credit sufficiency: Figure 2).

Figure 2: Influence of Micro Credit Program


Monthly income (Tk.)

Frequency Valid (%) Cumulative (%)

1,000 – 2,000 02 02 02 2,001 – 4,000 12 12 14 4,001 – 6,000 31 31 45 6,001 – 8,000 11 11 56 8,001 – 10,000 07 07 63 10,001 – 12,000 02 02 65 12,000 + 10 10 75 No comments 25 25 100 Total = 100 100



Most of the members (85%) were able to take part in decision making process after joining in the micro credit activities from GB, generating a good monthly income from

the sources of income. Most of the members think that their life styles improvement start after receiving and using of micro credit. Most of the respondents (74%) told that their socio-economic condition has improved after taking micro

credit which has made them more confident and reliance. It has increased their sources of income, so women respondents were able to spent money to their own needs, purposes and for their family that has empowered (81%) them in long term. So the researcher tried to assess the

socio-economic condition of the respondents in the study for understanding their empowerment.


The findings of this study are discussed here:

It was found that most of the members are illiterate and their credit utilization ability is very weak.

It was found that most of the members had small scale land. For this reason the members cannot use their capital to produce agricultural products.

For the lack of proper knowledge and training the members cannot use their savings properly.

It was seen that most of the respondents could take decision on using micro-credit. In focus group

discussion and interview they revealed their husband gave importance of their opinion, so they can take a little decision on using micro credit.

The woman entrepreneurs face various problems to marketing their products.

RECOMMENDATIONS OF THE STUDY

The present study indicated that most of the women credit recipients were illiterate, so they had to

depend on their husband to utilize their loan. That’s why GB authority should concern to increase women literacy rate by which women can utilize loan with freedom that can ensure empowerment.

The present study revealed that most of the credit recipients have successfully utilized their credit in non-agricultural purposes like poultry, livestock, and homestead gardening. So GB should need to increase the amount of credit from the beginning time for investment in non-agriculture purposes.

GB authorities should need to take some initiatives for increasing women respondents’ knowledge and efficiency though proper training courses.

After micro credit disbursement, GB authorities should need to guidelines the members to use their credit amount individually not depends on other family

member.

It was found during focus group discussion that borrower entrepreneurs’ women often face problems

in the marketing operations. Though this is mainly due to the attitude of the society which can not be changed easily. GB can play a role through the

provision of guidance to perform the marketing functions in organized groups especially in case of promoting and selling the products to the target people with fair price.

CONCLUSION

The main cause of poverty in Bangladesh is the lack of productive employment opportunities for the huge number of unemployed and under employed work force which is tremendously increasing and posing serious problems for the country. Nearly half of the populations

in Bangladesh are women and most of them are living in the rural area of the country. They need to have engaged in income generating activities. So creating self-employment for women in the rural areas can play a

vital role in reducing the rural unemployment and acute poverty. It can be made through micro credit which will empower them too. The micro credit program of GB has benefited the poor women in more than one way. These programs enhanced their security giving them access to

assets and rights and augmented their self-respect providing them choice and independence. Micro credit has enabled the poor women to undertake diversified economic activities which generate flow of stable income

round the year and thus has strengthened survival strategy of the poor women. With micro credit, the poor households now own assets can use to meet contingencies without having to sacrifice their independence, security and peace of mind by getting

into debt. Micro credit program has also empowered the beneficiaries by raising their social consciousness which is reflected among others in their increased participation in local government elections and social mobilization

activities. Participation also has a beneficial effect on women’s welfare since it increases their total employment time by reducing their other work responsibilities. Participation of women in micro credit

program has also increased their mobility.

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[24] Yunus Muhammad (2006), Microcredit: Banking With the Poor without Collateral.

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Total Quality Management as a Tool for Decision Making

Md. Abdus Sabur

Associate Professor, Accounting, Govt. Titumir College, Dhaka, Banglaesh

ABSTRACT

TQM means keeping the organization running smoothly with continuous input from our owners/customers. The major components of TQM are quality information, rewards for results, cooperation, secured jobs, fairness, equitable compensation, employees ownership stake etc the guiding principles are customer satisfaction safety, elimination of errors and defects, continuous improvement, employee empowerment etc The major constraints are lack of top management support, commitment, over dependence on computerized quality control, no market research, management by fear etc .

Key words: Quality, ISO Standard, Global Market, Overseas Market, Manager, Corporate, JIT, Front Line Workers

JEL Classification Code: L15

INTRODUCTION

otal quality management has evolved from the

quality assurance methods that were first developed around the time of the First World War. The war effort led to large scale manufacturing

efforts that often produced poor quality. To help correct this, quality inspectors were introduced on the

production line to ensure that the level of failures due to quality was minimized. After the First World War, quality inspection became more commonplace in manufacturing environments and this led to the

introduction of Statistical Quality Control (SQC), a theory developed by W. Edwards Deming.1 This quality method provided a statistical method of quality based on sampling. Where it was not possible to inspect every item, a sample was tested for quality. The theory of SQC

was based on the notion that a variation in the production process leads to variation in the end product. If the variation in the process could be removed this would lead to a higher level of quality in the end

product. After World War Two, the industrial manufacturers in Japan produced poor quality items. In a response to this, the Japanese union of Scientists and Engineers invited Deming to train Engineers in quality processes. By the 1950’s quality control was an integral

part of Japanese manufacturing and was adopted by all levels of workers within an organization. By the 1970’s the notion of total quality was being discussed. This was seen as company-wide quality control that involves all

employees from top management to the workers, in quality control. In the next decade more non-Japanese companies were introducing quality management procedures that based on the results seen in Japan. The new wave of quality control became known as Total

Quality Management, which was used to describe the

many qualities focused strategies and techniques that

became the center of focus for the quality movement.2 The increasing need for improvement of quality the world over led to the development of quality systems to take care of all relevant aspects related to and influencing quality starting from product design and culmination in service to

the user. The increase in product complexity and size of operation, responsibility for product quality is gradually shifted from operator to the quality control department. Quality is defined as the totality of features and

characteristics of a product or service that bears on its ability to satisfy stated or implied needs. It is the degree to which a specific product conforms to a design specification. The management is concerned with profitability, growth and resource generation. But only a few inspectors are

responsible for checking product’s quality. Customers in recent years have come to expect much higher quality than ever before. Parameters responsible for product quality and quality concepts need to be clearly

understood by management. If one looks at concept of Quality and its progress over the years carefully, it is evident that Quality has always been an important element for the success of any organization. But the initial approach for Quality was concentrated on the final

inspection and accordingly post production adjustment was made. Quality was not viewed as a responsibility of all employees. Quality function was separated from such areas as planning, design, production and sales.

STATEMENT OF THE PROBLEM

Many companies believe that costs of the introduction of TQM are far greater than the benefits it will produce. However research across a number of industries has costs involved in doing nothing, i.e. the direct and

T



indirect costs of quality problems, are far greater than the costs of implementing TQM. An American quality expert,3 wrote that many companies chose to pay for the

poor quality in what he referred to as the “Price of non-conformance”. The costs are identified in the Prevention, Appraisal, and Failure (PAF) Model. Prevention costs are associated with the design, implementation and

maintenance of the TQM system. They are planned and incurred before actual operation, and can include: Product Requirements, Quality Planning, Quality Assurance, and training. Appraisal costs are associated with the vendors and customers evaluation of purchased

materials and services to ensure they are within specification. They can include: Verification, Quality Audits, and Vendor Evaluation. Failure costs can be split into those resulting from internal

and external failure. Internal failure costs occur when results fail to reach quality standards and are detected before they are shipped to the customer. These can include: Waste, Scrap, Rework, and Failure Analysis. External failure costs occur when the products or services

fail to reach quality standards, but are not detected until after the customer receives the item. These can include: Repairs, Warranty Claims, Complaints, and Returns.

OBJECTIVES OF THE STUDY

The major objectives of the study are to high light the

various uses of Total Quality Management (TQM) as a tool for managerial making. Another object is to find out the inherent constraints in its application followed by an attempt to recommend for the betterment of the situation.

REVIEW OF RESEARCH STUDIES

Milon Kumar Bhattacharjee & Bidhan Mazumber4 authored

and article on “Cost of Quality- A Step towards Measuring Total Management.” This paper makes an effort to focus on the conceptual framework of Cost of Quality (COQ), an important technique for measuring Total Quality

Management (TQM) as well as on it practices by the business enterprises of Bangladesh in order to produce qualitative product. The study reveals that a few of business enterprise in Bangladesh run their operation confirming to

Total Quality Management in all respects and they are performing with a leading market share. Some of the enterprises feel the necessity of TQM but they have still not implemented it due to lack of clear knowledge and skilled personnel. All other enterprises have shown their ignorance

about the TQM. It is important that cost should be controlled while TQM is implemented since these costs incur for improving the quality of product. So COQ must be taken into consideration for TQM. The study suggests that

TQM should be implemented by the business enterprises in Bangladesh after calculating actual cost of quality so that the local products can easily compete with foreign products.

Zahed Hossain Sikder and Dr. Mohammad Ayub Islam5

had a study on “ISO 9000-An Overview”. The International Organization for standardization (ISO) 9000 set of quality

standards has been widely recognized and rapidly implemented world-wide since its inception without any change. These set of standards cover area such as product design and development, manufacturing, tension,

inspection, employee training, understanding customer needs, verify and control the design process to meet customer’s requirements, 5 provide employees with correct documentation, assume responsibility for suppliers and internal quality, maintain tractability through the assembly

process, and maintain appropriate records and documentation. It is also considered as a passport to enter into global market. There is number of variant of ISO series which highlight different aspect of quality standards. These

standards cover ISO 90001, ISO 90002, ISO 90003, ISO 90004, ISO 10011, ISO 10012 and ISO 14000. Some procedural formalities and sequential steps are required to get ISO 9000 certification. Some of the multinational companies operating in Bangladesh have got this

certification to retain their market share and to enter in the new overseas market. Very few private and public sector enterprises in Bangladesh have adopted this service standard of quality. This will reduce their share in export

market. So there is an urgent need of these organizations to get ISO 9000 certification in order to retain their market share, expand their market and to compete with global players. This article gives an idea how to implement ISO 9000 quality standards in an organization as well as the

formalities and procedures required for getting ISO 9000 certification. Muhammad Ziaul Haq Manun and Sharmina Afrin6 in their study on “Total Quality Management (TQM)

practices of the Bangladesh and Thai Companies: A Comparative Analysis” mentions that the comparative analysis of TQM practices between Bangladesh and Thai Companies clearly shows planning, implementation and

operational difference, Bangladeshi companies portray TQM vision consciousness but in many cases they fall victim of treating TQM as a fad rather than an essential component. The management principles are narrowly viewed, communicated and understood in Bangladeshi

companies even with well-documented procedures and instructions. All the Bangladeshi companies concerned are well equipped and successful to some extent in achieving customer satisfaction with regard to product

and service quality excellence, but they lack close working relationships, interest groups and the promoting aspect of working environment. Bangladeshi firms make a visible effort in empowerment of quality control circles but apparently follow a comparatively

rigid hierarchical structure, but nonetheless are able to assure quality. In terms of organization and distribution, all of the concerned companies are suitably equipped



and positioned, but suppliers are not benchmarked with respect to specific criteria and special quality ratings in terms of product attributes and therefore information

regarding supplier reliability is not available in any objective form. Bangladeshi firms have much to achieve in the areas of creativity and R&D and therefore, investment in those areas in imperative.

Mohammad Moqbul Hossain Bhuiyan and Md. Kamal Uddin 7 had an article on “What Does Total Quality Management Stand for? Literature Review and Implications for Bangladesh”. They said that Quality control activities remain with us from thousands of

years. Born out of management practice, the TQM (Total Quality Management) has had a profound and unparalleled impact on modern business history. However, as a body of practical knowledge, TQM has

been largely theoretical. As a consequence, this important management philosophy has reminded amorphous and shrouded in considerable conceptual business and ambiguity in developing countries like Bangladesh. Recent theorizing, primarily emphasizing

the application of organizational behavior theories of TQM has begun to provide greater clarity, but much work remains to be done. This paper attempts to contribute to this nascent theory-building literature by

employing theory from market process economics, namely, Bangladeshi and evolutionary economics, which explains how processes of dynamic change, adaptation and learning are driven by entrepreneurial creativity. We have examined the perception of TQM of Bangladeshi

management with the framework of modern econometrics techniques “Factor Analysis”. Drawing on the resource approach and other theoretical perspectives, this paper has suggested TQM as a potential source of

sustainable competitive advantage. Quality is to be managed, it must first be understood. Mangers must move aggressively to improve their understanding of quality practices and performance. The findings suggest

that most features generally associated with TQM- such as training process improvement, and benchmarking – do not generally produce advantage, but that certain tacit, behavioral, imperfectly imitable features – such as awareness, management commitment, open culture,

employee empowerment, and executive commitment, leadership can produce advantage. The authors conclude that these tacit resources, and not TQM tools and techniques, drive TQM success, and those organizations

that acquire them can outperform competitors with or without the accompanying TQM ideology.

METHODOLOGY OF THE STUDY

It is a theoretical approach based on desk study, review of related literature and existing stock of knowledge.


TQM is an approach to improving the competitiveness, effectiveness and flexibility of an organization for the benefit of all stakeholders. It is a way of planning, organizing and understanding each activity, and of

removing all the wasted effort and energy that is routinely spent in organizations. It ensures the leaders adopt a strategic overview of quality and focus on prevention not detection of problems. Whilst it must involve everyone, to be successful, it must start at the top with the leaders of the

organization. All senior managers must demonstrate their seriousness and commitment to quality, and middle managers must, as well as demonstrating commitment, ensure they communicate the principles, strategies and

benefits to the people for whom they have responsibility. Only then will the right attitudes spread throughout the organization. A fundamental requirement is a sound quality policy, supported by plans and facilities to implement it. Leaders must take responsibility for

preparing, reviewing and monitoring the policy, plus take part in regular improvements of it and ensure it is understood at all levels of organization. Effective leadership starts with the development of a

mission statement, followed by a strategy, which is translated into action plans down through the organization. These combined with a TQM approach, should result in a quality organization, with satisfied customers and good business results. The 5 requirements for effective leadership

in quantity management activity are:

Developing and publishing corporate beliefs, values and objectives, often as a mission statement

Personal involvement and acting as role models for a culture of total quality

Developing clear and effective strategies and supporting plans for achieving the mission and

objectives

Reviewing and improving the management system

Communicating, motivating and supporting people and encouraging effective employee participation

Total Quality Management is a system implemented to reduce defects in finished products with the goal of

achieving zero products. These systems require timely data on defective products, rework costs, and the cost of honoring warranty contracts. This information is used to help to redesign the product in away that makes it less proves to defect. It may be used to reengineer the

production process to reduce set up time and decrease the potential for error. TQM systems provide information on non-financial measures such as customer satisfaction, number of sense calls and time to generate

reports. Attention to these measures which employees can control leads to increase profitability. Just in time inventory systems demand for an increased emphasis on product quality. If products are produced only as they are needed. It is very costly for the company



to have to stop production because of defects or machine breakdown. TQM and just in time production often aid in defective application of the lean business model. The main

purpose of lean business model is to eliminate waste and strive for continuous improvement which requires that every manager and employee continuously look to improve operations. TQM calls for all managers and

employees at all stages of operations to strive towards higher standards and a reduced number of defects. In today’s competitive and international market place, quality is synonymous with not just product quality but also cost, delivery and service. In a global market where

product life cycle has become short where customer expectations have increased, the traditional product testing/certification approaches are not adequate. To compete in international markets, companies in

developing countries need a sound quality management system. With liberalization and international competitiveness, there is need to improve the quality of goods manufactured by the industries. Standardization is one of the important tools for achieving quality up

gradation and building a strong quality culture within the organization. The basic elements of quality management are :8

An Appropriate infrastructure of “Quality System” encompassing the organizational structure,

procedures, processes and resources.

Systematic action necessary to ensure adequate confidence that a product (or service) will satisfy given requirements for quality.

The benefits of quality management system: 9

Satisfaction of customer’s requirements through all stages guaranteeing all features.

Customer confidence and creditability of the organization.

Improvement in industry’s competitiveness and reputation.

Organizational development and total quality management.

Continuous improvement. Quality system consists of organization structure,

procedures, processes, resources and responsibilities for implementing quality management.

Characteristics of TQM (a) It focuses on serving customers. (b) It is systematic problem solving using made up of

front line workers. (c) It uses bench marking studying organizations that

are among the best in the world at performing a

particular task. (d) It is international in scope and is not confined to

manufacturing activities only. (e) It provides tools and techniques for continuous

improvement based on facts and analysis.

(f) On proper implementation, it avoids counter productive organization in fighting.

(g) It improves productivity of an organization by using

scientific knowledge in decision making and discouraging counter productive defensive behavior.

(h) It emphasizes a tem approach involving people who work directly in the process.10

Dealing’s Fourteen points11 Presented below are Deming’s fourteen points for total quality management. Create constancy or purpose for improvement of

product and service. (Plan to stay in business.) Adopt the new philosophy. (Stop tolerating poor

business.) Cease dependence on inspection to achieve quality.

(Improve the process.) End the practice of awarding business on the basis of

price tag alone. (Seek longer-term supplier relationships; reduce the number of suppliers.)

Improve constantly and forever every process in the

system of planning, production and service.) Institute modern training (for everyday.) Institute modern methods of supervision,(The

responsibility of foremen must be changed from

sheer numbers to QUALITY.) Drive out fear. (Encourage employees to speak up.) Break down barriers between departments. Eliminate slogans, exhortations and targets for the

work force. Eliminate work standards that prescribe numerical quotas.

Remove barriers to pride in workmanship(Poor supervisors, poor materials, inadequate equipment, lack of training, etc)

Institute a vigorous program of education and self-

improvement for everyone. Place everybody in the company to work to accomplish

the transformation and create a structure in top management that will push every day on the above points.

Steps in implementing TQM12 1. Obtain CEO Commitment 2. Educate Upper-Level Management 3. Create Steering Committee 4. Outline the Vision Statement, Mission Statement, &

Guiding Principles 5. Prepare a Flow Diagram of Company Processes 6. Focus on the Owner/Customer (External) & Surveys 7. Consider the Employees as an Internet

Owner/Customer 8. Provide a Quality Training Program 9. Establish Quality Improvement Teams 10. Implement Process Improvements 11. Use the Tools of TQM

12. Know the Benefits TQM



Principles of TQM TQM can be defined as the management of initiatives and procedures that are aimed at achieving the delivery

of quality products and services. A number of key principles can be identified in defining TQM including-13 Executive Management - Top management should

act the main driver for TQM and create an

environment that ensures it success. Training - Employees should receive regular training

on the methods and concepts of quality. Customer Focus – Improvements in quality should

improve customer satisfaction.

Decision Making - Quality decisions should be made based on measurements.

Methodology and Tools - Use of appropriate methodology and tools ensures that non-

conformances are identified, measured and responded to consistently.

Continuous Improvement - Companies should continuously work towards improving manufacturing and quality procedures.

Company Culture - The culture of the company should aim at developing employees ability to work together to improve quality.

Challenges for using TQM The transformation to quality is not without its pitfalls. Many companies have started on the road to quality but failed to achieve success due to several factors: Lack of top management support.

Lack of middle management support. Commitment in only one department. Short-term commitment-failure to stay on course. Hapazard approach- a little of this and that with no

meaningful change in the system. Failure to acquire the services of a competent statistician

or to provide statistical training for employees. Failure to solicit worker input.

Over dependence on computerized quality control. Funding failure - lack of funds to make meaningful

changes in the system (i.e. new machinery, training, improved raw materials.)

No market research. Not knowing what the

requirements are. No testing of incoming materials- garbage in- garbage out.

Overselling hourly workers- expecting instant pudding Adversarial management (management by fear). However with total commitment and constancy of

purpose, these hazards can be overcome.14

CONCLUSIONS

TQM attempts to have maximum customer satisfaction through providing quality products and services but uncongenial business environment, high cost of production, increasing prices of products unfair

competition in the market are the major constraints in using TQM. Once the business in profitable, they can develop quality products and services. Absence of

breakeven point decline in demand for products, lack of trained manpower are other limiting factors for such use. We should try to have market research to satisfy our customers as well as managerial efficiency and

effectiveness side by side. We should also develop strategic management techniques to stand in open market economy. Once the strategies are appropriate business can see well and further enhance the wide are of TQM devices towards the customer’s goals achievement.

BIBLIOGRAPHY

[1] Garvin, David A. (1988) - Managing Quality - The Strategic and Competitive Edge, The Free Press; NY.

[2] Griffin, Ricky W. (2005) - Management (New York: Houghton Mifflin Company, 8th Edition).

[3] Dean, J.W. and Evans. J.R (1994) - Total Quality Management, Organization and Strategy, New York: West Publishing Company.

[4] Bhattacharjee, Milon Kumar & Mazumder, B.C. (2000) - Cost of Quality - A step towards Measuring Total Quality Management, The Chittagong University Journal of Commerce Vol.15.

[5] Sikder, Z,H. and Islam, Mohammad Ayub (2000) - SO-9000-An Overview, The Chittagong University Journal of Commerce Vol.15.

[6] Mamun, M.Z and Afrin, S. (2001) - Total Quality Management (TQM) Practices of the Bangaldeshi and Thai Companies: A Comparative Analysis, Journal of Business

Administration, Vol. 27, No. 1&2, January & April. [7] Bhuiyan M.M.H. and Uddin, M.K.(2007) - What Does

Total Quality Management stand for? Literature Review and Implications for Bangladesh, The Cost and Management, Vol. 35 No. 4 July-August.

[8] Goetsch, David L and Davis, Stanley B. (1997) - “Introduction to Total Quallity”, 2nd ed. New Jersy, Prentice Hall.

[9] Bhuiyan M.M.H (2000) - Transier of Japanese Total Quality Control to the US Firms, Unpublished MBA Thesis, Otaru University of Commerce, Japan

[10] Goetsch, D.L. and S.B. Davis (1997) - Introduction to Total Quality (Upper Saddle River, NJ: Prentice Hall Inc.)

[11] Educational Foundation - TOTAL QUALITY

MANAGEMENT : A CONTINUOUS IMPROVEMENT PROCESS 3 © 1996 PHCC

[12] Educational Foundation - TOTAL QUALITY MANAGEMENT : A CONTINUOUS IMPROVEMENT PROCESS 10 © 1996 PHCC







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