ASA stands for Association for Social Advancement, which is a non-governmental organization aiming at helping poor people to get out of poverty. Bangladesh earned its independence in 1971, but because of the war, the whole country needed to be reconstructed. The unstable and bureaucratic political system slowed down the speed of economic development. In the meantime, some small non-governmental organizations stepped into Bangladesh to help the local people restore their life in different respects.
The official ASA website shows that the organization was founded in 1978 with its goal of empowering the poor. In the beginning phase, ASA started some programs such as “training program, communication support service program and legal aid and awareness build-up program”. The results of the programs, however, were below expectations. There were several limitations in developing ASA. For example, the employers had difficulty to get paid; the design of the programs was not consistent with the local situation; the natural disaster happened at that time. All these factors forced the managers to formulate a practical solution. ASA began to favor women as clients and addressed social concerns, such as education, sanitation and health. Since 1992, ASA has launched special programs in savings, credit and security fund areas (emergency loans or insurance), which are still the main financial businesses at ASA.
Main Services of ASA The annual report of the year 2011 states that the main services of ASA include loans, savings, insurance, a Technical Assistance (TA) program and ASA’s sister concern Hope for the Poorest (HP). The new program introduced is the Primary Education Strengthening Program. The following product descriptions are based on the ASA official website. 1. Loans
ASA provides two kinds of loans—primary loans and special loans. Primary loans aim at providing financial support for poor people, who can get a maximum first loan from $105 to $265 based on their specific situations. Special loans are designed for enterprises or entrepreneurs with the initial maximum amount from $662 to $6500. Both kinds of loans carry a maximum of 27% interest and weekly or monthly payment. For primary loans, the payback period is normally up to one year (4, 6 or 12 months); for special loans, the duration is from 1 to 2.5 years (12, 18, 24 or 30 months). 2. Savings
With respect to a savings account, people have three choices: mandatory savings, voluntary savings and long-term savings. Mandatory savings are especially for clients who have loans at ASA with a deposit rate of at least BDT 10. As an additional choice, the mandatory savings’ clients are able to choose voluntary savings with any deposit rate greater than BDT 10. Both savings accounts earn interest monthly with 6% annual rate of return. The savers are allowed to withdraw the money anytime but they have to keep the balances no lower than 5% of the loan amount.
Long-term savings are suitable for everybody. The savers do not need to have loans or any other relationship with ASA. The deposit rate for this account can be Tk. 50 to Tk. 500 per month (specifically Tk. 50, Tk. 100, Tk. 200, Tk. 300, Tk. 400 or Tk. 500). For a 5-year account, the interest rate is 9% annually; for a 10-year account, the interest rate is 12% annually. If clients need to withdraw prior to maturity, they will receive the money at a lower rate of return. 3. Insurance
The insurance products include loan insurance and life insurance. All loan borrowers are mandatorily enrolled in these two insurance programs. The premium of loan insurance is “BDT 5 for a loanee or BDT 10 for a loanee and his/her spouse per thousand loan disbursement”. Clients have to pay the premium before disbursement. The life insurance program requires BDT 10 as premium for eight years. The premium is included in the loan installment. 4. ASA University Bangladesh
The university provides higher education with an affordable tuition payment. Meanwhile, the managerial level of the university tries their best to offer advanced facilities and experienced faculties for the students. They combine theoretical and practical learning and the university deserves credit for the high employment rate. 5. WASH program and TA program
WASH stands for water, sanitation and hygiene. This program aims at improving the condition of sanitation in very poor places. TA, technical assistance, sends staff to different countries and areas to help people who are in difficult financial situations to improve ASA’s reputation.
Avoiding Adverse Selection and Moral Hazard Researchers argue that ASA does not have a series of complicated criteria for getting loans. The borrowers should have income lower than $50 a month and must attend one group meeting a week for 4 weeks plus saving Tk. 10 per week. After that, they are able to get a loan (Ahmmed, n.d.). The same idea is also presented in the work of Sheikh and Amin (2011), which indicates that ASA follows a very similar model to Grameen Bank’s. They send supervisors to inspect borrowers’ businesses and hold mandatory weekly meetings for borrowers to share experience and to take suggestions from others. ASA also collects repayments in that meeting and keeps track of the group performances (p.356) From the product perspective, ASA secures their loans to some extent. All borrowers have to be in the savings program and leave at least 5% of the loan amount in the account. The loan insurance enhances this security as well. All these methods keep the institution from getting a high default rate. In fact, it turns out that borrowers are willing to pay back the loans on time.
Special Points about ASA In the microfinance world in Bangladesh, ASA is famous for its innovative ideas, namely high efficiency and low costs. At ASA, staff use a different accounting method which is easy to master, so they do not need to have an accountant in the office. Secondly, every branch has freedom of preparing its own target and is allowed to deposit or withdraw money whenever it needs to. Thirdly, the set-up engenders less hierarchy. The regional managers are also the supervisors; credit officers have the authority to grant loans. As compared to Grameen Bank, ASA minimizes its staff numbers and cuts layers as much as it can. Lastly, ASA does not have any training program, neither training center nor trainers. “Work routines are standardized and simplified so that new recruits need only a few days of supervised work experience in a branch before being sending off to another one to start work”.1
Challenges ASA Faces: 1. Interest Rate of Return Microfinance differs from common banking. MFIs should be allowed to charge a higher interest rate to at least cover the costs of processing the loans. However, in Asia, the biggest potential market, governments control the interest rates in some extent. This regulation interfere the development of Microfinance. 2ASA, as a main MFI in India, has the same difficulty in its business as well.
2. The Weakness of the Insurance Bangladesh is an undeveloped country with many problems that are hard to solve, such as a high unemployment rate, lack of health insurance, gender discrimination and liabilities to floods. Though ASA forces all members to get enrolled in the insurance program, it does not guarantee to collect the premium from every member on time. Nearly all members have the difficulty of balancing their payments and normal life expenses.
3. Entering into the Poorest Areas Sarder and Nabi (n.d.), who work at headquarter of Bangladesh Bank, claimed that “MFIs/NGOs could not become able effectively to reach among the people of economically backward regions of the country. As a result, MFIs showed poor performance to reduce poverty in economically poor areas.” Because of the special features of MFI, it is not realistic to develop its business in the very poor place without any government assistance. Keeping the balance is already a challenge for ASA; if there is no financial support from local governments, ASA, and other MFIs, cannot enter into these places without budget concerns.
Different features of Grameen Bank, BRAC and ASA First, though all three institutions require borrowers to have a certain amount of landholding, the specific criteria are different. By Grameen Bank, the member needs to have at least half an acre landholding; the other two institution have a looser clause of landholding, which is maximum half an acre. In order to insure the borrower’s repayment ability, BRAC and ASA lend money only to people whose families have at least one family member earning wages. Second, from the perspective of group size, Grameen Bank has the smallest one, which includes only 5 members.
ASA’s group is 4 times larger than Grameen Bank’s. And BRAC has the largest group members—30 to 40 people per group. Third, each of these institutions asks the members to save weekly. Grameen Bank and ASA both require 10 Taka a week, while BRAC requires for 20 Taka per week. Fourth, Grameen Bank and BRAC have the same credit delivery mechanism, which is 50 weeks for one loan cycle with 20% interest rate and maximum loan size of Tk. 10,000. ASA, however, has a shorter loan cycle which is 46 weeks with 15% interest rate and the maximum loan size of Tk. 5000 to TK. 7000. Implications:
The successful experience of ASA shows that microfinance needs both variety product designs and effective guarantee methods for repayments. ASA provides different loans or saving programs for different borrowers, which helps the institution to reach as many potential clients as it can. Meanwhile, the insurance policies prevent a certain default rate. This design brings out the best in each other.