- Type: #book - ASIN: B01G8TYJEO - Authors: [[Tamal Bandyopadhyay]] - Highlights - original motivation of combating poverty by lending to the poor, who would otherwise have to rely on extortionate moneylenders. - Chandra Shekhar Ghosh, who rose from the ranks, driven by an unusual combination of missionary zeal, entrepreneurial creativity and energy. - In 2014, Bandhan got a banking licence, one of just two that had been handed out by Reserve Bank of India (RBI). A banking licence is a big deal in Asia’s third-largest economy—in the past sixty-eight years since Independence, only fifteen new banks have been set up, including Bandhan. - When Ghosh asked me to join Bandhan, I couldn’t resist and signed up as adviser, giving up my day job at Mint, and becoming a consulting editor. At this point, I would like to make it clear that while I have been a part of the Bandhan group since August 2014, this book is an independent project. It is not sponsored by Bandhan. - There have been many books on microfinance, in India and overseas. Most of them have been written either from the point of view of the borrowers—how microfinance has changed their lives—or are academic studies on how such entities work, different models of microfinance, risk management, etc. This book is different—it is written from the point of view of the organization. It’s about how a microfinance structure is built, and about entrepreneurship. It does not project Ghosh as a messiah for the poor, or as an agent for change, but as an entrepreneur who seems to have hit upon a magic formula—running a profitable business and at the same time doing good to the poor. - Ghosh would get out of the circle of his colleagues in a branch to mingle with prospective customers. Some would bow and touch his feet in a mark of respect and worship him. - Many of the branches and doorstep service centres (DSCs) were struggling to achieve the so-called ‘day end’ or matching the debit and credit at the close of business hours in the initial days. - The east and the north-east are the most underbanked regions in India. According to RBI data, of around 1,26,000 bank branches in India, as on 31 March 2015, the east accounts for 16 per cent, and the north-east only 2.6 per cent. West Bengal, the fourth largest state in India by population, where Bandhan Bank has its largest branch network, accounts for 5.62 per cent of bank branches, 6.22 per cent of deposits, 4.67 per cent of credit, and for every Rs 100 the banks mobilize in this state, Rs 58 is given as loans. Bandhan Bank also has many branches in Bihar—the third-largest Indian state by population, which accounts for 4.78 per cent of the branch network, 2.44 per cent of deposits and 1.05 per cent of credit, and where the credit-deposit ratio is 33.26 per cent. This is the ratio of how much a bank lends out of the deposits it has mobilized. In this case, it broadly means that for every Rs 100 deposit collected by the banks, only one-third of the amount is given as loans. In other words, the region is being used by banks to collect money but they are not giving money to people in the form of loans. It could be either of the two cases: the banks’ reluctance to lend money, or lack of demand for loans from the borrowers. - They would not get into expanding business as they were not sure whether the lender could support them. The beneficiary of small loans cannot have a vision in isolation—the visions of both the borrowers and the lenders are interlinked. As there was no certainty about the grants, the NGOs were not certain about continuing the project of giving money to the poor. So, what was the future of the customers? While working with Village Welfare Society, Ghosh was also associated with scores of NGOs as a trainer and motivational speaker. He told the NGOs to scale up but they would not listen. At that time, one Kartik Mirdha, of Human Development Centre, a non-profit organization, told Ghosh to set up his own NGO. - Going by the prevailing SFMC checklists, Bandhan did not quite qualify for any loan or a grant. But Brij Mohan, SIDBI’s chief general manager, who later became executive director, said, ‘Usme dum hai lagta hai’ (the proposal does hold weight), and asked Singh, ‘How convinced are you?’ He also said if the money is not recovered, Singh would lose his provident fund. ‘Are you ready?’ ‘Yes,’ Singh answered. The proposal was approved the following week. It was the beginning of a permanent relationship between SIDBI and Bandhan, and over the next few years, Bandhan received several hundred crores as support from SIDBI, both in the form of loan as well as equity, and kept expanding at an amazing pace. - Three factors were taken into account for giving the second loan: past repayment record, future potential of the client’s income-generating activity, and whether the first loan generated the expected income. - However, it was not easy as under the RBI norms, an NBFC needed to have an equity of Rs 2 crore: a big sum for Bandhan in those days. It did not have that kind of capital. So, it started looking to acquire an already existing NBFC. Kolkata-based Ganga Niryat Pvt. Ltd was available. It had a capital of Rs 39.2 lakh. Bandhan lapped it up in May 2006, and did not even have to pay that much. By March, its capital rose to Rs 66.5 lakh, with profits being ploughed back. - borrowers. Ghosh has microfinance in his blood. The promoter’s credibility is of utmost importance when we make an equity investment. Ghosh had remarkable clarity of what he wanted—a domestic investor when private equity funds were making a beeline. - Uttarakhand—and introduced high-value Samriddhi loans for micro, small-and medium-sized enterprises, of Rs 1–3 lakh. Following almost close to a decade of association with Bandhan, some entrepreneurs’ credit demand rose, and the new product was created to meet that demand. This was to create employment, and only those borrowers who had created at least two employments were eligible for the Samriddhi loan. Unlike the microloans which were given to borrowers after they formed a group, to avail of the Samriddhi loan the borrowers did not need to be part of a group. - Typically, in microfinance, groups are formed to create moral and social pressure for repayment of loans even as the group is not responsible if an individual defaults. - regulators. Ronti realized that the conventional screen design would not work; the field employees would need a screen that would look like their registers. Apart from developing the new application, there was another big task—migration of the data from the existing system. The old system was developed in an unstructured manner, without following any design rules, and because of this the data was inconsistent. - Discipline is the key, and Ghosh does not compromise on this for anything. - will come. Here, risk management is all about keeping the loan amounts small, forming a good group and carrying out strong supervision. The cost is primarily on the group - The BRAC assignment also taught him that human capital cannot be built without training; education without discipline is meaningless. The most critical piece of learning which helped him a great deal to create Bandhan was that poor people don’t care much about money if it’s given free. Only when they are charged for the money do they deploy it, earn on it and pay back. From a programme organizer, he was promoted to the position of a manager and, finally, a faculty member giving training to MFIs across Bangladesh. - progressed. His obsession for discipline is claustrophobic, but people still stick to him because he teaches them to dream. - Bandhan Bank wants to raise deposits predominantly from urban India and lend in the hinterland. - original motivation of combating poverty by lending to the poor, who would otherwise have to rely on extortionate moneylenders. - Chandra Shekhar Ghosh, who rose from the ranks, driven by an unusual combination of missionary zeal, entrepreneurial creativity and energy. - In 2014, Bandhan got a banking licence, one of just two that had been handed out by Reserve Bank of India (RBI). A banking licence is a big deal in Asia’s third-largest economy—in the past sixty-eight years since Independence, only fifteen new banks have been set up, including Bandhan. - When Ghosh asked me to join Bandhan, I couldn’t resist and signed up as adviser, giving up my day job at Mint, and becoming a consulting editor. At this point, I would like to make it clear that while I have been a part of the Bandhan group since August 2014, this book is an independent project. It is not sponsored by Bandhan. - There have been many books on microfinance, in India and overseas. Most of them have been written either from the point of view of the borrowers—how microfinance has changed their lives—or are academic studies on how such entities work, different models of microfinance, risk management, etc. This book is different—it is written from the point of view of the organization. It’s about how a microfinance structure is built, and about entrepreneurship. It does not project Ghosh as a messiah for the poor, or as an agent for change, but as an entrepreneur who seems to have hit upon a magic formula—running a profitable business and at the same time doing good to the poor. - Ghosh would get out of the circle of his colleagues in a branch to mingle with prospective customers. Some would bow and touch his feet in a mark of respect and worship him. - Many of the branches and doorstep service centres (DSCs) were struggling to achieve the so-called ‘day end’ or matching the debit and credit at the close of business hours in the initial days. - The east and the north-east are the most underbanked regions in India. According to RBI data, of around 1,26,000 bank branches in India, as on 31 March 2015, the east accounts for 16 per cent, and the north-east only 2.6 per cent. West Bengal, the fourth largest state in India by population, where Bandhan Bank has its largest branch network, accounts for 5.62 per cent of bank branches, 6.22 per cent of deposits, 4.67 per cent of credit, and for every Rs 100 the banks mobilize in this state, Rs 58 is given as loans. Bandhan Bank also has many branches in Bihar—the third-largest Indian state by population, which accounts for 4.78 per cent of the branch network, 2.44 per cent of deposits and 1.05 per cent of credit, and where the credit-deposit ratio is 33.26 per cent. This is the ratio of how much a bank lends out of the deposits it has mobilized. In this case, it broadly means that for every Rs 100 deposit collected by the banks, only one-third of the amount is given as loans. In other words, the region is being used by banks to collect money but they are not giving money to people in the form of loans. It could be either of the two cases: the banks’ reluctance to lend money, or lack of demand for loans from the borrowers. - They would not get into expanding business as they were not sure whether the lender could support them. The beneficiary of small loans cannot have a vision in isolation—the visions of both the borrowers and the lenders are interlinked. As there was no certainty about the grants, the NGOs were not certain about continuing the project of giving money to the poor. So, what was the future of the customers? While working with Village Welfare Society, Ghosh was also associated with scores of NGOs as a trainer and motivational speaker. He told the NGOs to scale up but they would not listen. At that time, one Kartik Mirdha, of Human Development Centre, a non-profit organization, told Ghosh to set up his own NGO. - Going by the prevailing SFMC checklists, Bandhan did not quite qualify for any loan or a grant. But Brij Mohan, SIDBI’s chief general manager, who later became executive director, said, ‘Usme dum hai lagta hai’ (the proposal does hold weight), and asked Singh, ‘How convinced are you?’ He also said if the money is not recovered, Singh would lose his provident fund. ‘Are you ready?’ ‘Yes,’ Singh answered. The proposal was approved the following week. It was the beginning of a permanent relationship between SIDBI and Bandhan, and over the next few years, Bandhan received several hundred crores as support from SIDBI, both in the form of loan as well as equity, and kept expanding at an amazing pace. - Three factors were taken into account for giving the second loan: past repayment record, future potential of the client’s income-generating activity, and whether the first loan generated the expected income. - However, it was not easy as under the RBI norms, an NBFC needed to have an equity of Rs 2 crore: a big sum for Bandhan in those days. It did not have that kind of capital. So, it started looking to acquire an already existing NBFC. Kolkata-based Ganga Niryat Pvt. Ltd was available. It had a capital of Rs 39.2 lakh. Bandhan lapped it up in May 2006, and did not even have to pay that much. By March, its capital rose to Rs 66.5 lakh, with profits being ploughed back. - borrowers. Ghosh has microfinance in his blood. The promoter’s credibility is of utmost importance when we make an equity investment. Ghosh had remarkable clarity of what he wanted—a domestic investor when private equity funds were making a beeline. - Uttarakhand—and introduced high-value Samriddhi loans for micro, small-and medium-sized enterprises, of Rs 1–3 lakh. Following almost close to a decade of association with Bandhan, some entrepreneurs’ credit demand rose, and the new product was created to meet that demand. This was to create employment, and only those borrowers who had created at least two employments were eligible for the Samriddhi loan. Unlike the microloans which were given to borrowers after they formed a group, to avail of the Samriddhi loan the borrowers did not need to be part of a group. - Typically, in microfinance, groups are formed to create moral and social pressure for repayment of loans even as the group is not responsible if an individual defaults. - regulators. Ronti realized that the conventional screen design would not work; the field employees would need a screen that would look like their registers. Apart from developing the new application, there was another big task—migration of the data from the existing system. The old system was developed in an unstructured manner, without following any design rules, and because of this the data was inconsistent. - Discipline is the key, and Ghosh does not compromise on this for anything. - will come. Here, risk management is all about keeping the loan amounts small, forming a good group and carrying out strong supervision. The cost is primarily on the group - The BRAC assignment also taught him that human capital cannot be built without training; education without discipline is meaningless. The most critical piece of learning which helped him a great deal to create Bandhan was that poor people don’t care much about money if it’s given free. Only when they are charged for the money do they deploy it, earn on it and pay back. From a programme organizer, he was promoted to the position of a manager and, finally, a faculty member giving training to MFIs across Bangladesh. - progressed. His obsession for discipline is claustrophobic, but people still stick to him because he teaches them to dream. - Bandhan Bank wants to raise deposits predominantly from urban India and lend in the hinterland. - Notes -