The founder of India’s top microlender on keeping a low-profile and focusing on the east, a region where others were reluctant to expand
Not so long ago, a senior West Bengal minister expressed surprise when Chandra Shekhar Ghosh told him that Bandhan, the highly successful microfinance institution (MFI) that he has founded, was a venture that grew and flourished entirely out of the state. The minister would have been even more surprised if he were to be told today that Bandhan has climbed to the top of its league (in terms of credit outstanding) in the country, writes Subir Roy.
For our lunch appointment, Ghosh chooses the Oh Calcutta eatery on the EM Bypass that is conveniently located for both of us. We get the ordering quickly out of the way, going for standard favourites that never fail — mochar chop (from the flower of the plantain) for starters, bhaja moong dal and a light rohu fish preparation with gobi, all put down with steaming rice.
At 53, Ghosh is trim and soft-spoken to the point of appearing diffident. He is not eager to publicise Bandhan becoming the number one MFI, explaining with a smile, “We are the most low-cost and low-profile.” At a recent industry gathering under the Sa-Dhan banner, the talk on the sidelines was that Bandhan was one of the few large MFIs (over Rs 100 crore lending) that would be able to meet the regulatory directive of maximum 10 per cent margin (the difference between lending and borrowing rates). The low cost comes from most of the staff (95 per cent) coming from the same stock as Bandhan’s borrowers — rural and poor. Around 80 per cent of its lending (currently Rs 3,700 crore to 3,800,000 borrowers) is rural.
Ghosh’s family traverses the entire Bengali-speaking world, literally. It has its roots in Tripura; there has been a presence in Bangladesh and also a base in Konnagar near Kolkata. He took his masters degree in statistics from Dhaka University and joined one of the country’s oldest and most well-known NGOs, BRAC. That’s when he came face to face with poverty. Something he witnessed again in India when he finally came over in 1997. Initially, he worked in the family business and engaged with NGOs. But he soon realised that they were reluctant to scale up, without which, he felt, a dent could not be made in India’s poverty.
The mochar chop lives up to its reputation; Ghosh keeps speaking very softly, his voice almost drowned by the music. A crucial watershed in Ghosh’s life came in 2000 when he took out Rs 2 lakh from the family business and got down to attacking poverty full time. He worked with 10 NGOs so that his effort had a multiplier effect. He figured if each NGO helps a hundred thousand borrowers then a million poor families will be assisted. But scaling up remained a problem.
So, in 2001 he took another plunge, set up a society, Bandhan, and opened a branch in Konnagar near Kolkata to try out his model of helping the poor raise their incomes. It was a period of getting into debt – with in-laws, sister and even money lenders at 7.5 per cent a month (an uncle standing guarantee) – and fruitlessly knocking on the door of the Small Industries Development Bank (Sidbi). They first shooed him away since he could not produce three years’ balance sheets. But he kept working on them and deliverance finally came in late 2002 when Sidbi gave a loan of Rs 20 lakh and Rs 5.4 lakh for capacity building (setting up shop). So armed, he set up a second branch, in Bagnan, again near Kolkata, to replicate his own model.
The next big thing was in 2007 when Ashoka, the global organisation that promotes social entrepreneurship, came forward to select him as an Ashoka Fellow. With the monthly fellowship money he got, he set up a small school. He knew that you cannot really get out of poverty without a minimum education. Today, under the programme, there are 10,000 students in 300 schools. The children are in the eight-14 age bracket and 70 per cent are girls. Each teacher, a housewife, looks after 33 students, all in one room. They are in school three hours a day, take no homework back and the attendance is 98 per cent. All learning aids are free and expense per school works out to Rs 35,000 a year, funded by the society. On completing class III, students are shifted to a nearby government school where many of them become toppers. What is important, says Ghosh, is to create an environment of going to school among children and their peers in village neighbourhoods.
The next landmark came in 2009 when the microfinance business was transferred to Bandhan Financial Services that was registered as a non-banking financial company coming under the supervision of the Reserve Bank of India. This was done since banks were reluctant to keep lending more and more to a society, thus, making scaling up difficult. Now 60 per cent of Bandhan’s equity capital is owned by two trusts that have subsumed the work of the society, 20 per cent by 1,200 of its staff, just over 10 per cent by the International Finance Corporation of the World Bank group, and just under 10 per cent by Sidbi. Five per cent of Bandhan’s profits go to the trusts, which thereby were able to spend Rs 10 crore last year.
With a start in West Bengal, Bandhan has now spread to 18 states and Union Territories – all over the east and Northeast, going right up to Uttar Pradesh and Maharashtra in the west. Significantly, it never ventured into the south and, thus, saved itself from the setback suffered by all MFI’s in Andhra Pradesh a couple of years ago. This pulled back yesterday’s leaders who had a large presence in Andhra and enabled Bandhan to come up to the top.
Bandhan was lucky in another way.
Other MFIs were reluctant to expand into the east, leaving the field open to Bandhan initially. This also took care of the problem of multiple lending (the same borrower taking loans from even three MFIs, using one loan to pay off another and eventually coming to grief) that lies at the root of the Andhra crisis. Bandhan initially set up shop only in those areas where there was no MFI to give loans. Today, of course, there is competition. The initial entry was also facilitated by the fact that the east is relatively unbanked. In many areas, before Bandhan came, the poor had recourse only to moneylenders. Ghosh acknowledges there is a problem of touts but underplays it, saying it is prevalent only in semi-urban areas. Bandhan, for its part, has always remained focused on rural areas, which account for 80 per cent of its lending.
The fish is as good as one can expect and we stop talking business for a while to do justice to it. Bandhan follows a form of group guarantee in which a group leader witnesses a loan without formally becoming a guarantor. When I point out that peer borrower pressure had led to some suicides in Andhra, he explains that group lending leads to “transparency, commitment and bonding among borrowers and makes for credit health”. There is no need for Bandhan to go in for something like Grameen II — which eschews group guarantee and which Grameen Bank of Bangladesh had gone in for after 25 years – since Bandhan is fine-tuning its model all the time.
The biggest challenge that Bandhan faces today is the emerging regulation. The Bill to regulate microfinance in its present form is unclear if MFIs can access the savings of the poor that societies, trusts and companies constituted as non-profits under section 25 of the Companies Act can. The Holy Grail for Ghosh is for Bandhan to be able to get a banking licence the way Grameen Bank has. The second biggest problem is that of chit funds that have assumed threatening proportions in the east. “The day chit funds’ investments go bad, it will hit the country’s economy. The issues are the quality of their investments, promising depositors high returns that are not possible to service and large commission to agents. Even district-level officials are sometimes confused between MFIs and chit funds, which take out high-powered advertisements on the help they give people and underplay their collection activity. State governments realise the problem and are trying to do something.”
As we savour the dessert, mishit doi and bhape sandesh with coconut flavor, Ghosh outlines a recent initiative. From last year, Bandhan has been linking up youngsters from borrower families with Big Bazaar, Pantaloon, KFC, P&G and McDonalds who absorb them after training that Bandhan has arranged with Dr Reddy’s Foundation. Last year, 600 have been placed, this year the target is 3,000. In Mumbai, Bandhan has arranged for an NGO, For She, to teach women driving. They are absorbed by a travel agency.
Ghosh is clear about what microfinance can and cannot do. It cannot reach the poorest, the hard core poor — mostly destitute women who are often widows or have been abandoned by their spouses and have turned to begging. So, there is a programme run by the trusts for them that begins with rebuilding their self-confidence. Then they are asked to choose a trade they can ply, trained for it and given physical assets. Initially, they get Rs 20 per day for food. After being nursed for two years they are linked to an MFI or a self-help group. So far 94 per cent of those assisted have graduate successfully. The programme started in 2006 with the $25,000 cash that Bandhan received with a World Bank award. Now, the Axis Bank Foundation has agreed to meet 75 per cent of costs and Bandhan’s profits will take care of the remaining 25 per cent. Right now 11,000 families are being helped. Ghosh can go on but we have already spent over two hours and decide to wrap up.