Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 65 | P a g e
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 66 | P a g e
Asian Business Consortium is a
self supporting organization and
does not receive funding from any
institution/government. Hence, the
operation of the journal is solely
financed by the processing fees
received from authors. The
processing fees are required to meet
operations expenses such as employee
salaries, internet services, electricity
etc. Being an Open Access Journal,
ABR does not receive payment for
online subscription as the journals
are freely accessible over the internet.
It costs money to produce a peer-
reviewed, edited, and formatted
article that is ready for online and
print publication, and to host it on a
server that is freely accessible
without barriers around the clock.
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 67 | P a g e
ASIAN BUSINESS REVIEW Print ISSN : 2304-2613; Online ISSN: 2305- 8730
Established: 2012
Review Process: Blind peer-review
Vol. 3, 4/2013 (6th Issue)
ABR is included and indexed in Research Bible, Journal listing Directory, Japan;
JOUR Informatics, Journal listing Directory, India; Scribd., An online web-controlled datadase directory
DRJI, Web based Directory of Research Journal Indexing, India; EZB (Electronic Journals Library), University of Regensburg, Germany;
IndexCopernicusTM, Internationally recognized data base, Warsaw, Poland; ASA’s Publishing Options, An Author’s Guide to Journals. Washington, DC 20005, USA;
getCITED, an online, member-controlled academic database directory and discussion forum; &
Publishing 1.com, Business Portals B.V., Ericastraat 19, 5615 BJ Eindhoven, The Netherlands.
We are working closely with many major databases to get ABR indexed, including AcademicOne, EBSCO, EI Compendex, CAS, ProQuest, DOAJ, and etc. We will gradually publish the index information of each journal and try to have a high ISI
impact factor for each journal eventually.
Printed by
Barendra Research Publication (BRP), Bangladesh
Published by Editorial Board of Asian Business Review
All communication should be addressed to the Editor-in-Chief, ABR
Email: [email protected]
Asian Business Consortium Bangladesh Chapter, Shyamoli, Dhaka, Bangladesh
www.abcreorg.weebly.com
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 68 | P a g e
ASIAN BUSINESS REVIEW www.abrjournal.weebly.com
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.
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 69 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 70 | P a g e
ABC Journals
Online Submission Peer Reviewed Open Access Online Archives Paperless Review Prompt Feedback Well Indexed Global Circulation International Authorship
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 71 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 72 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 73 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 74 | P a g e
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 3: Comparative Study on Internet Users among India, Bangladesh and Pakistan
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
Figure 3: Comparative Study on Internet Users among India, Bangladesh and Pakistan
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
Figure 5: Expansion of Internet banking tremendously for modernized generations
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
Figure 5: Expansion of Internet banking tremendously for modernized generations
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 77 | P a g e
REFERENCES
[1] ABA (American Bankers Association). (2004). “Affluent Customers Going Online”, ABA eAlert, IV
(10), May 14, 2004. Retrieved from World Wide Web
on 5 February 2006 at http://www.aba.com/Industry+Issues/ealert410.htm
[2] ACNielsen, (2005) “Online banking continues despite security concerns”, ACNielsen, Retrieved from World Wide Web on 7 February 2006 at http://www.acnielsen.com.au/news.asp?newsID=301
[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.
20, No. 4: 161-173. [5] Davis, F.D. (1989), “Perceived usefulness, perceived
ease of use, and user acceptance of information technology”, MIS Quarterly, Vol. 13 No. 3, pp. 319-40.
[6] Field Data. (2011). Internet Banking: A Study on Dutch Bangla Bank Limited, Sylhet Branch (unpublished Internship Report).
[7] Fox, S., (2005). “Online Banking Jumps 47% in 2 Years”, Pew Internet and American Life Project. Retrieved from World Wide Web on 15 February 2006 at http://www.pewInternet.org/pdfs/PIP_Online_Bank
ing_2005.pdf. [8] Gartner, (2003a). “Gartner Says Banks Must Focus on
Online Financial Applications to Remain Competitive in 2003 and Beyond”, Press Release, Gartner Group, February 20, 2003.
[9] Gonzalez, M.E., M.R. Dentiste and M.W. Rhonda (2008). An Alternative Approach in Service Quality: An E-Banking Case Study. Quality Manage, 15: 41-48.
[10] Gebert, H., Geib, M., Kolbe, L. and W. Brenner, (2003). “Knowledge-enabled customer relationship management: integrating customer relationship management and
knowledge management concepts”, Journal of Knowledgedge
Management, Vol. 7, No. 5: 107-123. [11] Haque, Ahasanul; Ahmad Zaki Hj Ismail and Abu
Hayat Daraz (2009). Issues of E-Banking Transaction: An Empirical Investigation on Malaysian Customers Perception. Journal of applied Sciences. (Retrived from www.ebsco.com on 20 March 2009)
[12] Heikki Karjaluoto, Minna Mattila and Tapio Pento (2002), "Factors underlying attitude formation towards online banking in Finland", International Journal of Bank Marketing, vol.20, No. 6, pp.261-272.
[13] IAMAI’s Report on Online Banking 2006 Retrieved from http://www.iamai.in/Research.aspx?Fileid=r8_home.htm&rid=8
[14] IWS, Internet Usage Statistics, Internet World Stats, (2006). Retrieved from World Wide Web on 9 February 2006 at http://www.Internetworldstats.com/stats.htm.
[15] Korgaonkar, P.K and L.D. Wolin, (1999). “A multivariate analysis of Web usage”, Journal of
Advertising Research, Vol. 39, No. 2: 53–68. [16] Lee, E-J., Kwon, K-N. and D.W. Schumann, (2005).
“Segmenting the non-adopter category in the diffusion of Internet banking”, International Journal of Bank Marketing, Vol. 23, No. 5: 414-437.
[17] Lichtenstein, Sharman & Williamson, Kirsty (2006). Understanding Consumer Adoption of Internet Banking:An Interpretive Study in the Australian Banking Context. Journal of Electronic Commerce Research, VOL 7, NO.2, Pp. 50-66. URL: http://www.csulb.edu/journals/jecr/issues/20062/paper1.pdf
[18] O’Loughlin, D., Szmigin, I. and P. Turnbull, (2004). “From relationships to experiences in retail financial
services”, International Journal of Bank Marketing, Vol. 22, No. 7: 522-539.
[19] Petrus Guriting and Nelson Oly Ndubisi (2006), "Borneo online banking: evaluating customer perceptions and behavioral intention", Management research news, vol.29, No. 1/2, pp.6-15.
[20] Rogers, E.M., (1995). Diffusion of Innovations, 4th ed.,
The Free Press, New York, NY. USA. [21] Walfried M. Lassar, Chris Manolis and Sharon s.
Lassar (2004), "The relationship between consumer innovativeness, personal characteristics, and online banking adoption", International Journal of Bank Marketing, vol.23, No. 2, pp.176-199.
[22] WB(World Bank) (2012).
IT.NET.USER.P2_Indicator_MetaData_en_EXCEL. Website: api.worldbank.org/.../IT.NET.USER.P2_Indicator_MetaData_en_EX.
[23] ZDNet, “Security worries holding back online banking”, ZDNet UK, (2005). Retrieved from World Wide Web on 20 February 2006, URL: http://news.zdnet.co.uk/Internet/security/0,39020375,39216740,00.htm.
[24] Zuboff, S. and Maxmin, J. (2003). The Support Economy, Viking. [25] Online Banking. ( 2012). URL:
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 78 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 79 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 80 | P a g e
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.
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 81 | P a g e
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
express, pp. 4, December. 2011. [4] E. Fama, “Efficient Capital Markets: II,” Journal of
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 &
Accounting, vol.21,no. 1, pp. 133-150.1994. [8] K.Ojah, and D. Karemera, “Random walks and market
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,
vol.19,no.4, pp. 1421.2005. [11] B. Asiri, “Testing weak-form efficiency in the Bahrain
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
[15] C.Ntim, J.Danbolt, and K.Opong, “An Empirical Re-Examination of the Weak Form Efficient Markets
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
Efficiency for Latin American Emerging Equity Markets,” The Journal of Financial Research, vol.3, pp. 299
– 309.1995. [23] D. Gujarati, Basic econometrics. Singapore: McGraw-
Hill.1995. [24] Errunza, R. Vihang, and L. Etienne, “The behavior of
stock prices on LDC markets,”Journal of Banking and Finance, vol. 9, pp. 561-575.1985.
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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 82 | P a g e
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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 83 | P a g e
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.
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 84 | P a g e
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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 85 | P a g e
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.
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 86 | P a g e
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
Responses No of Responses Percentage (%)
Yes 375 94%
No 25 6%
Total data collected 400 100%
(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
Responses No of Responses Percentage (%)
Yes 380 95%
No 20 5%
Total data collected 400 100%
(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
Responses No of Responses Percentage (%)
Yes 387 97%
No 13 3%
Total data collected 400 100%
(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
Responses No of Responses Percentage (%)
Yes 360 90%
No 40 10%
Total data collected 400 100%
(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.
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 87 | P a g e
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
Responses No of Responses Percentage (%)
Yes 340 85%
No 40 15%
Total data collected 400 100%
(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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 88 | P a g e
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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 89 | P a g e
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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 90 | P a g e
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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 91 | P a g e
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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 92 | P a g e
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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 93 | P a g e
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
Delta Life Insurance Bangladesh Ltd. 1.000 1.000 1.000
Baira Life Insurance Ltd. 1.000 0.296 0.274
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
Prime Islami life Insurance Ltd. 0.908 0.957 0.9330
Mean 0.919 1.018 0.9690
Life Insurance
National Life Insurance Co. Ltd. 0.995 0.984 0.9895
Delta Life Insurance Bangladesh Ltd. 1.182 0.799 0.9905
Baira Life Insurance Ltd. 0.996 1.019 1.0075
Meghna Life Insurance Co. Ltd. 1.007 1.018 1.0125
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 94 | P a g e
Popular Life Insurance Co. Ltd. 0.848 0.950 0.8990
Pragoti Life Insurance Co. Ltd. 0.773 1.400 1.0865
Progressive Life Insurance Co. Ltd. 1.109 1.090 1.0995
Rupali Life Insurance Co. Ltd. 1.165 0.872 1.0185
Sandhani Life insurance Co. Ltd. 0.875 0.841 0.8580
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
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 Ltd. 0.969 0.951 0.960
Prime Islami life Insurance Ltd. 0.908 0.957 0.933
Mean 0.915 0.915 0.915
Life Insurance
National Life Insurance Co. Ltd. 0.995 0.984 0.9895
Delta Life Insurance Bangladesh Ltd. 1.182 0.799 0.9905
Baira Life Insurance Ltd. 0.998 1.053 1.0255
Meghna Life Insurance Co. Ltd. 1.028 1.036 1.032
Popular Life Insurance Co. Ltd. 0.985 1.052 1.0185
Pragoti Life Insurance Co. Ltd. 1.007 1.054 1.0305
Progressive Life Insurance Co Ltd. 1.109 1.090 1.0995
Rupali Life Insurance Co. Ltd. 0.964 0.926 0.9450
Sandhani Life insurance Co. Ltd. 0.994 0.926 0.9600
Sunlife Insurance Co. Ltd. 0.941 0.926 0.9335
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.
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 95 | P a g e
Table 6: Changes in Operators Relative Efficiency, 2009-2011
Types Name of the Insurance Company 2009- 2010
2010- 2011
Mean
Takaful Life
Fareast Islami Life Insurance Co. 1.000 1.000 1.000
Padma Islami life insurance Ltd. 1.013 1.323 1.168
Prime Islami life Insurance Ltd. 1.000 1.000 1.000
Mean 1.004 1.098 1.051
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. 0.998 0.968 0.983
Meghna Life Insurance Co. Ltd. 0.979 0.983 0.981
Popular Life Insurance Co. Ltd. 0.861 0.903 0.882
Pragoti Life Insurance Co. Ltd. 0.768 1.328 1.048
Progressive Life Insurance Co. Ltd. 1.000 1.000 1.000
Rupali Life Insurance Co. Ltd. 1.209 0.942 1.0755
Sandhani Life insurance Co. Ltd. 0.880 0.879 0.8795
Sunlife Insurance Co. Ltd. 0.980 0.952 0.966
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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 96 | P a g e
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
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 97 | P a g e
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.
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 98 | P a g e
REFERANCES
[1] Abidin Z. & Cabanda E.,(2011), efficiency of non-life insurance in indonesia, Journal of Economics, Business and Accountancy Ventura,14(3), 197 – 202.
[2] AFZA T. & Jam-e-Kausar, (2010), Efficiency of the Insurance Industry in Pakistan: An Application of Non-parametric Approach, interdisciplinary journal of contemporary research in business, 2 (8), 84-98.
[3] Afza T. & Jam-e-Kausar, (2010), Firm size and efficiency in the non-life insurers of Pakistan, Journal of Quality and Technology Mgt Forthcomming .
[4] Ali, M. M. K.,(2000), Provision of micro-insurance for microfinance clients. Microfinance Newsletter, 7, 2-5.
[5] Barros,C.P.; Barroso, N. and Borges, M.R., (2005). Evaluating the Efficiency and Productivity of Insurance Companies with a Malmquist Index: A Case Study for Portugal. Geneva Papers on Insurance, 30, 244-267.
[6] Barros, P., Obijiaku, E. L., (2007). Technical Efficiency of Nigerian Insurance Companies. Department of Economics, Institute for Economics and Business Administration (ISEG), Technical University of Lisbon. WP No. 18.
[7] Berger, A.N, Hunter, W.C., & Timme, S.G., (1993). The efficiency of financial institutions: A review and preview of research past, present and future. Journal of Banking and Finance, 17(2&3), 221-250.
[8] Berger, A. N., Humphrey, D. B., (1997). Efficiency of
Financial Institutions: International Survey and Directions for Future Research. European Journal of Operational Research 98 (2), 175–212.
[9] Coelli, T. J., (1996a). A Guide to Deap Version 2.1: A Data Envelopment Analysis (Computer) Program, Working Paper No. 8/96, Department of Econometrics, University of New England.
[10] Cummins, J. D., Turchetti, G., Weiss, M. A., (1996). Productivity and Technical Efficiency Italian Insurance Industry. Working Paper, Wharton Financial Institutions Center, University of Pennsylvania, PA.
[11] Cummins, J. D., Zi, H., (1998). Comparison of Frontier Efficiency Methods: An Application to the U.S. Life Insurance
Industry. Journal of Productivity Analysis 10 (2), 131–152. [12] Cummins, J. D., Weiss, M. A., Zi, H., (1999).
Organizational Form and Efficiency: The Coexistence of Stock and Mutual Property-Liability Insurers. Management Science 45 (9), 1254–1269.
[13] Cummins, J. D. and Rubio-Misas, M. (2001). Deregulation, consolidation, and efficiency: evidence from the spanish industry, Working Paper Series, The Wharton School, University of Pennsylvania.
[14] Cummins, J.D. and Weiss, M.A., (2002). “Analysing Firm Performance in the Insurance Industry, using Frontier efficiency Methods”. In Dionne, G. (ed), Handbook of Insurance Economics. Kluwer, Boston, 767-829
[15] Diacon, S. R., (2001). The Efficiency of UK General Insurance Companies. Working Paper, Centre for Risk & Insurance Studies, University of Nottingham.
[16] Fare, R., Shawna, G., Bjorn, L., & Ross, P.(1989). Productivity development in Swedish hospitals: A
Malmquist output index approach. Mimeo.
[17] Fare, R., Shawna, G., Mary, N., & Zhongyang, Z.,(1994), Productivity growth, technical progress and efficiency change in industrialized countries. American Economic Review, 84, 66-83.
[18] Forsund, F. 1991. The Malmquist productivity index.
Paper presented at the 2nd
European Workshop on
Efficiency and Productivity Measurement. Berlgium: Centre of Operations Research & Econometrics, University Catholique de Louvain, Lauvain-la-Neuve.
[19] Fukuyama, H., (1997). Investigating Productive Efficiency and Productivity Changes of Japanese Life Insurance Companies. Pacific-Basin Finance Journal 5 (4), 481– 509.
[20] Jesmin et al (2013) “Measures of Efficiency in the Takaful Industry of Bangladesh- A Non Parametric Approach.” EJBM-Special Issue: Islamic Management and Business, 5 (11), 163-173.
[21] Kessner, K., Polborn, M., (1999). Eine Effizienzanalyse der deutschen Lebensversicherer—die Best Practice Methode. Zeitschrift für die gesamte Versicherungswissenschaft 88, 469–488.
[22] Leong, W.H., Dollery, B., & Coelli, T.,(2003), Measuring technical efficiency of banks in Singapore for the period 1993-1999: An application and extension of the Bauer et al.,1997 technique. ASEAN Economic Bulletin, 20(3), 195-210.
[23] Mahlberg, B., Url, T., (2003). Effects of the Single Market on the Austrian Insurance Industry. Empirical Economics 28, 813–838.
[24] Mahlberg, B and Url, T., (2010). Single Market effects on productivity in the German insurance industry, Journal
of Banking & Finance Vol. 34, No. 7, 1540–1548. [25] Mansor, S. A., Radam, A., (2000). Productivity and
Efficiency Performance of the Malaysian Life Insurance Industry. Jurnal Ekonomi Malaysia 34, 93–105.
[26] Meador, J. W., Ryan, Jr., H. E., Schellhorn, C. D., (2000). Product Focus Versus Diversification: Estimates of X-Efficiency for the US Life Insurance Industry. Working Paper, Wharton Financial Institutions Center University of Pennsylvania.
[27] Neal, P., (2004),. X-efficiency and productivity change in
Australian banking. Australian Economic Papers, 13(2), 174-191. [28] Noulas, A. G., Hatzigayios, T., Lazaridis, J., Lyroudi,
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.
Asian Business Review, Volume 2, Number 3/2013 (Issue 5) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 99 | P a g e
[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.
ABC Journal of Advanced Research
ABC Journal of Advanced Research is a blind peer-reviewed international multi-disciplinary research journal which deals with
applied as well as theoretical issues. Paper submissions should be electronically in MS-Word form.
www.abcjar.us
Published by Asian Business Consortium, United States of America
3900 Woodhue Place, Alexandria, VA 22309, USA
ABC-JAR? www.abcjar.us
High quality editorial board
Rigorous and rapid peer review
Open Access & high citation rate
Will apply for ISI track in the near future
ABC Journal of Advanced Research
adopts a blinded review policy. Authors
are blind to reviewers. Typically, the
review period is within 6 weeks. If
authors do not receive a decision letter
by email in 8 weeks after the
submission, the corresponding author
may send an email to inquire the status
of their submission. If you need a
shorter review period due to special
circumstances, you may request such
along with your explanation of the
situation by email; however, ABC-JAR
cannot guarantee granting the request
because high quality judgment of
scientific work in short time is a
challenge.
www.abcjar.us
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 100 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 101 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 102 | P a g e
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*
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 103 | P a g e
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.
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 104 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 105 | P a g e
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,
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 106 | P a g e
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.
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 107 | P a g e
[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
ABR!!! “Speedy publication service, Online archives, Paperless, web-based peer
review system, Open access policy, Indexing in world known citation databases, Global circulation, Broad international readership and
authorship, Online submission system, Minimum publication charge”
Important!!!
If the responses and the revised manuscript are not submitted by the deadline, submission is deemed to have been abandoned. The
rejection of the manuscript will be conveyed to the Authors. ABR
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 108 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 109 | P a g e
“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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 110 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 111 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 112 | P a g e
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.
REFERENCES
[1] Bhatnagar, S. E-Government: From vision to
Implementation; Sage publications, 2004.
[2] Devraj, R. South Asia: Digital divide sharpens Rich-poor Gap, (2006).
[3] DiMaggio, p. and E. Hargittai.(2001).”From the ‘Digital Divide to ‘Digital Inequality’: Studying Internet Use as
Penetration Increases.” Princeton: Centre for Arts and Cultural Policy Studies, Woodrow Wilson School,
Princeton University. [4] DiMaggio, p. and Hargittai, E.,Celeste, C., and Shafer,
S.(2004).Digital Inequality: From Unequal Access to Differentiated Use. In Social inequality, ed. K Neckerman, pp. 355-400. New York: Russell Sage Foundation.
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 113 | P a g e
[5] Ghosh, A. & Arora, N. Role of e-governance:Frameworks in
effective implementation, ICEG, Lahore, Pakistan. 2005. [6] Inaugural address at IIT Delhi during International
Conference on E-Governance. [7] Kumar, V., (2000), International Marketing Research,
Harvard Business Review, Vol. XXXIV, No. 2, PP. 40-60. [8] Rahman, M.H. & Naz, R. (2006); Digital divide within
society; an account of poverty, community and e-governance in Fiji. Volume 3, Number 3.
[9] Report of the Working Group on convergence and E-governance for the Tenth Year Plan (2002-2007), Planning Commission, November, 2001.
[10] Riley, B.T. E-governance vs. E-government, November-
December, 2003. [11] Roxana Barrantes Caceres, Digital poverty: concept and
measurement with an application to Peru, Working paper # 337-March 2007.
[12] Singh, S.H. Ways and means of bridging the gap between
developed and developing countries, High-level panel on IT
and public administration, United States, 2000. [13] Venkat, K. Digital divide and poverty, The Howorth
Press, 2001. [14] Warschauer,M. (2003). Technology and Social Inclusion:
Rethinging The Digital Divide. Cambridge, MA: MIT Press. [15] Warschauer,M. (2003). Demystifying the Digital Divide.
Scientific American, Vol.289 (Issue 2), S.42.
[16] Wilson, K. R. Wallin, J.S. & Reiser C.(2003). Social Stratification and the Digital Divide, Social Science Computer Review, Vol.21 No. 2, 133-143.
Internet references [17] E-government Act of 2002; (from
http://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=107-cong-public laws7docid=f: pub1347.107.pdf).
[18] http://www.ejisdc.org, The Electronic Journal on Information System in Developing Countries.
[19] ALADI. (2003). La Brecha Digital y sus Repercusiones en los Países Miembros de la ALADI [The DigitalDivide and Its Impact on
ALADI Member Countries], Asociación Latinoamericana de Integración [Latin American Association for Integration] –
ALADI, 194 pp. Retrieved from http://www.aladi.org/nsfaladi/titulare.nsf/5c424a97a14f01e0032568e00046db1b/fa8db613acb8 beee03256d74004dcd3a/$FILE/157Rev1.doc.
[20] World Bank. (2002). Information and Communication
Technologies: A World Bank Group Strategy. Retrieved May 3, 2005, from http://info.worldbank.org/ict/assets/docs/sp_ExecSum.pdf
[21] World Bank. (2003). ICT and MDGs: A World Bank Group
perspective, World Bank Group’s Global ICT Department. Washington D.C. 39 pp. Retrieved April 30, 2005, from http://info.worldbank.org/ict/assets/docs/mdg_Complete.pdf
[22] ETS. (2002). Digital Transformation. A Framework for ICT Literacy. A report of the International ICT literacy panel.
Retrieved May 16, 2005, from [23] http://www.ets.org/research/ictliteracy/ictreport.pdf [24] INEI. (2003). Encuesta Nacional De Hogares sobre
Condiciones de Vida y Pobreza [National Household Survey on Living Standards and Poverty] - ENAHO 2003, Instituto Nacional de Estadística e Informática [National Institute of Statistics and Computer Science] - INEI, Data Base.
[25] Nyaki, C. (2002). ICT and Poverty: A Literature Review,
International Development Research Center- IDCR, 58 pp. Retrieved May 27, 2005, from http://network.idrc.ca/uploads/user- S/10541291550ICTPovertyBiblio.doc.
[26] http://network.idrc.ca/ev.php?URL_ID=24718&URL_DO=DO_TOPIC&URL_SECTIONORBICOM. (2003). Monitoring the Digital Divide…and Beyond. Orbicom,
Canadian Agency for International Development, InfoDev and UNESCO, 161 pp. Retrieved May 10, 2005, from http://www.infodev.org/files/836_file_The_Digital_Divide.pdf.
[27] ITU. (2003). New Digital Access Index. International
Telecommunications Union, ITU. p. 6-17. Retrieved May 29, 2005, from http://www.itu.int/ITU D/ict/dai/material/DAI_ITUNews_s.pdf.
Why Open Access ???
“In the traditional publishing model, readers have limited access to scientific papers; authors do not have copyright for their own papers, and cannot post their papers on their own websites, which presents a significant
barrier to the sharing of knowledge, as well as being unfair to authors. Open access can overcome the drawbacks of the traditional publishing model and help scholars build on the findings of their colleagues without restriction”
Submit your next manuscript at- www.abcjournals.net
ABC Journals is a unique forum to offer open access to all of its articles.
Now ABC Journal’s portfolio is over nine journals, which publish both online and in print.
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 114 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 115 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 116 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 117 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 118 | P a g e
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.
Source: Field Survey, 2012
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
Source: Field Survey, 2012
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 119 | P a g e
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.
FINDINGS OF THE STUDY
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.
REFERENCE
[1] Amin R. S. Becker and A. Bayes (1998), NGO- Promoted Micro Credit Programmes and Women’s Empowerment in Rural Bangladesh: Quantitative and Qualitative Evidence. The Journal of Development Areas,
Vol. 32, No. 02. [2] Batliwala, Srilata (1993), Defining Women’s
Empowerment: A Conceptual Framework, www.genderatwork.org/updir/Batliwala-empowermentframework. html, retrieved on 10.05.2005.
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 120 | P a g e
[3] Gertler, P., Levine, D.I. and Moretti, E. (2008) “Do Microfinance Programs Help Families Insure Consumption against Illness?” Health Economics, John
Wiley & Sons, Ltd., Vol. 18, No. 3, p. 257-273. [4] Goetz, S., M., & Sen Gupta, R. (1996) “Who Takes the
Credit? Gender, Power, and Control Over Loan Use in Rural Credit Programs in Bangladesh”, World
Development, Vol. 24, No. 1, p. 45-63.
[5] Goswami, Arun Kumar, (1998), Empowerment of Women in Bangladesh, Empowerment, vol. 5, Women for Women, Dhaka.
[6] Grameen Bank Annual Report, 2010. [7] Haider, Rumel and Akhtar, Rasheda, (1999), the Role
of NGO and Women’s Perception of Empowennent: An Anthropological Study.
[8] Hulme, D., (2000) “Impact Assessment Methodologies for Microfinance: Theory, Experience and Better Practice”, World Development Vol. 28, No.1, p.7-998.
[9] Islam and Sultana (2005), Role of NGOs in Empowering the Vulnerable Women: A Study on ACD, Asian Affairs, Vol. 27, No. 4, p. 24-40, October - December, 2005.
[10] Julia, C.K. Charlotte H. W., James R. H., Luceth X. N., Godfrey P.,, Linda A. M.,, Joanna B., John D.H. P. and
Paul P. (2007) “Understanding the Impact of a Microfinance-Based Intervention on Women’s Empowerment and the Reduction of Intimate Partner Violence in South Africa”, American Journal of Public Health, October 2007, Vol. 97, No. 10.
[11] Kabeer, N., (2001) “Conflicts Over Credit: Re-Evaluating the Empowerment Potential of Loans to Women in Rural Bangladesh” World Development Vol.
29, No. 1, p. 63-84. [12] Khan and Ara (2006), Women, Participation and
Empowerment in Local Government: Bangladesh Union Parishad Perspective. Asian Affairs, Vol. 29, No. 1, p. 73-00, January-March, 2006.
[13] Khan, Salma (1998), A Macro View of the Situation of
Women in Bangladesh, the Fifty Percent, Women in Development and Policy in Bangladesh. The University
Press Limited, Dhaka.
[14] Khandker, S. R., Samad, H. A. and Khan, Z. H (1998) “Income and Employment Effects of Micro-credit Programs: Village Level Evidence from Bangladesh”, The
Journal of Development Studies, Vol. 35, No. 2, p. 96-124. [15] Mahmud, S. (2003) “Actually how Empowering is
Microcredit?” Development and Change Vol. 34, No. 4,
p. 577–605. [16] Mayoux, Linda (2001), “Micro-Finance and The
Empowerment of Women” A Review of the Key Issues” (Online) Available at J:\ilo_data\public\english\employment\finance\download\wp23.wd.
[17] Micro Credit Summit (1997), “Declaration and Plan of Action”. (Online) Available at http// www.microcreditsummit.org/ declaration.html.
[18] Parvin. S (1995), “Empowering Women: Problem and Potentiality.” Paper prepared for presentation at the 11th Biennial Conference of the Bangladesh Economic Association, Dhaka, July 29-31.
[19] Pitt, M. M., Khandker, S. R. and Cartwright, J. (2006) “Empowering Women with Microfinance: Evidence from Bangladesh”, Economic Development and Cultural Change, p. 791- 831.
[20] Pronyk, P.M., Harpham, T., Busza, J., Phetla, G., Morison L.A., Hargreaves J.R., Kim J.C., Watts, C.H. and Porter,
J.D. (2008) “Can social capital be intentionally generated? A randomized trial from rural South Africa” Social Science & Medicine 67 (2008) 1559–1570.
[21] Schuler, S. R. and Hashemi, S. M. (1994) “Credit Programs, Women’s Empowerment, and Contraceptive use in Rural Bangladesh”, Studies in Family Planning, Vol. 25, No. 2 (Mar. - Apr., 1994), p. 65-76.
[22] Ullah, AKM Ahsan, (2003), Empowerment of Women in Bangladesh: Do NGO Interventions Matter? Empowerment, vol. 10, Women for Women, Dhaka.
[23] Wikimedia (2005). 22nd July .http://en.wikipedia.org/wiki/women, Retrieved on 24.07.2005.
[24] Yunus Muhammad (2006), Microcredit: Banking With the Poor without Collateral.
CALL FOR PAPER American Journal of Trade and Policy (AJTP) is an
open-access, peer-reviewed interdisciplinary journal
which seeks articles from any broad theme of international trade. AJTP features reports on current
developments in international trade as well as on related policy issues. The digital online version is
published by AJTP, and the hard copy (print) version is
published by Asian Business Consortium, USA.
Website: www.ajtp.us
Engineering International (EI) is a peer-reviewed multi-disciplinary international journal devoted to academic
advanced research in engineering disciplines. It specializes in the publication of comparative thematic issues as well as individual research articles, review essays, and book reviews. Committed to disseminating rigorous scientific research to the widest possible audience, EI is fully and
freely accessible on line. Published by Asian Business
Consortium, USA. Website: www.j-ei.us
Important!!!
If the responses and the revised manuscript are not submitted by the deadline, submission is deemed to have been abandoned. The rejection of the manuscript will be conveyed to the Authors.
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 121 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 122 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 123 | P a g e
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.
FINDINGS OF THE STUDY
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 124 | P a g e
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
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 125 | P a g e
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
[13] Educational Foundation - TOTAL QUALITY MANAGEMENT : A CONTINUOUS IMPROVEMENT PROCESS 4 © 1996 PHCC
[14] Educational Foundation - TOTAL QUALITY MANAGEMENT : A CONTINUOUS IMPROVEMENT PROCESS 9 © 1996 PHCC
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 126 | P a g e
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 127 | P a g e
Asian Business Consortium
www.abcreorg.weebly.com
Asian Business Consortium (ABC) is a multi-disciplinary research, training, publishing, digital library
supporting and service house. Though founded in 2010 as the Business and Computing organization of Asia, it
was reconstituted as the ABC in 2011. It has been working for creating and nurturing talents in USA, Malaysia and Bangladesh since its inception. As ABC is going global, it intends to open offices in Australia, Germany, Japan, Pakistan, and other Asian countries in near future. The objectives of consortium are solely centered
round the welfare and humane attitude of the founders who enthusiastically took up this noble cause and materialized it with a view to promote research and educational activities for the encouragement of scholars to
develop their knowledge, to publish their analysis oriented scientific researches in international Journals, books, the task of organizing workshops, seminars, conferences, training, personality development programs and allied services.
In addition to research activities, ABC provides a good number of scholarships to the poor and meritorious students at various levels of education throughout the world. It plays an important role in the field of research
by funding research projects and publishing the research papers. This consortium will unquestionably become the mouth-piece of the dark horses and unacknowledged scholar whose endowed and commendable
contributions shall be provided an outlet keeping in mind the greater good of the larger society of the world. ABC runs the following international referred journals for creating a platform to share the thoughts of
professionals, scholars and academicians throughout the world.
Asian Journal of Applied Sciences and Engineering (AJASE)
International Journal of Reciprocal Symmetry and Theoretical Physics (IJRSTP)
ABC Journal of Advanced Research (ABC JAR)
Engineering International (EI)
American Journal of Trade and Policy (AJTP)
Asian Accounting and Auditing Advancement (4A Journal)
Asian Business Review (ABR)
Global Disclosure of Economics and Business (GDEB)
ABC Research Alert (Online Journal) Each journal home page provides specific information for potential authors and subscribers. Open access policy,
the quick review process, rich editorial boards and quality publications have already made ABC Journals
unique. ABC Journals are published under the direct supervisions of renowned academicians of the world.
Collaboration in Conference ABC considers high-quality conference papers for publication. Please contact us for detailed information.
Collaboration in Publishing If you like to start writing a book, propose a new journal or advertise in ABC journals, please feel free to contact us.
Asian Business Review, Volume 3, Number 4/2013 (Issue 6) ISSN 2304-2613 (Print); ISSN 2305-8730 (Online) 0
Copyright © 2012, Asian Business Consortium | ABR 128 | P a g e
Asian Business Consortium is an Independent Research House Committed to Publishing and Delivering Superior, Peer-reviewed Standard Research
abcDNA Scientists The service for scientists provides easy access to global networking and collaboration. Join or start your own on-line research projects with unique identity. Find collaborators with desirable research skills and access to key equipment for your research. Perform global searches for scientists in your area of expertise. Monitor literature, case reports, conferences, patents and available grant opportunities. Visit: www.abc.us.org
abcGATE Indexation abcGATE is a journal indexing and ranking site The service for research journals' administration allows easy indexation of research journals in real time as well as online access to up to date information, statistics and analytical data. This service improves journals’ performance and the efficiency of research publishing through evidence-based decisions. abcGATE also aids in the areas of excellence through multi-parameter evaluation of scientists, research groups, divisions and faculties. Visit: www.abc.us.org
ABC Journals ABC Journals: a new era of publishing. This service helps an author to grow from a local level to a global one as well as providing complete research article publication solution. ABC Journals helps to professionally manage articles from your location and automatically delivers your contribution to our site. This service accepts peer-review and tracks manuscripts online and builds up relations with authors, reviewers and readers as well as increasing the international awareness of research publication. Visit: www.abc.us.org
Asian Business Consortium
3900 Woodhue Place, Alexandria, VA 22309, USA Email: [email protected]
Pantidalam, Kuala Lampur Malaysia
Email: [email protected]
Rd 4, Shyamoli Dhaka-1207, Bangladesh
Email: [email protected]