Microfinance and Capital Markets - Council of Microfinance Equity ...

that prepare their clients economically until they are able to borrow. 22 Despite its effort toreach as far down the scale as is economically feasible, BRAC’s microfinance operationshave operated profitably with a ROA of 6.9%, ROE of 23%, operating costs of 13% andportfolio write offs at 0.63% as of end 2006. 23 BRAC’s microfinance operations haveextended to Sri Lanka, Afghanistan, and sub-Saharan Africa, making BRAC amultinational MFI. See Table 4 for a summary of BRAC’s microfinance operations.In addition to its microfinance operations, BRAC has been involved in operating anumber of businesses—a poultry farm, cold storage facilities, internet service provision,land and housing operations, hospitality services and housing finance. BRAC also runs anumber of programs that build employment skills and educate young peoplethroughout Bangladesh.However, BRAC did not choose to commercialize its microfinance operations; it remainswithin the NGO. Instead, BRAC’s management chose to float BRAC Bank, acommercial bank servicing SMEs in Bangladesh—largely the “missing middle” withrespect to financial services in many developing countries.BRAC perceived an important economic and social opportunity in serving this missingmiddle and floated BRAC Bank Limited through an IPO on the Dakha and ChittagongStock Exchanges on December 11, 2006. BRAC Bank raised some $13 millionthrough the IPO, all of which will be utilized to expand the bank’s operationsthroughout Bangladesh. 24By the end of 2006, BRAC Bank operated some 280 unit offices, had approximately3,000 staff and 61,000 borrowers, with a gross loan portfolio of $293 million. During2006, monthly loan volume averaged $5.8 million dollars, and average loan size was$4,761 dollars. Savings deposits totaled $344 million dollars coming from 259,000savings accounts. During 2006 net profits were $5 million, up from $530,000 in 2003.ROA was 1.42% and ROE was 23% in 2006.Although BRAC is considered one of the most successful microfinance institutions, itsunique structure and development present several challenges that the organization willhave to meet:• A non-profit structure—Currently BRAC’s microfinance strategy operatesunder an NGO structure that does not allow the mobilization of savings or theability to raise funds commercially. This strategy differs markedly from theapproach taken by BRI and Equity Bank, for example, which providesmicrofinance and SME services through full-scale commercial banks.Compartamos also operates as a commercial bank, but is focused on microfinanceand has not yet mobilized savings in a significant way. Although BRAC’sstrategy reflects its personal development and there is no single best model to be22 Ibid.23 The MIX Market.24 BRAC Bank Limited, Prospectus (2006).12