The founder and managing director of Bandhan on expanding his microfinance model and bridging cultural gaps
When Chandra Shekhar Ghosh started Bandhan as a business serving small borrowers, he had to freelance as a trainer and consultant for other microfinance institutions to earn his daily bread. Often, he was paid in kind. “I used to train for ₹ 200. There were times when I didn’t get the money, and was just handed over a bottle of mustard oil. It was tough running my home and starting the business," recollects Ghosh.
I met Ghosh, 55, in November, for dinner at the Copper Chimney restaurant in Worli, Mumbai, hours after he had met bankers from Goldman Sachs and UBS at an investor conference in Mumbai. He said there was considerable curiosity at the conference about Bandhan’s business model. The newest entrant to the Indian commercial banking industry, Bandhan has to list on stock exchanges by the end of 2018, according to Reserve Bank of India rules. As the bank’s managing director and chief executive officer (CEO), Ghosh has been predictably busy meeting investors—in his own words, “taking care of strategy and network development".
It was in the early 2000s that Ghosh witnessed small vendors in a Kolkata market paying interest of ₹ 5 for borrowing ₹ 500 from moneylenders for 12 hours. Why should they pay an interest rate of over 700% a year, he thought; this led him to the idea of starting a microfinance business. However, it wasn’t easy to raise funds. When banks refused to risk advancing funds, citing, among other things, the lack of profits and a balance sheet for three years, he invested ₹ 2 lakh of his own savings and borrowed another ₹ 1.65 lakh from his brother-in-law to start his microfinance set-up. “While interacting with small borrowers, I realized that it is only hope that they are looking for. My potential customers were concerned about money, transparency and honesty," he says.
That was in 2001-02. A year later, Ghosh managed a ₹ 20 lakh loan from the Small Industries Development Bank of India (Sidbi). In 2009, Bandhan was registered as a non-banking finance company (NBFC). Today, it has a loan book size of10,500 crore. The bank’s non-performing asset ratio of 7 basis points—or 7 paise per ₹ 100 lent—perhaps vindicates his belief that lending to the poor is a sustainable business and that his “customer will not default or cheat".
More than the banks, his wife and mother needed convincing. “I used to earn a ₹ 5,000 salary at that time," says Ghosh. “There was no fixed income then since I resigned from Village Welfare." At the time, Ghosh was head of operations at the Village Welfare Society (VWS), a West Bengal-based microfinance institution.
In appearance, Ghosh could be any office-goer, the kind you see in the first-class coaches of Mumbai’s suburban trains. He is wearing a white shirt and black trousers for the dinner interview; a ₹ 5 pen peeps out of his pocket. The only giveaway is a big-screen Samsung smartphone, but unlike most CEOs, he isn’t on his mobile too often, nor are we disturbed by phone calls during the interview.
He looks cursorily at the menu before allowing his associate to order a non-vegetarian starter platter, prawn curry and rice. Ghosh speaks in a folksy way, in a thick Bengali accent. His similes are somewhat reminiscent of those that pepper politician Lalu Prasad’s speeches—potatoes explain the working of transaction costs, and a punctured vehicle is used to explain how challenges can be overcome.
One of Ghosh’s biggest challenges now is to continue hiring as the bank expands, especially getting senior management staff to move to Kolkata, where the bank is headquartered. “Hiring was a big challenge even in those times. Not many people were interested in working after they found out about the job profile. I have hired people from the roadside also," says Ghosh. One hire that turned out to be an inspired choice was of a milkman, who is now an assistant manager in the bank’s microfinance division.
Today, with as many as 7,000 hires over the past 18 months, many of them lateral transfers from other banks, integration has become a bigger challenge—they have a total of around 19,000 employees now. One of Ghosh’s key tasks is to sensitize new staff to the microfinance part of the business and ensure that they remain true to Bandhan’s values and objectives.
“Do you know Abhijit Banerjee (the economist)?" Ghosh asks. “His father is a Bengali and mother a Maharashtrian. He said that his father told him that if you have a fever, then you stop taking a bath and eating rice, while his mother said that in a fever, take a bath and eat rice. So in a country there (are) different cultures. We have to adjust, we cannot compete with each other."
Can Bandhan retain its emphasis on development as it transforms itself into a bank? Muhammad Yunus, Nobel laureate and founder of Bangladesh’s microfinance pioneer Grameen Bank, raised this question in an interview with Mint last year. Ghosh suggests that such criticism is uncalled for since the main reason for turning Bandhan into a bank is to access cheaper funds and scale up lending to the poorer sections of society.
In parenthesis: Ghosh has spent almost the whole of his career in the not-for-profit development sector, starting in 1985 with Bangladesh-based Brac (formerly the Bangladesh Rehabilitation Assistance Committee). He says he has no hobbies other than his work. One of his biggest regrets after scaling up Bandhan is that he doesn’t have much time to meet his staff regularly. “Earlier, people used to report directly but now I don’t get much time to go on field visits. Earlier, I used to visit at least once in a month. If you meet the ground-level staff, they also have some fears and you connect with people’s problems. Every time I meet people I end up learning something new.
“Till now I haven’t left my social mind and working for the betterment of the society," says Ghosh, who started working in the non-profit sector after completing a master’s in statistics from Dhaka University, in 1985. He points out that he has only a 2% personal stake in Bandhan Bank, although he doesn’t reveal whether his relatives own any stake or what the shareholding structure of the bank is. About 5% of Bandhan’s profits go towards a trust—the Bandhan Trust—which does development work in fields such as education, health, livelihood promotion and employment generation.
“A single bank can lend only so much to a microfinance institution, but if we become a bank then my funding is unlimited. Small is beautiful but big is necessary," says Ghosh.
He seems convinced that microfinance and normal business can coexist, and that both are necessary in Bandhan Bank’s borrow-from-India and lend-to-Bharat model. Borrowing from India here refers to taking deposits from the rich and the salaried middle class, while lending to Bharat means advancing funds to those in the unorganized sector. To cut costs, which are already very low, he says there will be different kinds of bank branches—they have around 600 branches and are planning more. “If you go to my microfinance branch, there will be one plastic chair for the branch manager, eight armless chairs for credit managers, 10 plastic stools for borrowers, one table, one tube light, one fan, one room, no calling bell, no peon. Automatically, the cost will come down."
Cutting costs is a must if Bandhan hopes to avoid a margin squeeze. While turning into a bank will allow Bandhan to take deposits, the going certainly won’t be easy in the cut-throat world of retail banking. The cheapest deposits—from current and savings bank accounts—are a fierce battleground. It took years for the last two entrants, Yes Bank and Kotak Mahindra Bank, to scale up this source of funds. Unlike a non-banking finance company, a bank will also have to set aside a portion of its deposits towards meeting reserve and liquidity ratios.
“Anything less than 12% (the rate at which microlenders borrow from banks) is good. I can afford to pay 8.5% or 8.65% for bulk deposits," says Ghosh.
Ghosh is cautious about cutting rates drastically for, he says, he wants to “give the benefit to all the stakeholders", for the long-term sustainability of the business. “To begin with," he says, “Bandhan Bank would not be looking at corporate lending at its initial phase."
Scaling up cheap funds is the main fetter for Bandhan Bank’s growth. Ghosh said the bank was targeting 30% growth, which is a comedown from the last fiscal year’s (2014-15, when they were an NBFC) 50%, even if the bank has already achieved this fiscal year’s target of getting its deposit base to at least ₹ 3,000 crore. To gain more deposits, they are opening more branches in urban centres too, like their latest branch at Prabhadevi in Mumbai.
“Open an account with Bandhan, you will do good for a lot of people," Ghosh said, as we wound up our conversation