INDIA’S BIGGEST SMALL BANKER
A poor man’s banker from Kolkata has become one of two to get RBI nod to start a bank, the first in 10 years. Who is he?
As a young man working for BRAC, an international NGO, Chandra Shekhar Ghosh travelled through some of the poorest regions of Bangladesh in the mid1980s, conducting door-to-door surveys and awareness classes on health, education and hygiene. Of the many horrors of destitution he witnessed, this is etched in his mind: Two children eating earth to satiate their hunger. He asked their young mother why she did not stop them. Her tearful reply shocked him: “I have nothing else to offer them.”
Ghosh was also appalled to see labourers ‘sell’ themselves to landlords by drawing as little as Rs 15 in advance to work on farmlands though the actual wages were Rs 50 per day. “With the money they earned, they bought potatoes, cooked them with just a sprinkle of salt and ate for three days a week,” says the soft-spoken Ghosh, 53, pausing long between sentences. “For the remaining days, they went hungry.”
The experiences fuelled in Tripura-born Ghosh a desire to bring about a change in the lives of the poor. Having lost his father, Ghosh, a master’s in statistics from Dhaka University, needed regular work to support his family of four brothers, two sisters and their mother. The family business of making sweets was not enough. Joining an NGO seemed a better option. But by the time he left his last NGO job with the Village Welfare Society in 2000—he had been with 22 NGOs in 15 years— he had realised that such social organisations failed to strike at the roots of poverty. So, in 2001, Ghosh started Bandhan (Togetherness) in Howrah, West Bengal, with two other employees and Rs 2 lakh in capital raised from relatives. The aim was to provide small loans to poor borrowers, and Ghosh began from his hometown Konnagar in Hoogly. “Initially, people could not beli- eve we offered loans with no collateral and were reluctant to trust us,” he says. GAINING TRUST In the years since, Ghosh’s firm has grown enormously. It now has 2,016 branches that have lent Rs 29,990 crore to 5.5 million customers so far. The target for 2020 is 10 million customers. Bandhan earned enough trust for the Reserve Bank of India to award it, along with infrastructure financier IDFC, clearance on April 2 to offer banking services. The last time RBI issued bank licences was 10 years ago—to Kotak Mahindra Bank, now India’s fifth largest private bank by assets with over 500 branches, and Yes Bank, which has over 500 branches in 350 cities. Kotak’s market capitalisation, or the total value of shares, is about Rs 59,105 crore while Yes Bank’s is Rs 15,435 crore.
To build trust, Ghosh focused on immediate disbursement, giving loans as
small as Rs 1,000 to women borrowers identified by Bandhan workers through a door-to-door campaign. The essential difference between this method and schemes operated by Sahara is that Bandhan gives small loans charging interest higher than banks and without any collateral, while Sahara accepts small deposits on a daily or monthly basis from small investors, with a promise to repay with interest.
Partha Pratim, one of Bandhan’s first employees and now its deputy general manager, recollects how he and Ghosh would cycle to Kannagar to meet clients. “He’s a born leader and knows when to encourage and when to chide,” Pratim says. Ghosh’s family too helped. His sister and brother-in-law offered a loan of Rs 2 lakh while wife Nilima helped with posters prepared to train villagers in microfinance management. Ghosh had to turn to his family because banks refused loans. “Nobody wanted to finance someone who had no track record,” he says. Then, officials at SIDBI, a financier for small industries, advised him to structure his firm as an Non-Banking Financial Company (NBFC) to raise capital. Ghosh heeded the advice and in 2006 set up Bandhan Financial Services, an NBFC, and aided by a Rs 20 lakh loan from SIDBI, he took off. By 2009, he launched Bandhan’s 1,000th branch and had two million clients. The same year, SIDBI invested Rs 50 crore for 11 per cent stake in Bandhan, and in 2011, IFC, World Bank’s private investment arm, picked up a similar stake for Rs 130 crore. LADIES FIRST Bandhan’s success hinges on its focus on the unbanked in rural areas, and women. “Women are the nucleus of the family,” Ghosh says, sitting in his top floor office in an eight-storey building his company owns in Kolkata’s Salt Lake City. “They spend wisely.” Ghosh tells the story of a woman who, many years ago, took a Rs 3,000 loan to start a small business making paper pouches for chemists to pack medicines. Over the next five years, she took Rs 35,000 to expand her business. Today she employs 35 people, including two MBA graduates to help market the pouches. “That Rs 3,000 changed her life,” says Ghosh. There are many such stories. Bina Roy, 47, runs a small business from her home selling saris, blouses, T-shirts and trousers while her husband runs a poultry business. Marrying her daughter had cost her the working capital she needed to sustain her business. Then, she heard of Bandhan and took a loan of Rs 5,000. That was nearly eight years ago. She has since taken several more loans. “It’s very easy. I pay the money on a monthly basis,” she says.
It’s kind words of borrowers such as Roy that have helped extend Bandhan’s
reach. Reducing interest rates on some loans from as high as 30 per cent to 10 per cent has also made them more accessible to the poor. In India, 56 per cent people lack the means to meet essential needs, according to McKinsey Global Institute. “By this measure, 680 million Indians experience deprivation, more than 2.5 times the BPL population of 270 million,” the institute said, underlining the need to take banking to the poor. RBI too has mooted a proposal to set up special banks, called payment banks, to help small businesses and low-income households.
Once this gap in rural financing was identified, implementation was the next step. “When Ghosh came to us with a proposal for microfinance, we were already aware that the east and the North-east lacked such services. But his confidence fired us to go that extra mile,” says Brij Mohan, a former executive director at SIDBI. It wasn’t thus a tough decision for RBI to allow his firm to offer banking services. “We reach a million customers every single day,” says Ghosh, asserting that in his grassroots model, “customers are our brand ambassadors.” HARD ROAD AHEAD Rolling out banking services, however, is no easy task. Transforming a microfinance firm into a bank calls for structural changes. From better technology to a good appraisal system for bigger loans to human resources, “banking brings a whole gamut of challenges,” says Mohan. “It is a daunting task. But for Ghosh, it is not insurmountable.” Indeed, Ghosh’s uncanny business sense explains why he survived the microfinance crisis of 2010 that followed a controversial law to regulate the industry in Andhra Pradesh. The law banned door-to-door promotions by such firms in the state and prolonged the recollection cycle from one week to one month. This hurt many such firms, particularly SKS Microfinance, once India’s biggest and the only listed microfinance firm, whose stock plunged.
Now, it’s time to celebrate. Even as Ghosh rushes from one meeting to the other to prepare for the rollout, the reception at his office is stacked with bouquets from well-wishers. Rahima Khatun, the secretary of Nari-O-Sishu Kalyan Kendra, an NGO, is ecstatic as she drops in to felicitate Ghosh. “We are all inspired by his work,” she says.
How the firm plans to roll out its bank and how it will affect the interest rates on its loans remains to be seen. Bandhan charges 22 per cent interest for loans of up to Rs 50,000, which form over 97 per cent of its portfolio. Banks offer much lower rates. If, as is hoped, Bandhan reduces the interest rates by 6 to 7 per cent now that it has been allowed to take deposits from the public, it will be a boon for small borrowers. And it will mark another milestone in the silent microfinance revolution that Ghosh has scripted.