Bog Butter to Preserve Wealth

While technology has encouraged banking to adapt and offer new services, traditionally banks have been physical presences that offer conventional financial services such as savings accounts, loans, etc. Traditional banking has obviously not always been the answer; for instance, in Ireland it is theorized that people may have used bogs to protect their wealth. Every year, people in Ireland dig up peat moss and so it is quite usual for them to find butter in the bogs (Daley). Butter during the Iron Age was valuable and could be used to pay taxes or rent so it was important that it was protected. While there could have been other motivators such as preservation or ritual, the fact remains that people do not always use traditional banking structures to manage their wealth (Penn-Romine). Instead, people may use alternative methods which are accessible to them- the collapse of the traditional banking system in Lebanon, for instance, prompted people to use other methods.

Exclusion from Traditional Banks

While people may no longer have bog butter, this does not mean they do not use alternative measures to preserve their money. For example, in 2016 when India decided to demonetize all ₹500 and ₹1,000 banknotes, it was revealed that many housewives had secret savings that they didn’t deposit in the banks (BBC). Culturally, managing the accounts is seen to be reserved for the men in India. Hence, when 80% of Indian women don’t have bank accounts and most don’t have access to reliable information about the banking system, they need to turn to other ways to manage their wealth as traditionally banking is not accessible to them (Doshi). Therefore, while traditional banking may often be what people turn to, it is not always available as a reasonable choice.

Collapse of Traditional Banking: Al-Qard al-Hassan in Lebanon

Al-Qard al-Hassan (AQAH) has risen in relevance since the economic crisis in Lebanon. After 2019, banks have limited cash withdrawals and it has become difficult for people to access their money (Geldi). As a result, many have turned to AQAH- despite its initial audience being the Shiite population, Hezbollah has since encouraged all Lebanese citizens to use AQAH (Reuters and TOI). As traditional banks are no longer a realistic option, AQAH is much more attractive as it allows users to withdraw cash (Mishra). AQAH is not part of the international banking system and faces sanctions from the US for working with Hezbollah which has been labeled as a terrorist organization by many countries (Gritten and Lukiv). Nevertheless, people have turned to AQAH despite the sanctions it faces. AQAH has continued to operate when other banks have collapsed, and the lack of options mean that people would be hard-pressed to not utilize the one resource they have. Citizen’s lives have not stopped moving despite the economic crisis and they need loans to pay for education and to start their businesses and AQAH enables them to do so.

The bank operates on the principles of Islamic finance and mainly offers interest free loans backed by deposits of gold or other valuables (Baker). As the majority of Lebanon’s population is Muslim, it is helpful that AQAH operates in a way that complies with their religious requirements. Moreover, while traditional banking may have been the norm at one point in Lebanon and may again resume that position at some point, it is not a reasonable choice for most people currently. The banking system has collapsed but life still goes on and so non-traditional banking has to be the answer to fill the void that has been created.

Microloans For Economic Empowerment

Another instance of when traditional banking has not been the answer builds upon our earlier discussion of exclusion from traditional banking. Microfinance in India is targeted towards women in order to economically empower them. Here it is not so much the exclusion from traditional banking that presents the primary problem, but rather the fact that traditional banking simply is not compatible with the reality of their situations.

Those living in poverty are unlikely to have employment or collateral to use for a loan and banks are unwilling to grant them due to the high risk and transaction costs attached. Hence, microfinance is presented as an attractive alternative to local money-lenders who have high interest rates. Further, India has a large rural population, and microfinance is a tool that can be used to promote development at a grassroots level (Sonakia). These small loans are helpful in allowing women to set up small businesses, but they can also be used for consumption purposes like weddings or medicine.

While microfinancing has been set up with the best of intentions to increase female entrepreneurship and financial independence for impoverished women in rural areas, there are also instances of harassment against women, high interest rates, and debt traps (Jaswal). It is also not as generous as it could be as the risk to the lenders still needs to be weighed. As a result, those below the poverty line cannot reap the benefits of these schemes, and limited regulation means that some institutions charge high interest rates or transaction costs (Sonakia). In this situation, while non-traditional banking is what is accessible for impoverished women in rural areas, it has also led to debt traps with women being harassed by creditors (France 24). This is not an ideal situation and does not assist in empowering these women.

However, seeing as how traditional banking is simply not an option for most of these women, non-traditional methods must be utilized. Microfinance has the right idea in what they are doing, it is simply that the operation of it has had negative consequences. This could be likened to AQAH as while it may be the only option for Lebanese citizens, AQAH also allegedly illicitly moves funds which could increase sanctions on Lebanese institutions. Therefore, while it is an accessible option for Lebanese citizens, the way the bank operates means that it could lead to negative consequences in the future.

In conclusion, traditional banking is not always the answer. There are cultural or economic reasons that can prevent access to traditional banking, and so people must turn to other methods. Sometimes, even if access to traditional banking is possible, non-traditional banking is a more attractive option because of what it offers to the user.