Banking on the Poor? Branch Placement and Nonfarm Rural Development in Bangladesh

In Bangladesh, Grameen Bank puts banks in areas where gains from switching from farming to nonfarm enterprises favor the poor. Other banks put more weight on potential gains to the nonpoor. Ravallion and Wodon assess whether the placement of bank branches in Bangladesh responds to unexploited potential for nonfarm rural development. They compare the branch location choices of a large new private nonprofit bank, the famous Grameen Bank, with those of more traditional government banks. They allow for heterogeneity in household characteristics conducive to success in nonfarm activities when measuring the potential gains from switching out of farming.Farmers are both poor and poorly equipped for success at nonfarm enterprises. Even so, seemingly feasible, but unrealized gains from switching are evident. Grameen Bank is attracted to areas where those gains favor the poor. Other banks put more weight on potential gains to the nonpoor.This paper - a product of the Development Research Group - is part of a larger effort in the group to assess how well both governmental and nongovernmental financial institutions respond to the needs of the poor. The study was funded by the Bank's Research Support Budget under the research project Policies for Poor Areas (RPO 681-39)