 "Banker of poor goes mainstream")
The high-rise at Salt Lake City in Kolkata bears no signage of the occupant, Bandhan, the largest microfinance institution, or MFI, in the country. In contrast, everything inside, from walls to tea sets, bears a deftly engraved logo of Bandhan: a house inside a water drop with a flame on top. There's minimum fuss outside, solid work inside - just the way Bandhan bagged a bank licence last week, ahead of many marquee names of India Inc.
"I prefer to keep a low profile," says a beaming Chandra Shekhar Ghosh, the founder and chairman & managing director of Bandhan. Ghosh's phone hasn't stopped ringing since the Reserve Bank of India, or RBI, announced that Bandhan was one its two choices for new bank licences (the other is IDFC). Friends, relatives and even casual acquaintances have kept him busy the past few days. How times have changed! Some 13 years back, when Ghosh approached a public sector bank to open a bank account, his application was rejected. Soon, he will have a bank of his own. Representatives from several banks can be seen floating around Ghosh's office with bouquets for him.
Ghosh may be publicity-shy but he cannot hide the excitement of starting a bank. "Everyone is awed to know our work. People are asking me what challenges I face. Frankly, I didn't realise there were challenges, until my conversations with people," says Ghosh. Taking much pride in his Bengali roots, Ghosh several times, while answering phone calls, is heard saying: "Is there anything Bengalis can't do?" For a state deserted long time ago by big business, Bandhan's bank licence should come as some comfort.
Around 1980, Ghosh left for Bangladesh for a Masters' degree in statistics. "After returning to India, for ten years, I worked in different NGOs, living in villages," says he. "I have lived in almost all villages of West Bengal." In 2001, Ghosh started his own venture, Bandhan. The ten-year stint in villages definitely helped. In a few years, Bandhan became the country's largest MFI. The sector faced a severe crisis some years back, but Bandhan remained untouched by it. And now it has been given a bank licence by RBI.
Ghosh's workstation is cluttered with books on poverty, electronic gadgets and a signed card from former RBI deputy governor Usha Thorat. It gives a panoramic view of the uneven skyline of the swanky IT hub at Sector V, largely wrapped with glass and steel, a far cry from the bustle at Bandhan.
Wide reach
All told, Bandhan has a field staff of 13,000 which reaches out to six million borrowers in the rural areas. With Bandhan converting into a bank, the entire field staff will be absorbed in the bank. Nearly three-fifths of its staff has studied till just the 12th standard. Once it becomes a bank, Bandhan will have the highest proportion of non-graduates on its rolls in the entire sector. "When a simple higher secondary pass-out would become a bank officer, it will be a big recognition, a tremendous boost of self-esteem. In fact, if they do good work, they can rise to a higher level. A degree is not a major consideration at Bandhan," says Ghosh. After it got the bank licence, Bandhan not only declared a day's holiday for its field staff but also gifted them Rs 500 each for 'buying sweets".
Some observers say while such manpower may be of great help in microfinance, it could become a serious handicap once Bandhan morphs into a bank because it will then have to offer sophisticated products. In addition, Bandhan will have to pick up capabilities to offer a complete suite of services: deposits, loans, credit cards, ATMs et al. It will need to gain expertise in treasury operations. This will require it to build substantial managerial bandwidth. Moreover, with its heavy focus on rural markets, how will it step into the lucrative but highly competitive segment of corporate banking?
Ghosh acknowledges that his staff needs to be trained afresh. "Our setup, which comprises a large number of field staff, is fluid as water. With proper training, our staff can mould themselves to fit into any situation, be it collecting deposit or credit," says he. That will require money, and so will building the infrastructure. Ghosh feels that the 13,000-strong field staff and six million borrowers can be leveraged to mobilise low-cost current and savings accounts deposits: if each of the existing 6 million borrowers deposits Rs 1,000 with Bandhan, that alone will fetch Rs 600 crore. Moreover, its current reserves of Rs 1,100 crore will come in handy in its new banking business.
The Bandhan business model for banking is not clear, though Ghosh indicates that it will centre round the rural markets. "Mainstream banks have failed to meet the challenge of reaching out to rural customers. Now that challenge is onto us. At the same time, the biggest advantage for us is that we already have nearly 13,000 local youths who have no qualms about working in rural areas," says he. "In mainstream banks, there is no workforce available to work in the villages, which pushes up the cost of operations." There will be other challenges too. One, Bandhan will need to list on the stock exchanges within three years after the formation of the bank. Two, at present, Bandhan's entire loan portfolio of nearly Rs 6,000 crore is unsecured; for banks, this means high risk-weighted assets.
Bandhan's profitability has risen fast in a short time, from nearly Rs 74 crore in 2009-2010 to an estimated Rs 250 crore in 2013-14. Some part of it came from the unregulated interest rate regime that it enjoyed as a MFI. What added to the profits was its low cost of operations: the head office accounts for less than one per cent of the total workforce. In an astute move, in May 2010, just four months before the Andhra Pradesh MFI crisis exploded, Bandhan voluntarily slashed lending rates by nearly five percentage points. Notably, in 2010-11, Bandhan posted a net profit of Rs 117 crore compared to Rs 74 crore a year before.
Will this deftness steer Bandhan through the cut-throat competition among mainstream banks to establish a new, innovative and a successful business model? The answer needs time, but surely with so many challenges, and a lot many advantages, the journey of Bandhan from an MFI to a bank is likely to be marked by many firsts.
THE WINNING FORMULA
At 7.30 AM, in Neenan village of South 24 Parganas, Bikash Dey Sarkar, an employee of Bandhan, is at work, surrounded by 150-odd villagers who watch him scribble a map and tag houses and roads on the mud floor of a makeshift community centre. Sarkar is on assignment to create a data bank of ultra-low net worth individuals in far-flung villages like this one for Bandhan's flagship Ultra Poor Programme. The map is the first step to identify the poorest of the poor, including beggars. Next, "wealth ranking cards" are created for each such family. Subsequently, the elderly villagers are shown two cards at a time and asked to name the poorer of the two. The process culminates in a list of the six poorest families in the village.
The poorest households are then provided free assets, mostly livestock, along with some vocational training to help them earn a regular livelihood. The programme carried out by the NGO wing of Bandhan is mostly run on grants. The beneficiaries are given a pass book and asked to deposit Rs 10 every week with Bandhan, which is subsequently given back to them by the end of an eighteen-month cycle.
In nearly 24 months, the beneficiaries will qualify for mainstream finance, and most probably become dedicated clients of Bandhan, paying 20-22 per cent annual interest on loans, with zero default. The probability of default is zero because the entire village keeps a close tab on the borrower, as default is seen as the biggest social stigma on the whole community. In addition, the offices of the field staff of Bandhan double up as residential quarters, so that the borrowers can be monitored closely. As almost all of the borrowers are women, there is less likelihood of the money being frittered away in hooch and other vices. Bandhan audits each of its branches at least three times annually, and the audit team interacts with about 100,000 borrowers a year to conduct internal surveys.
PROS & CONS
STRENGTH
* Bandhan's reach in rural areas with its 13,000-strong field staff reaching about 6 million borrowers
WEAKNESS
* No expertise in corporate banking
OPPORTUNITY
* Rural deposit base, untapped by mainstream banks
THREAT
* Large pool of unsecured loans, entailing high risk-weighted assets
"I prefer to keep a low profile," says a beaming Chandra Shekhar Ghosh, the founder and chairman & managing director of Bandhan. Ghosh's phone hasn't stopped ringing since the Reserve Bank of India, or RBI, announced that Bandhan was one its two choices for new bank licences (the other is IDFC). Friends, relatives and even casual acquaintances have kept him busy the past few days. How times have changed! Some 13 years back, when Ghosh approached a public sector bank to open a bank account, his application was rejected. Soon, he will have a bank of his own. Representatives from several banks can be seen floating around Ghosh's office with bouquets for him.
Ghosh may be publicity-shy but he cannot hide the excitement of starting a bank. "Everyone is awed to know our work. People are asking me what challenges I face. Frankly, I didn't realise there were challenges, until my conversations with people," says Ghosh. Taking much pride in his Bengali roots, Ghosh several times, while answering phone calls, is heard saying: "Is there anything Bengalis can't do?" For a state deserted long time ago by big business, Bandhan's bank licence should come as some comfort.
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About his own past, Ghosh is reluctant to talk because it will only serve to "increase the pain". But the details of his early days have come out thick and fast in the last few days. Slowly, Ghosh opens up. "I hail from an extremely low-income family. My father had a sweetmeat shop in Tripura. We were six siblings, and our father found it extremely difficult to sustain such a large family with his limited income. I made sweets before and after school to help my father," says he.
Around 1980, Ghosh left for Bangladesh for a Masters' degree in statistics. "After returning to India, for ten years, I worked in different NGOs, living in villages," says he. "I have lived in almost all villages of West Bengal." In 2001, Ghosh started his own venture, Bandhan. The ten-year stint in villages definitely helped. In a few years, Bandhan became the country's largest MFI. The sector faced a severe crisis some years back, but Bandhan remained untouched by it. And now it has been given a bank licence by RBI.
Ghosh's workstation is cluttered with books on poverty, electronic gadgets and a signed card from former RBI deputy governor Usha Thorat. It gives a panoramic view of the uneven skyline of the swanky IT hub at Sector V, largely wrapped with glass and steel, a far cry from the bustle at Bandhan.
Wide reach
All told, Bandhan has a field staff of 13,000 which reaches out to six million borrowers in the rural areas. With Bandhan converting into a bank, the entire field staff will be absorbed in the bank. Nearly three-fifths of its staff has studied till just the 12th standard. Once it becomes a bank, Bandhan will have the highest proportion of non-graduates on its rolls in the entire sector. "When a simple higher secondary pass-out would become a bank officer, it will be a big recognition, a tremendous boost of self-esteem. In fact, if they do good work, they can rise to a higher level. A degree is not a major consideration at Bandhan," says Ghosh. After it got the bank licence, Bandhan not only declared a day's holiday for its field staff but also gifted them Rs 500 each for 'buying sweets".
Some observers say while such manpower may be of great help in microfinance, it could become a serious handicap once Bandhan morphs into a bank because it will then have to offer sophisticated products. In addition, Bandhan will have to pick up capabilities to offer a complete suite of services: deposits, loans, credit cards, ATMs et al. It will need to gain expertise in treasury operations. This will require it to build substantial managerial bandwidth. Moreover, with its heavy focus on rural markets, how will it step into the lucrative but highly competitive segment of corporate banking?
Ghosh acknowledges that his staff needs to be trained afresh. "Our setup, which comprises a large number of field staff, is fluid as water. With proper training, our staff can mould themselves to fit into any situation, be it collecting deposit or credit," says he. That will require money, and so will building the infrastructure. Ghosh feels that the 13,000-strong field staff and six million borrowers can be leveraged to mobilise low-cost current and savings accounts deposits: if each of the existing 6 million borrowers deposits Rs 1,000 with Bandhan, that alone will fetch Rs 600 crore. Moreover, its current reserves of Rs 1,100 crore will come in handy in its new banking business.
The Bandhan business model for banking is not clear, though Ghosh indicates that it will centre round the rural markets. "Mainstream banks have failed to meet the challenge of reaching out to rural customers. Now that challenge is onto us. At the same time, the biggest advantage for us is that we already have nearly 13,000 local youths who have no qualms about working in rural areas," says he. "In mainstream banks, there is no workforce available to work in the villages, which pushes up the cost of operations." There will be other challenges too. One, Bandhan will need to list on the stock exchanges within three years after the formation of the bank. Two, at present, Bandhan's entire loan portfolio of nearly Rs 6,000 crore is unsecured; for banks, this means high risk-weighted assets.
Bandhan's profitability has risen fast in a short time, from nearly Rs 74 crore in 2009-2010 to an estimated Rs 250 crore in 2013-14. Some part of it came from the unregulated interest rate regime that it enjoyed as a MFI. What added to the profits was its low cost of operations: the head office accounts for less than one per cent of the total workforce. In an astute move, in May 2010, just four months before the Andhra Pradesh MFI crisis exploded, Bandhan voluntarily slashed lending rates by nearly five percentage points. Notably, in 2010-11, Bandhan posted a net profit of Rs 117 crore compared to Rs 74 crore a year before.
Will this deftness steer Bandhan through the cut-throat competition among mainstream banks to establish a new, innovative and a successful business model? The answer needs time, but surely with so many challenges, and a lot many advantages, the journey of Bandhan from an MFI to a bank is likely to be marked by many firsts.
THE WINNING FORMULA
At 7.30 AM, in Neenan village of South 24 Parganas, Bikash Dey Sarkar, an employee of Bandhan, is at work, surrounded by 150-odd villagers who watch him scribble a map and tag houses and roads on the mud floor of a makeshift community centre. Sarkar is on assignment to create a data bank of ultra-low net worth individuals in far-flung villages like this one for Bandhan's flagship Ultra Poor Programme. The map is the first step to identify the poorest of the poor, including beggars. Next, "wealth ranking cards" are created for each such family. Subsequently, the elderly villagers are shown two cards at a time and asked to name the poorer of the two. The process culminates in a list of the six poorest families in the village.
The poorest households are then provided free assets, mostly livestock, along with some vocational training to help them earn a regular livelihood. The programme carried out by the NGO wing of Bandhan is mostly run on grants. The beneficiaries are given a pass book and asked to deposit Rs 10 every week with Bandhan, which is subsequently given back to them by the end of an eighteen-month cycle.
In nearly 24 months, the beneficiaries will qualify for mainstream finance, and most probably become dedicated clients of Bandhan, paying 20-22 per cent annual interest on loans, with zero default. The probability of default is zero because the entire village keeps a close tab on the borrower, as default is seen as the biggest social stigma on the whole community. In addition, the offices of the field staff of Bandhan double up as residential quarters, so that the borrowers can be monitored closely. As almost all of the borrowers are women, there is less likelihood of the money being frittered away in hooch and other vices. Bandhan audits each of its branches at least three times annually, and the audit team interacts with about 100,000 borrowers a year to conduct internal surveys.
PROS & CONS
STRENGTH
* Bandhan's reach in rural areas with its 13,000-strong field staff reaching about 6 million borrowers
WEAKNESS
* No expertise in corporate banking
OPPORTUNITY
* Rural deposit base, untapped by mainstream banks
THREAT
* Large pool of unsecured loans, entailing high risk-weighted assets