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Seeing institutions in different ways
Seeing institutions in different ways

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1.6 A story of changing the rules

I said earlier, introducing the idea of institutions as ‘rules’, that ‘different people will interpret the rules in different ways – and some will break them or work outside them.’ ‘Breaking the rules’ is one way of thinking about institutional development.

The story you are about to read is a story about, amongst other things, ‘breaking the rules’, and thus a story about institutional development. It is a story that many years after I first read it I still find exhilarating, still find a source of insights into institutional development. It is – as are all stories – a partial story, a story told by and from the perspective of one person inside the story, indeed one of the creators of the story. It is, as will be evident from the very opening words, a story about him as well as a story about institutional development.

For me, this individual perspective heightens the value of the story, partly because it reminds me that institutional development depends on individual agency, and partly because it leaves me very aware that other stories could be told, by people with different experiences of this process of institutional development, and I can try to imagine those stories.

But on to the story! It’s the story of the creation of BancoSol, a Bolivian micro-finance agency, as told by Pancho Otero, one of the founders of this ‘solidarity bank’.

Activity 3 BancoSol case study

Timing: You should spend no more than 2 hours on this activity

Read Otero (1997) [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] . It is a story of institutional development aimed at poverty reduction. It is based on presentations given by Pancho Otero, one of the founders of BancoSol, when he was a visiting speaker at a conference on micro-finance in Harare, Zimbabwe in January 1997.

I find that this is a story that is worth reading quickly to start with – to get a sense of the ‘fantastic adventure’ that Otero describes – and then going back and reading it again, more slowly, to analyse what he is saying, to pick up the many insights he offers into institutional development.

However you read it, at some point make notes in answer to the following questions:

  • What are the two significant changes – processes of institutional development – that Otero presents?
  • What are the ‘rules’ that get broken in both processes of institutional development?
  • What is the ‘philosophy’ of BancoSol, and why was it important?
  • What is Otero referring to when he talks about the ‘institutional culture’ of BancoSol? How was it created? What was its role?
  • How does Otero account for the success of BancoSol?


Whilst this account can be read as one story: the history of BancoSol, it is clear that there are two distinct processes of institutional development:

  • one which challenged the rules of banking in Bolivia in the 1980s, and
  • a second which challenged and changed the rules with respect to how a micro-finance agency should operate.

Changes and challenges to rules

Otero uses the term ‘fantastic adventure’ to describe both the creation of a micro-finance agency and the ‘transformation’ of this new institution, its ‘transition’ into a bank.

In the first case, the fundamental rule of banking that was being challenged was: Don’t lend to the poor! Strongly related to this was the rule: Show the poor no respect! Otero mocks both these rules; BancoSol broke them.

In the second case, the fundamental rule being challenged might perhaps be described as: Don’t mix development enterprises with commercial approaches! Otero was clearly disturbed by what he was doing in calling this rule into question: ‘this is what shook all my understanding of development, it made me have a fever, and I had to rethink everything I had thought. This was earth shattering, this was truly a major milestone for me personally and a major milestone for the Institution’ (p. 61).

This is a sharp statement of the nature and impact of institutional development! So it perhaps comes as something of an anticlimax when – pointing to another quality of institutional development – he goes on to say: ‘So after the fever went down and after we thought about this for a few days we sat with the major staff and talked about this. Little by little it started to make sense’ (Otero, 1997, p. 61). That itself offers another insight into the nature of institutional development: the incremental way in which often it comes about, the time it takes for it to ‘make sense’.

Philosophy and culture

Otero sets out the bank’s philosophy: ‘a small philosophy we had, we called it the four f's – fast, friendly, focused and flexible’ (Otero, 1997, p. 52). The philosophy was important because it provided the principles by which the operation was guided. It was also important in that it set out the founders’ world-view, and in particular their view of development:

At home we saw development as not the big road from Bulawayo to Limpopo or something, not the big electrical dam; development is when in every household everyone is working and everyone is productive, so we put development into the back yard of the houses.

(Otero, 1997, p. 55)

This philosophy, this set of principles, formed part of a much wider ‘institutional culture’. ‘Culture’ includes all the values, meanings, norms, principles and practices which give an institution – or any group of people – its identity and which enable people within that institution to make sense of the world and of the relationships in which they are caught up. Central to the BancoSol culture was the value BancoSol placed on its clients. Indeed, it was the decision to treat poor people as clients that distinguished BancoSol from established banking institutions:

Friendly meant that we were not going to be any of the extremes to the client, we were not going to be paternalistic and we were not going to be stonefaced as personal bankers, because in Bolivia up until then they only had those two things. ... There were all those names for them which were completely degrading, basket cases, the poor and vendor women. Of course, the bankers were calling them riff raff, so we came up with a great invention, we called them clients, we called the peasant women customers and this was extremely important. So friendly meant something other than just smiling. Behind this word there was a lot of respect for the client.

(Otero, 1997, p. 53)


This ‘great invention’ – this overturning of what happened ‘as a rule’ in Bolivian banking – was, in Otero’s view, at the heart of the success of this process of change:

If you just do the financial part it is not going to be successful, our clients are marginalized and are mistreated everywhere they go, in the bus, at the police station, at the grocery store, everywhere they are looked down upon. So if you have an institution that has a lot of respect for them, but not paternalistic, then you will have success.

(Otero, 1997, p. 55)

That is not the only reading possible of Otero’s story of BancoSol. I trust, though, that you find it a convincing and useful one and that, together with your own reading, it has helped you develop a sense of what institutional development might involve.