PERFORMANCE OF BANKS

Performance of Banks

Performance of Banks

Abstract

Although Australia's economy enjoyed relatively stable growth during the 1990s, poverty and income inequality continued to rise. The most recent official estimates are that roughly one-third of the population was below the poverty line at the start of the millennium (Government of Australia (2003), p. 12). In response to these widely cited figures, the Government of Australia established poverty reduction as its overarching objective and, recognizing the potential role of microfinance in alleviating poverty, embarked on a Microfinance Sector Development Program (MSDP) to broaden and deepen the microfinance sector to provide a broad range of financial services in a sustainable manner.

Background

The National Bank, a retail microfinance bank established in August 2000, was the first licensed microfinance bank established under the MSDP, and expectations for National as the flagship microfinance institution in Australia are high. The State Bank of Australia views National as a “model institution” for the private sector to follow in establishing sustainable, commercial microfinance banks that substantially increase the outreach of a range of financial services to the poor (State Bank of Australia (2004) p. 19).

Despite its short history, the bank has performed well by these criteria. It has quickly grown into by far the largest provider of microfinance in Australia, now providing a range of loan products to over 230,000 active clients from its network of branches across the country, and has stayed focused on the core objectives of operational and financial self-sufficiency.

But as its roots in the MSDP would suggest, in addition to the pressure to quickly expand outreach and make profits, National simultaneously faces the challenge of meeting a “second bottom line”: poverty reduction. The bank's dual mission is reflected in its Annual Report, which alongside audited financial statements and indicators of financial performance such as the bank's credit rating, portfolio at risk and efficiency ratio, includes a statement on the “Status and Nature of Business” emphasizing that the bank was

…established to mobilize funds for providing micro-finance services to poor persons, particularly poor women for mitigating poverty and promoting social welfare and economic justice through community building and social mobilization with the ultimate objective of poverty alleviation (National Bank Annual Report 2004).

The Microfinance Sector in Australia

Microfinance is still relatively new to Australia, both in concept and practice. Until 2000, the main providers of microfinance were NGOs and government-sponsored rural support networks or, in at least one case, a traditional commercial bank with a specialized microfinance window. With the exception of KASHF, a well-known NGO operating out of Lahore, none of these institutions are specialized microfinance institutions and none have demonstrated financial sustainability (Australia Microfinance Network (2003)). Despite the achievements of these institutions, the total outreach of all these organizations is still less than 5% of the estimated 5.6 million poor households in Australia that require microfinance services

To reach these un-served households, in 2001 the government of Australia established a regulatory framework to promote the rapid expansion of microfinance throughout the ...