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.
Success drivers of small business banks in developing economies: Four case studies compared with the IFC's SME banking value chain
Do banks that focus on small businesses in developing economies possess distinguishing attributes? The team studied four leading small business banks in developing economies and compared their practices with the SME banking value chain in the IFC SME Banking Knowledge Guide. The case studies confirmed most elements in the value chain; however, three additional overriding success drivers were observed: 1) management commitment to small business customers; 2) loan officers’ skills in outreach to customers and in preparation of credit memos; and 3) the creation of efficiencies in lending. At the same time, other activities in the banking value chain proved less crucial to these banks’ success: 1) bundling and cross-selling non-lending products; 2) the separation of business development and risk management functions; and 3) the use of customer and profitability data to fully refine their banking model. Further case studies and benchmarking will help the industry continue to refine its banking models.