Sep 3, 2015

Bandhan: The saga of a MFI to full-fledged bank

 - Sourav Ghosh, MBA 2015-17

Chandra Sekhar Ghosh—a social entrepreneur has been paid off for his glorious vision. A person with ordinary background but extraordinary willingness- started his journey with two colleagues Fatik Bera & Partha Samanta in 2001,  for the unorganized women in rural unbanked areas with only 2 lakh rupees as cash, in West Bengal.  Their venture, a NGO named Bandhan was following a typical business model that was successfully established in Bangladesh, named Grameen Bank, brainchild of later Noble laureate Muhammad Yunus.
The key essence of this business model is on micro credit system which emphasizes about the effect of very small amount of loan towards the sustainable growth of poor rural people who are unable to avail the banking system. Rural people who are in the business of selling vegetables, making small furniture  from bamboo, designing in sari, fishing etc—they actually need small amount of money to initiate the business . However, people face problem as bankers generally do not provide loan in small scale & the paperwork is also cumbersome for these classes of people.  Micro-finance Institution (MFI) is playing the vital role here that used to borrow money from bank & provide loan without collateral to the root level initially in small scale which later can be increased gradually.
Bandhan, started as NGO, expanded rapidly in rural sector as MFI. In 2006,  it became a non-banking finance company (NBFC) of asset base of  Rs 6769 crore having set-up in major states like WB, Orissa, Assam, Jharkhand, Uttar Pradesh, Maharashtra— however mainly in Eastern & NE part of country. In 2009, founder Ghosh decided to expand its business further.  Eastern & NE part of India is under-penetrated in banking sector compared to Western & Southern part of country while only UCO, United Bank of India, Allahabad Bank is having headquarters in Eastern India.  And if we focus on the basic operation of NBFC-- it takes loan from bank, they are charging high interest to borrower compared to bank. Taking consideration of these key features, Bandhan has applied for banking licence to RBI.
In 2014, Bandhan got the banking licence along with IDFC while the appeal of other larger corporate houses like Tata, Reliance ADA, LIC Housing, IndiaBulls are still not entertained. However, RBI had given certain strict mandates to meet in 18-months if  Bandhan has to come up as a full fledged commercial bank.
                Bandhan was in operation in more than 500 branches across 22 states. The company has 67 lakh micro-finance borrowers whose accounts have been transferred to Savings Bank Account creating loan portfolio of around Rs 10000 crore. In an interview when Ghosh was asked if Bandhan Bank will be different from Bandhan-the MFI, he replied, “One should not forget where he was born.” As a token of his commitment to financial inclusion, Bandhan bank will mainly cater to the unorganized sectors- like daily wage earners— who are their customer from the day of beginning.  They will also get investment from International Finance Corporation (a member of World Bank), Singapore govt backed GIC of worth Rs 500 cr soon. Finally on 23rd August, 2015 - FM Arun Jaitley inaugurates Bandhan Bank as full fledged commercial bank.
                 In a developing country like ours, micro-credit & micro-finance is probably the best option to empower the economically weaker section. And undoubtedly, this journey of 3 people who started with 2 lakh rupees a decade ago—is truly amazing & motivational.
Dreams are the greatest imaginative power & strength of mankind. Whatever the small start one makes, if his vision does not get wavered, he will surely continue to grow more & more.


Sources: Wikipedia, economic times, Business Today, www.livemint.com 

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