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Financial institutions' social responsibility in developing countries

Author

Listed:
  • Fredrick Onyango Ogola

Abstract

Purpose - The purpose of this paper is to provide a framework for analyzing the social responsibility (SR) of financial institutions (FIs) in developing countries (DCs), especially in Sub‐Saharan Africa (SSA), with regard to their contribution to development. Design/methodology/approach - The connection between finance and economic development can be studied at the macro or general level of “financial systems” or at the micro or institutional (organizational) level of “financial institutions”. This paper will focus on the micro level of FIs. The author used the work of Sen as a reference to approach the concept of development, and Sherraden's “Asset‐building policies” combined with Cabraalet al.'s “microfinance ideals” as a strategy to implement the broad developmental agenda proposed by Sen in the field of SR of FI. Findings - The study identified seven indicators for the social responsibility of financial institutions: low interest on loans; small loans; micro‐savings; income equality; marketing equality; geographical equality; and unbiased financial education. These groups of indicators reflect the different areas that are relevant for assessing the SR of FIs. Research limitations/implications - Since this is a conceptual article, it lacks the empirical data to support theoretical conclusions. Through further research, operationalizing this model and testing it through surveys and in‐depth interviews can overcome these limitations. Practical implications - With this framework, SR strategies of FIs operating in DCs and specifically in SSA may require a broader vision in their contribution to development. This is by viewing SR in development not only as a tool for economic growth but also as a tool for promoting equality and freedom through economic inclusion and consequently social inclusion. Originality/value - The paper suggests how Sen's theory of development, Sherraden's theory of asset building and Cabraalet al.'s microfinance ideals can be merged in a framework to analyze the SR of FIs in DCs.

Suggested Citation

  • Fredrick Onyango Ogola, 2012. "Financial institutions' social responsibility in developing countries," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 3(1), pages 116-136, April.
    • Handle: RePEc:eme:ajemsp:v:3:y:2012:i:1:p:116-136
    DOI: 10.1108/20400701211197311
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