Credit Facilities for the Poorest of the Poor : A Study on Grameen Bank in Bangladesh

Sat, 01 Jan 2000 00:00:00 GMT

Credit Facilities for the Poorest of the Poor : A Study on Grameen Bank in Bangladesh Uddin, Mohammad Main Bangladesh has a vast poor population and has grown alarmingly since independence. They are not only extremely poor but are virtually shelter less on a regular basis (Rahman, 1989-90: 381). The World Development Report 1990 presents daily calorie supply per capita for various countries. Among the 38 low-income countries, Bangladesh with only 1927 calories supply per day per capita occupies ninth position from the bottom (Momin, 1992: 9). A recent survey showed that 64 percent of surveyed household had difficulty in satisfying basic needs, 70 percent of those experienced it on a prolonged basis (BBS, 1995). Widespread poverty, malnutrition and hunger have also been reported by a village survey (1989-90) 01 BIDS. Using head count ratio, it was found that 60 percent of the sample were below poverty line. This poor segment of the society is purpose

Financial Reporting Practices in Private Sector Commercial Banks of Bangladesh

Wed, 01 Jan 2014 00:00:00 GMT

Financial Reporting Practices in Private Sector Commercial Banks of Bangladesh Rahman, Md. Tahidur Banks as the most important functionary of the financial system play a dynamic role in the economic development of a nation through mobilization of savings and allocation of credit to productive sectors. Most individuals and organization make use of banks either as depositor or borrow or investor. Hence, there is a considerable and wide-spread interest in the well-being of banks and in particular their risks, solvency, liquidity and profitability. It is expected that these aspects of banks will be disclosed fairly and timely basis through financial and other reports prepared by the management of the banks so that the users of these reports can make wile decisions. The present study on Financial Reporting Practices in Private Sector Commercial Banks of Bangladesh has been conducted to evaluate the accounting and reporting practices of the banking sector in private sector. Accounting and reporting practices are guided by a multiplicity of rules, regulations, and professional requirement and also depends on the willingness of management. The objectives of the study were: to identify the reporting requirements of private sector commercial banks in Bangladesh; examine the extent of disclosure in the financial reporting by private sector commercial banks in Bangladesh; examine the consistency of disclosure among different categories of information; examine the difference between the reporting practices of Islamic and Conventional Private Commercial Banks; determine the factors influencing the extent of disclosure in the annual reports of listed Commercial Banks in Bangladesh; and provide constructive suggestion for better financial reporting of the Banking sector on the basis of the findings of the study. In examine the legal requirements of financial reporting; it has been found that The Companies Act, 1994 and The Bank Companies Act, 1991 plays the most vital role in financial disclosure of banking companies in Bangladesh. In addition, banks in Bangladesh are bound to follow the circulars issued by Banking Regulation and Policy Departments (BRPD) of Bangladesh Bank (BB) and The Bangladesh Securities and Exchange Commission from time to time. Securities and Exchange Rules, 1987 requires compliance with IASs/IFRSs as adopted in Bangladesh (these are known as Bangladesh Financial Reporting Standards and Bangladesh Accounting Standards). Among the IASs/BASs and IFRSs/BFRSs IAS-1: Presentation of Financial Statements” and “IFRS-7: Financial Instruments: Disclosure” are the widely followed standard in financial reporting of private sector commercial banks in Bangladesh. To examine the extent of disclosure in financial reporting by private commercial banks, five years’ annual reports of six sample banks that cover about 27.5% of the eligible population were studied by using a researcher developed Unweighted Disclosure Index (UDI) that contains 247 disclosure items and follows the dichotomous method where one (1) is given for any disclosed item and zero (0) is given for any undisclosed item of information incorporated in the disclosure index. Empirical findings from the analysis of the annual reports, on the basis of disclosure index, reveal that the mean disclosure of five years is 76.18 percent which was 67 percent in 2008 and 84.6 percent in 2012. The trend shows that the mean disclosure score of the banking sector is increasing. However, the rate of its increase from year to year is very high with a yearly average rate of increase 6.02 percent. The average size of annual report in terms of number of pages was increasing from year to year to a significant extent. The average number of pages in the annual reports of the sample banks was 155.2 pages in 2008 which became 330.6 pages in 2012. On the other hand, it has been observed that in 2008 about 66.67% of the banks used Bengali version beside the English version which was constant in 2009 and it gradually decreased to only 16.67% in 2012. The ranking of the banks on the basis of overall disclosure level features three banks topping the list, they are: Prime Bank Limited with a score of 87.85 percent followed by Islami Bank Bangladesh Limited with a score of 81.86% and then Bank Asia Limited with a score of 77.81 percent. But still there are some mandatory items undisclosed by the banks in Bangladesh and the mean disclosure percentage is 76.18% which implies that there are still some scopes of improving disclosure percentage in private sector commercial banks in Bangladesh. Paired sample t-test rejects the null hypothesis-1 (HO1) that there is no significant difference in the level of disclosure among the Private Sector Commercial Banks in Bangladesh. The paired sample t-test among the disclosure of different years, especially the years before and after 2010, rejects the null hypothesis-2 (HO2) at 5% level and accepts alternative hypothesis that says “There is a significant difference between the disclosure percentages between the periods before and after the supersession of BAS-30 by BFRS-7 in 2010” Among the ten categories of disclosures, a very high degree of consistency was found in the disclosure categories related to basic financial statements of which the highest consistency was seen in “Income Statement Items and Appropriation of Profit (ISA)” category. The minimum percentage of this category is 92% and the maximum is 100% while the average of this part is the highest 96.8% the standard deviation was the lowest 2.44. On the other hand, the highest standard deviation (24.29) was seen in Financial Statements (FS) category; therefore, it was the most inconsistent part of the annual reports of banking sector. Next to this the inconsistent part is General Corporate Information (GCI) category having the minimum 40.63%, maximum 100%, mean 74.79% and standard deviation of 17.11%. The paired sample test among disclosure percentage of different parts of annual report shows that 36 pairs (80%) are statistically significant difference at 95% level of confidence among the pairs. It rejects the null hypothesis-3 (HO3) and concludes that there is a significant difference among the different categories of information disclosed in the annual report of the Private Sector Commercial Banks in Bangladesh. The descriptive statistics of both the Conventional and Islamic banks indicates that Conventional banks had the higher percentage of disclosure 78.41% which was 73.95 in Islamic banks. In order to test hypothesis four, independent samples test of different disclosure categories between Islamic and Conventional banks were conducted. The test accepts null hypothesis-4: “There is no significant difference between the financial reporting practices of Islamic Commercial Banks and that of Conventional Commercial Banks in Bangladesh” at 95% confidence level. In the regression model Overall Disclosure Index (ODI) was the only dependent variable and there were eight independent variables. The model summary in Table-6.19 shows the F-Statistics 12.647 at p < 0.001 which indicates the model as a whole was well specified. The t-statistics were positive for log total asset (LTA), Earnings per Share (EPS), Debt equity ratio (DE), and Capital adequacy ratio (CAR) and negative for Log shareholders (LSH), Return on Equity (ROE), Credit deposit ratio (CD) and Listing age (LA). Log total asset (a size variable) and the listing age were the only two variables that were significantly associated with accounting disclosures at p < 0.01. The other variables, LSH, ROE, CD, DE, and CAR were not found to have explanatory power. Therefore, the null hypothesis-5 is rejected and the alternative hypothesis is accepted that there is a significant association between the extent of disclosure and some selected corporate attributes of Private Sector Commercial Banks in Bangladesh. Though, the impacts of all the variables are not equally significant. The study recommends that adequate steps should be taken by regulatory bodies to ensure full compliance with relevant accounting disclosure requirements applicable in Bangladesh; The Institute of Chartered Accountants of Bangladesh (ICAB), should be given the regulatory power that may results in compliance of reporting and quality disclosure in annual report of the companies; Those who abide by the regulatory and other reporting requirements should be awarded, whereas stern actions should be taken against the culprits in order to ensure that all listed companies comply with the mandatory accounting standards in Bangladesh; the high degree of compliance and disclosure can be related to low disclosure costs which could have resulted by giving tax shield on printing cost of annual reports. All the banks should disclose the compliance status of both the National and International Standards that will in turn enhance the confidence among international users of financial reporting. This will make the financial statements comparable and will, therefore, enhance global competition, inflow of foreign direct and indirect investment, and international listings. In order to enhance the quality and transparency of financial reporting, which is imperative to build up the confidence of a large variety of users (like investors, depositors, regulators etc.); banks should disclose all the necessary information fairly. Besides mandatory disclosure requirements, additional information should be disclosed voluntarily so that the users can take prudent decisions. The study will at least give an idea of how the banking sector of Bangladesh specially the listed private sector commercial banks are disclosing their financial information. The scope of the study can be expanded by including unlisted banks, nonbank financial institutions, manufacturing companies etc. This thesis is Submitted to the Department of Accounting and Information Systems, University of Rajshahi, Rajshahi, Bangladesh for The Degree of Master of Philosophy (MPhil)

Financial Reporting Practices of NGOs in Bangladesh with Special Reference to BRAC and ASA

Wed, 01 Jan 2014 00:00:00 GMT

Financial Reporting Practices of NGOs in Bangladesh with Special Reference to BRAC and ASA Sayed, Md. Abu Non-government organizations (NGOs), as a big actor in the development sector of Government of Bangladesh have been facilitating their development programs through utilizing different donors’ fund and from their own. But a question frequently arises in Bangladesh regarding the management and utilization of huge amount of money by the NGOs and whether they follow Companies Act. 1994 and FAS No. 93, 116 &117. In this study, we intend to explore the present condition of financial reporting practices of NGOs in Bangladesh. The objectives of our study are to examine the financial reporting practices of NGOs. In particular, the objectives of our study are as follows : (i) to examine the characteristics of the financial reporting practices of NGOs like BRAC & ASA; (ii)to measure the extent of disclosure items of BRAC and ASA; (iii) to identify the association among disclosure score and variables affecting the disclosure score; (iv) to judge the opinion of the expert groups regarding the qualitative characteristics of accounting information and the compliance of standards by selected NGOs; (v) to suggest for improvement in disclosure by the sample NGOs. Both primary and secondary data have been used for the study. Separate methods and techniques have been followed for collecting both types of data. We have prepared two sets of questionnaire: One for the experts in accounting and other for the NGO executives. The questionnaire is close ended. First set of questionnaire consists of 17 questions which were meant for the experts in accounting and the second set of questionnaire consists of 64 questions which were meant for the NGO executives. The researcher has used quantitative techniques to analyze the collected and classified data. Quantitative analysis has been done through simple Tables. This technique has involved simple calculation of mean, standard deviation, co-efficient of variation, ratio analysis, regression, t-test and Chi-square test. It is evident from our study that the selected NGOs follow GAAP and IASs/BASs such as IASs BASs No. 1, 7, 8, 10, 16, 18, 19, 23, 24, and 37 but the total scores of disclosure are not sufficient. However, the extent of disclosure by the NGOs is moderate, though they follow chart of accounts, use internal check system and comply with the relevant Acts. They also take measure for safeguarding their assets and they use a wide range of depreciation rates. The study finds significant differences in disclosure score regarding accounting policy items, balance sheet items (assets), balance sheet items (liabilities), the income statement items (debit), the income statement items (credit), and the total disclosure score of the selected NGOs. But it has failed to show any significant difference in disclosure score regarding the information as to projection and budgetary disclosure, the information relating to various useful statements and the information useful for measurement and valuation method of the selected NGOs. The univariate regression analysis reveals that the size of NGOs proxied by the total assets, total revenue, and equity capital significantly affects the disclosure score of the selected NGOs while the liquidity as proxied by current ratio, net working capital ratio and leverage as proxied by debt-equity ratio, total debt to total assets ratio do not affect the extent of disclosure score. If we turn towards the result of opinion survey on the respondents we observe that the results of chi-square test on opinion survey documents no significant difference among the respondents regarding the compliance with legal framework, the application of IASs & IFRSs, the extent of understandability, the compliance of decision usefulness, the extent of relevance, the extent of comparability and the extent of consistency by the selected NGOs. But there is significant difference among the respondents regarding the extent of reliability by the selected NGOs. The NGOs play a significant role for the economic development of Bangladesh. This economic development depends to a great extent on the disclosure of accounting information because accurate and relevant accounting information about NGOs help their management as well as the Government to keep them on the right direction. Here, reliable and relevant information about NGOs have a role to play. The study provides testimony to the fact that there is significant difference in disclosure scores and regarding balance sheet and income statement items except for projection and budgetary items and for information relating to valuation methods. The study evidenced significant associations between disclosure score and size as proxied by total assets, revenue and equity capital but no association was found between disclosure score and liquidity as well as leverage. Finally, respondents were unanimous regarding compliance with legal framework, application of IASs & IFRSs and the extent of understandability with the exception of reliability. If the suggestions are implemented then the transparency of the NGOs as well as the disclosure will be improved. Every study has some limitations. Although we have taken due care in selecting the sample, choosing the period, collecting, editing and analyzing the data, selecting the respondents our study has some limitations. The limitations of our study are as follows: We have selected two NGOs to evaluate the financial reporting practices of them. But the inclusion of more NGOs would increase the representativeness of our sample. The Regulatory Acts of the NGOs do not require any disclosure by them. Accordingly, we had to construct disclosure index using Companies Act 1994, since The Society Registration Act and other Regulations do not require any disclosure. Another limitation of our study is that our data are not adjusted for price level changes because the relevant NGOs prepare their financial statements using historical cost figures. The Acts are silent regarding the number of financial statements and their contents. So, provision should be made in the said Acts regarding the type of financial statement, number of financial statement, frequency of the issuance of financial statement. The accounting system of the selected NGOs should be computerized. An Act that contains sufficient provision regarding disclosure of its different dimension should be enacted and strict compliance with the Act must be ensured. Disclosure provision regarding receipts and payment of money, accounting policy followed valuation method of assets, purpose of spending the donation, frequency of report preparation, audit lag allowed and rules regarding changes in accounting policy should be clearly mentioned in concerned Act that will deal with NGO affairs. Strict adherence to financial rules regarding NGOs dealing with monetary affairs with the public should be ensured. Sufficient measures should be taken by the Government of Bangladesh so that any NGO cannot receive any money from the foreign donors through illegal means such as hundi since there is a possibility of spending this money in the illegal sector. In fine it can be concluded that the present study has been conducted using two selected NGOs. Further in-depth study on disclosure can be conducted taking more NGOs as sample and covering more dimensions and more time. This thesis is Submitted to the Department of Accounting and Information Systems, University of Rajshahi, Rajshahi Bangladesh for The Degree of Master of Philosophy (MPhil)

Financial Reporting Practices in Private Sector Commercial Banks of Bangladesh

Wed, 01 Jan 2014 00:00:00 GMT

Financial Reporting Practices in Private Sector Commercial Banks of Bangladesh Rahman, Md. Tahidur Banks as the most important functionary of the financial system play a dynamic role in the economic development of a nation through mobilization of savings and allocation of credit to productive sectors. Most individuals and organization make use of banks either as depositor or borrow or investor. Hence, there is a considerable and wide-spread interest in the well-being of banks and in particular their risks, solvency, liquidity and profitability. It is expected that these aspects of banks will be disclosed fairly and timely basis through financial and other reports prepared by the management of the banks so that the users of these reports can make wile decisions. The present study on Financial Reporting Practices in Private Sector Commercial Banks of Bangladesh has been conducted to evaluate the accounting and reporting practices of the banking sector in private sector. Accounting and reporting practices are guided by a multiplicity of rules, regulations, and professional requirement and also depends on the willingness of management. The objectives of the study were: to identify the reporting requirements of private sector commercial banks in Bangladesh; examine the extent of disclosure in the financial reporting by private sector commercial banks in Bangladesh; examine the consistency of disclosure among different categories of information; examine the difference between the reporting practices of Islamic and Conventional Private Commercial Banks; determine the factors influencing the extent of disclosure in the annual reports of listed Commercial Banks in Bangladesh; and provide constructive suggestion for better financial reporting of the Banking sector on the basis of the findings of the study. In examine the legal requirements of financial reporting; it has been found that The Companies Act, 1994 and The Bank Companies Act, 1991 plays the most vital role in financial disclosure of banking companies in Bangladesh. In addition, banks in Bangladesh are bound to follow the circulars issued by Banking Regulation and Policy Departments (BRPD) of Bangladesh Bank (BB) and The Bangladesh Securities and Exchange Commission from time to time. Securities and Exchange Rules, 1987 requires compliance with IASs/IFRSs as adopted in Bangladesh (these are known as Bangladesh Financial Reporting Standards and Bangladesh Accounting Standards). Among the IASs/BASs and IFRSs/BFRSs IAS-1: Presentation of Financial Statements” and “IFRS-7: Financial Instruments: Disclosure” are the widely followed standard in financial reporting of private sector commercial banks in Bangladesh. To examine the extent of disclosure in financial reporting by private commercial banks, five years’ annual reports of six sample banks that cover about 27.5% of the eligible population were studied by using a researcher developed Unweighted Disclosure Index (UDI) that contains 247 disclosure items and follows the dichotomous method where one (1) is given for any disclosed item and zero (0) is given for any undisclosed item of information incorporated in the disclosure index. Empirical findings from the analysis of the annual reports, on the basis of disclosure index, reveal that the mean disclosure of five years is 76.18 percent which was 67 percent in 2008 and 84.6 percent in 2012. The trend shows that the mean disclosure score of the banking sector is increasing. However, the rate of its increase from year to year is very high with a yearly average rate of increase 6.02 percent. The average size of annual report in terms of number of pages was increasing from year to year to a significant extent. The average number of pages in the annual reports of the sample banks was 155.2 pages in 2008 which became 330.6 pages in 2012. On the other hand, it has been observed that in 2008 about 66.67% of the banks used Bengali version beside the English version which was constant in 2009 and it gradually decreased to only 16.67% in 2012. The ranking of the banks on the basis of overall disclosure level features three banks topping the list, they are: Prime Bank Limited with a score of 87.85 percent followed by Islami Bank Bangladesh Limited with a score of 81.86% and then Bank Asia Limited with a score of 77.81 percent. But still there are some mandatory items undisclosed by the banks in Bangladesh and the mean disclosure percentage is 76.18% which implies that there are still some scopes of improving disclosure percentage in private sector commercial banks in Bangladesh. Paired sample t-test rejects the null hypothesis-1 (HO1) that there is no significant difference in the level of disclosure among the Private Sector Commercial Banks in Bangladesh. The paired sample t-test among the disclosure of different years, especially the years before and after 2010, rejects the null hypothesis-2 (HO2) at 5% level and accepts alternative hypothesis that says “There is a significant difference between the disclosure percentages between the periods before and after the supersession of BAS-30 by BFRS-7 in 2010” Among the ten categories of disclosures, a very high degree of consistency was found in the disclosure categories related to basic financial statements of which the highest consistency was seen in “Income Statement Items and Appropriation of Profit (ISA)” category. The minimum percentage of this category is 92% and the maximum is 100% while the average of this part is the highest 96.8% the standard deviation was the lowest 2.44. On the other hand, the highest standard deviation (24.29) was seen in Financial Statements (FS) category; therefore, it was the most inconsistent part of the annual reports of banking sector. Next to this the inconsistent part is General Corporate Information (GCI) category having the minimum 40.63%, maximum 100%, mean 74.79% and standard deviation of 17.11%. The paired sample test among disclosure percentage of different parts of annual report shows that 36 pairs (80%) are statistically significant difference at 95% level of confidence among the pairs. It rejects the null hypothesis-3 (HO3) and concludes that there is a significant difference among the different categories of information disclosed in the annual report of the Private Sector Commercial Banks in Bangladesh. The descriptive statistics of both the Conventional and Islamic banks indicates that Conventional banks had the higher percentage of disclosure 78.41% which was 73.95 in Islamic banks. In order to test hypothesis four, independent samples test of different disclosure categories between Islamic and Conventional banks were conducted. The test accepts null hypothesis-4: “There is no significant difference between the financial reporting practices of Islamic Commercial Banks and that of Conventional Commercial Banks in Bangladesh” at 95% confidence level. In the regression model Overall Disclosure Index (ODI) was the only dependent variable and there were eight independent variables. The model summary in Table-6.19 shows the F-Statistics 12.647 at p < 0.001 which indicates the model as a whole was well specified. The t-statistics were positive for log total asset (LTA), Earnings per Share (EPS), Debt equity ratio (DE), and Capital adequacy ratio (CAR) and negative for Log shareholders (LSH), Return on Equity (ROE), Credit deposit ratio (CD) and Listing age (LA). Log total asset (a size variable) and the listing age were the only two variables that were significantly associated with accounting disclosures at p < 0.01. The other variables, LSH, ROE, CD, DE, and CAR were not found to have explanatory power. Therefore, the null hypothesis-5 is rejected and the alternative hypothesis is accepted that there is a significant association between the extent of disclosure and some selected corporate attributes of Private Sector Commercial Banks in Bangladesh. Though, the impacts of all the variables are not equally significant. The study recommends that adequate steps should be taken by regulatory bodies to ensure full compliance with relevant accounting disclosure requirements applicable in Bangladesh; The Institute of Chartered Accountants of Bangladesh (ICAB), should be given the regulatory power that may results in compliance of reporting and quality disclosure in annual report of the companies; Those who abide by the regulatory and other reporting requirements should be awarded, whereas stern actions should be taken against the culprits in order to ensure that all listed companies comply with the mandatory accounting standards in Bangladesh; the high degree of compliance and disclosure can be related to low disclosure costs which could have resulted by giving tax shield on printing cost of annual reports. All the banks should disclose the compliance status of both the National and International Standards that will in turn enhance the confidence among international users of financial reporting. This will make the financial statements comparable and will, therefore, enhance global competition, inflow of foreign direct and indirect investment, and international listings. In order to enhance the quality and transparency of financial reporting, which is imperative to build up the confidence of a large variety of users (like investors, depositors, regulators etc.); banks should disclose all the necessary information fairly. Besides mandatory disclosure requirements, additional information should be disclosed voluntarily so that the users can take prudent decisions. The study will at least give an idea of how the banking sector of Bangladesh specially the listed private sector commercial banks are disclosing their financial information. The scope of the study can be expanded by including unlisted banks, nonbank financial institutions, manufacturing companies etc. This Thesis is submitted to The Department of Accounting and Information Systems, University of Rajshahi, Rajshahi, Bangladesh for The Degree of Master of Philosophy (MPhil)

MPhil Thesis

Credit Facilities for the Poorest of the Poor : A Study on Grameen Bank in Bangladesh

Financial Reporting Practices in Private Sector Commercial Banks of Bangladesh

Financial Reporting Practices of NGOs in Bangladesh with Special Reference to BRAC and ASA

Financial Reporting Practices in Private Sector Commercial Banks of Bangladesh