The country’s largest microfinance institution, West Bengal-based Bandhan, is planning to enter the retail business, under the entity, called Bandhan Creation.
The MFI has recently opened its first retail outlet in Kolkata, and planned to open five more by the end of next financial year, said Chandra Shekhar Ghosh, the founder and chairman, Bandhan. The MFI would invest about Rs 5 crore in the new business venture by the next year, he added.
The outlet will be selling handicrafts, handloom and leather products, sourced from borrowers of Bandhan. The MFI has a borrower base of close to three million people across India.
By eliminating the middlemen, Ghosh plans to develop a viable retail business model, and aims to expand the retail business in the domestic as well as international markets, like the US and Europe.
“We thought, elimination of middlemen in would give better returns to artisans, whom we lend. In addition, it can be a good business model. Initially, we will set up retail outlets in India, and eventually we want to scale it up, and expand in the US and Europe,” said Ghosh.
At present, Bandhan, is sourcing products from its borrowers in five districts in the state, namely, Daskshin Dinajpur, Nadia, North 24 Parganas, Burdawan and Bankura.
The marketing outlet of Bandhan has been incorporated as a separate company, and once it expands, Bandhan plans to raise funds exclusively for the retail business through the vehicle.
This financial year, the Kolkata-based MFI plans to raise about Rs 2400 crore as debt from banks and through securitization deals.
This represents about 30 per cent growth over the last year.
The MFI sector had been bleeding since October 2010, when the Andhra Pradesh government had issued an ordinance that curbed fresh lending and recovery of loans in the state.
The impact translated into bad loans worth as much as Rs 6000 crore—toxic assets which may wipe out the net worth of several big Andhra Pradesh-based MFIs. Notably, after the crisis in the microfinance sector, profit margins in business of microlending have shrunk. This in turn has prompted MFIs to look into alternative business models.
Bandhan, has a loan outstanding portfolio of about Rs 3467 crore, spread over 18 states and Union Territories.
