Banking financial models based on corporate social responsibility and development of rural areas: In case of Bosna Bank International

Abstract

The Islamic banking industry is one of the fastest growing categories in finance. Currently, there are more than 500 Islamic banks operating in the world on all continents. The only Islamic bank on the territory of Southeast Europe is Bosna Bank International (BBI), which was founded in 2000 by three banks from the Middle East: Islamic Development Bank, Abu Dhabi Islamic Bank and Dubai Islamic Bank. In the period of 24 years, BBI has become a recognizable brand as a bank that harmonizes its operations with Islamic finance, but also by supporting socially responsible models in order to achieve the intentions of Islamic finance, which is profit maximization, but in an ethical and socially responsible way. One of the main questions that arises is whether Islamic banks pay more attention to corporate social responsibility than conventional banks due to the way they operate, or whether there is no significant difference in practice. Since its establishment, BBI has launched various socially responsible financial models such as: the Turkish credit line, credit lines with Municipalities and Cantonal Governments in the Federation of Bosnia and Herzegovina, the IDB Trust Fund, as well as many other models whose concept was to finance the economy through very low rates, and within some models even 0%. The profit margin was mainly be subsidized by the partner institution in order to support the economy and business development. This study focuses on the Turkish Credit Line model that BBI implemented with Ziraat Bank from the Republic of Turkiye in order to support agriculture, especially in less developed rural areas. The Turkish Credit Line, as a model with a 0% profit margin, influenced the general reduction of interest rates in the agricultural financing sector in Bosnia and Herzegovina. The study measures the impact of this line on the business development through a quantitative analysis based on feedbacks of retail and corporate BBI clients who were users of this credit line and are located in rural areas in Bosnia and Herzegovina.