Bandhan's high-yielding bonds

BANDHAN
The Making of a Bank
Tamal Bandyopadhyay
Penguin Books India
353 pages; Rs 499

Bandhan Bank has grown its deposits phenomenally in the first year of its existence, thus continuing in the footsteps of Bandhan Financial Services, which, as a microfinance institution in 2009, took over all the loans on the books of the non-governmental organisation (NGO), Bandhan-Konnagar. If the bank can maintain this deposit growth it will be able to continue to both reduce its lending rate and also keep paying above the market to attract deposits. This will be a killer.

The best answer to the question "how does Bandhan do it?" can be found in the history of Bandhan by Tamal Bandyopadhyay, author and leading financial commentator, produced at a pace that has become the hallmark of the organisation and anything it touches. The story of Bandhan Bank is very much the story of its Founder and Chief Executive Officer Chandra Shekhar Ghosh, who, from the humblest of personal beginnings, has created with his drive and vision a robust bank with around 700 branches and 20,000 employees.

The book gives a mandatory institutional history of the organisation in its successive avatars as also an outline of the ups and downs of microfinance in India. Plus, there are profiles of the doyens among Indian microfinance practitioners, such as Vijay Mahajan and, the most controversial of them all, Vikram Akula. But the most valuable part of the book is Mr Ghosh's personal story and how he fought against all odds as a man possessed to achieve what is nothing short of a miracle.

Mr Ghosh, 55, was born in Tripura; his forebears ran a mithai shop in adjoining Comilla, now in Bangladesh. At one stage he stopped going to school and sold milk to help his father make ends meet. For college, Mr Ghosh returned to Dhaka, where his roots were and eventually took his Masters' degree in statistics from Dhaka University. He lived in ashram and temple premises and when his bicycle was stolen, he had no option but to borrow one from a professor to get by.

Thereafter, he joined the renowned Bangladesh NGO that helped and fought for the poor, BRAC, rising eventually to become an instructor. It is in this period that he came face to face with poverty and was able to figure out what would really help the poor. He and his wife Nilima moved to India in 1997 and he naturally gravitated to the fledgling microfinance sector of West Bengal, coming face to face with poverty again.

Mr Ghosh soon found that NGOs in West Bengal were uninterested in scaling up, whereas he was impatient to get ahead and make a dent on poverty. So, he decided to set up his own NGO and eventually Bandhan-Konnagar was born in 2001. It first operated out of a single room underneath a staircase. Funding was scarce from day one. Mr Ghosh first brought in from his family business Rs 2 lakh, and when it ran out at one point he borrowed Rs 30,000 from a moneylender at 7.5 per cent per month.

If there is any one person who deserves credit for the survival and flourishing of Bandhan, it is Brij Mohan, then chief general manager of Small Industries Development Bank of India (Sidbi). He was instrumental in Bandhan getting a loan of Rs 20 lakh and a capacity-building grant of Rs 5.45 lakh in 2002 by setting aside some eligibility rules. Seeing the passion and persistence with which Mr Ghosh pursued Sidbi for assistance, Mr Mohan felt, "Usme dum hai" (He has it in him). Bandhan did not look back.

Mr Ghosh emerges as an entrepreneur willing to take risks but not a gambler. He has also been a man in a hurry, taking two steps at a time whenever he goes up staircases. At public forums he comes out as modest, not very articulate in his fascinating spoken English. But underneath he is wise, even wily. Says Mr Mohan, "He looks very simple, but he is very sharp. People often misjudge his wisdom by looking at his simple exterior and he uses this to his advantage."

In management style, he is seen as extremely cost conscious, a team person and a bit of a "benevolent dictator". He is an "explorer", managing to be in the right place at the right time. Analysis apart, the conclusion of an official of the National Bank for Agriculture and Rural Development is that Bandhan's success is "an act of god. Destiny…Nobody could have stopped it."

This is not one of Mr Bandyopadhyay's great books, such as the expose on Sahara. But from one lifelong hack to another (we journalists earn a living by writing but still try to be true to ourselves), this is a good hack (meaning routine) job. Its redeeming feature is that he has lived up to his claim of doing an independent study despite being associated with Bandhan. This comes through effectively in the last chapter, "The Way Forward". The key issue he raises, and leaves open for debate, is, after the first flush of enthusiasm is over, why will urban people save with Bandhan and not the State Bank of India or HDFC, when the latter have a bigger range of products and services?