Evaluating poverty outreach of small business lending: a study of BRAC Bank, Bangladesh

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Abstract:

Relatively little is known about the profile of employees in small businesses in developing economies or how to track a lending programme's poverty outreach. Poverty outreach is considered one useful indicator of social performance. To shed more light on this issue, this study surveyed over 1,000 small business customers of BRAC Bank in Bangladesh and their over 7,000 employees. These businesses received average loans of just under $7,000 with a loan term of 21 months. Using a poverty scorecard, the study found that 17 per cent of the small business employees were poor according to the $1.08 per day purchasing power parity standard. Using standard regression techniques, the study derived a firm-level scorecard that can estimate the poverty rate of these firms' employees based on five indicators: the firm's economic sector, its rural or urban location, the portion of unskilled workers, whether the firm employs any women, and the total number of workers. Standardized reporting of these indicators contributes to the global discussion on poverty outreach of small business employment. More research is needed to reveal whether lending to small businesses benefits poor employees and to refine best practices on how to serve businesses with higher rates of employee poverty.

Keywords: POVERTY INDICATORS; POVERTY OUTREACH; POVERTY SCORECARDS; SMALL BUSINESS LENDING; SOCIAL INVESTORS

Document Type: Research Article

DOI: http://dx.doi.org/10.3362/1755-1986.2009.019

Publication date: September 1, 2009

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