Banking on the Poor? Branch Placement and Non-Farm Rural Development in Bangladesh

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.