Wednesday, May 14, 2014

Bandhan : From a NGO to a bank - A success story in rural Bengal

Riddled with inflation, unemployment, corruption, falling growth and high Non Performing Assets (NPAs) of Public sector(PSU) banks; the Indian Economy hasn’t had much news to cheer about in the last 3 years excepting for some overheating of stock markets. On the redistribution front the marquee scheme of the preceding government, the Mahatma Gandhi National Rural Employment Generation Assistance (MRNEGA in short), has had problems of  low utilization & partisanship  in majority of the 28 states. One of the main way outs suggested was to increase the coverage of  PSU banks in the remotest corners of rural India to enable financial inclusion for the beneficiary community. The PSU banks have shown lukewarm response to such a measure adopted for the sub-prime market fearing large defaults. In some states the space not filled by the PSU banks had also been usurped by different ponzi scheme masterminds who have siphoned away the savings of millions of people. In this context; the approval of new banking licenses by RBI , as per the guidelines of the Vimal Jalan committee, has been granted to only two entities whose business models show promise for financial stability & inclusion. One of them is an erstwhile  NGO , Bandhan, which started off in 2001 with micro-financing activities in Eastern India complemented by developmental work in health, education, livelihood among the beneficiaries with the twin objectives of poverty alleviation and women empowerment.
In between , it became a NBFC (Non-banking financial corporation) in 2006 to become eligible for financial investments from  Indian & Foreign banks. By 2013, the operations of Bandhan has reached 22 states & 245 districts (172 of which are under-banked) operating through 2000 branches, 13000 staff ,distributing monthly micro-finance loans of Rs.1000 crores with services like insurance &  pension being offered in tandem. The developmental work has been continuing in parallel through a trust and today covers nearly 4.5 lakh households across 9 states. Special program to target the most marginalized of the poor and handholding them for 2 years with  consumption stipends, training assistances have also been launched by Bandhan. And now with RBI’s granting of banking license, Bandhan would be able to raise deposits from retail investors and offer financing at a cost much lower than the present 23%  (for micro-loans).
At a talk hosted by the IIM Bangalore alumni Association , Kolkata chapter; Chandrasekhar Ghosh, the founder of Bandhan, elaborated on the inclusive character of Bandhan’s operations and listed out a few features of Bandhan that have made them the success that they are.

·        Bandhan does not offer financial incentives to its staff for disbursing loans as it thinks that’d promote unwanted short-cuts.

·        Bandhan’s use of Information Technology is very low (their first computer was brought in 2011) and it relies on traditional bookkeeping & periodic monitoring of its agents. Bandhan relies more on physical outreach than technological, a paradigm shift that needs to be acknowledged.

·        Bandhan has a full scale training center where agents are trained regularly and continuously .

·        Bandhan has a 99%+ repayment rate and uses the peer pressure of the self help groups to facilitate repayment

·        Last but not the least, Bandhan takes little help from political parties to conduct its businesses

 Bengal’s economy and image has taken a beating in the national arena for more than 3 decades now. A moribund economy associated with high labour wages and low productive growth have seen many  scammers freely operating in the state with publicized blessings from political parties and professional assistance from retired police officers to hoodwink the administration. If Bengal has anything to be proud of , it is the activities of Bandhan and the passion of its humble, down-to-earth, internationally-acclaimed founder & CEO Chandrasekhar Ghosh ; which have given the rural economy a path for survival & growth and a hope to rise from the dehumanizing effects of poverty. From a NGO to a public bank in 13 years; Bandhan Bank will start its operations within 18 months.

For the Indian economy,  the granting of banking license to Bandhan has been like the rush of cool air  in the desert and credit should go in equal measures to Reserve Bank of India and its foresighted governor. But for Bengal, its time the political parties converge together to promote grassroots organization with similar business models instead of associating with the cheats and their  chit funds.

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