Sustainable banking with the poor- A case study of a social bank
Research Question and Problem Statement: Developing a sustainable financial systems for poor is critical for any developing economy particularly Bangladesh for various reasons. Firstly, it will include a large population of bankable poor into formal financial sector who are currently excluded and hence will benefit both parties over a long run. Secondly, generating sustainable funds for skilled/semi-skilled poor to start a business will increase number of micro and small enterprises and employment. Thirdly, sustainable financial service with access to credit can help poverty reduction through improving the productivity of micro and small enterprises or creating new opportunities of livelihood. Though micro credit for helping poor in the context of Bangladesh is not a new idea, yet question remains on the sustainability of such institutions which are mostly backed by donor funds or government funds with high risk of insolvency along with high transaction cost (due to high cost of capital at 26.5 per cent on loan and advances) (Hossain, 1998, p.7). The micro finance institutions are not recognised as regulated financial institutions which impact the ability and cost of finance and transactions. The regulatory and operational restriction often result in rationing out sectors of the client population which the institutions and programmes want to serve and eventually questions the sustainability of micro-finance institutions and programmes working with the poor. In this bleak situation, a second generation social bank in Bangladesh focusing on a new model to bank with poor is considered to be a bold step towards building sustainable financial system for banking with the poor. The main research objective is to explore the views held by bank directors as well as managers towards their mission statement for ‘Empowering real poor families and create local income opportunities’ and ‘Providing support for social benefit organizations - by way of mobilizing funds and social services’ and thus analyse the findings from the unique socio-economic-political-regulatory context of developing economy like Bangladesh. This longitudinal case study will explore the participatory three sector banking model developed by the bank which includes:
i) Formal sector : dealing with human face approach to credit and banking on the profit and loss sharing
ii) Non—formal sector: informal finance and credit package that empowers and humanizes real poor family and create local income opportunities and discourage internal migration
iii) Voluntary sector: responding spontaneously to its social commitment to help hard core poor with various welfare activities
The purpose of the study is to focus on the model for sustainable banking with the poor in the context of developing economy which will contribute towards reduction of poverty.