Paper
Banking on the Poor? Branch Placement and Non-Farm Rural Development in Bangladesh
Do potential gains in non-farm rural development sector affect branch placement?
34 pages
This paper assesses whether the bank branch placement in Bangladesh responds to any potential gains for non-farm rural development. The authors study this through:
- Comparison of the location choices of the Grameen Bank with those of more traditional banks;
- Independent household survey.
The paper finds that a typical farm household in Bangladesh is both poor, and is poorly endowed with characteristics conducive to success in more profitable non-farm activities. Thus:
- Comparing average living standards overstates the potential gains to switching from the farm to non-farm sector;
- Unexploited gains from switching exist, even after controlling for a wide range of household attributes, such as education levels, landholdings, demographics and location;
- Average consumption for a farm household is about 6% higher in the non-farm sector, and the proportionate gains tend to be largest for the poorest farm households;
- The highest average gains from switching to the non-farm sector are not, however, in the poorest rural areas.
The paper concludes that:
- The geographic placement of bank branches is strongly influenced by the potential gains from switching to rural non-farm activities;
- Grameen Bank is attracted to areas where those gains favor the poor;
- Other banks put higher weightage on potential gains to the non-poor;
- This is consistent with a difference in the objectives of the two types of institutions - Grameen Bank puts higher weightage on the potential for reducing poverty through its lending operations.
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