'Bandhan: The Making Of A Bank' by Tamal Bandyopadhyay is an engrossing tale of detail, of transformation of a simple not-for-profit activity into a full-fledged bank
With much debate going on as to whether the currency swap exercise was an attack only on corruption or if it was directed at corruption and black money that included informal economic activity, it was a good time to read the engaging book Bandhan: The Making Of A Bank by Tamal Bandyopadhyay (consulting editor at Mint and adviser to Bandhan Bank). It was an engrossing tale of detail, of transformation of a simple not-for-profit activity into a full-fledged bank. Indeed, it is a Bengal success story of entrepreneurship, passion and, more importantly, of a “take no prisoners" attitude. Chandra Shekhar Ghosh, founder of Bandhan, is a man worthy of emulation by the country’s political leaders.
Two or three important personal and policy lessons come through rather well from the story of Bandhan. One is Ghosh’s insistence on performance and non-negotiability on certain parameters of discipline such as punctuality. The grace time of 10 minutes he had given for arrival in office after 9am was removed after it became the baseline. Through several instances, he comes across as a man who does not have much tolerance for non-performance or under-performance.
Taking a cue from Ghosh, the Prime Minister can drive home at least two civic messages in his monthly radio addresses to the nation. Maintaining discipline on roads—such as obeying traffic lights and rules—is one. The second is punctuality or, more generally, respect for others’ time. These simple things are the hallmarks of development—not gross domestic product driven by debt accumulation.
The third lesson—and it is a lesson for many actors—is on scale and scalability. On scale, Bandhan itself is a positive example. Starting its journey as a small and informal club that lent money to small borrowers, it had grown to operate in many states, with many thousands of clients, branches and other network and crores of rupees in loans disbursed. Bandyopadhyay has sprinkled the book liberally with data on Bandhan’s phenomenal progress over time. It is natural for most businesses to start small but their growth depends not only on the environment and enabling factors but also on the intrinsic drive and zeal of the entrepreneur. Much has been written and is known on the former—the roadblocks for entrepreneurial growth in India.
For example, in his inimitable style, Manish Sabharwal, chairman of TeamLease Services, notes that informality was a “child of regulatory cholesterol and the riskless view of informality" (“A New Story Of Us", The Indian Express, 30 December 2016). On regulatory cholesterol, he outlines three measures: a universal enterprise number; going paperless, presence-less and cashless on compliance and employee flexibility; and choice on mandatory salary deductions which could be as high as 45%.
On the intrinsic drive of the entrepreneur there has been far too much attention on carrots and far less attention on the sticks. The imbalance must be rectified. If entrepreneurs are found to be staying small and informal not because of external constraints but because they simply wish to evade the compliance that comes with formality, then the economic case for their continued existence and support for such existence must be questioned. Alternatively, continued support must be made contingent on improvements in productivity and employment. Yes, the two can be in conflict sometimes but not in the early stages of enterprise growth.
That is what Bandhan did with its clients. Circa 2010, it introduced “Samriddhi" loans for micro, small and medium-sized enterprises, of Rs1-3 lakh. But only those borrowers who had created at least two jobs (if I understood correctly) were eligible for the loans.
As the Union government positions itself as a champion of the poor and the micro and small entrepreneur, it should be careful to avoid the failed Leftist trap of romancing either of them. The goals must be dispassionate and clear-headed, and they are to lift people out of poverty permanently and make micro and small enterprises grow up in stages. The hallmark of success of any development intervention is its eventual termination. If programmes do not meet intermediate milestones, they must be abandoned.
Not many activists have managed the transition from activism to meaningful and viable economic intervention as Ghosh has done. Bandyopadhyay does hint at the challenges of creating a bank out of a microfinance institution (MFI). The skills required for the former are different and, arguably, more numerous than for the latter. Working cultures and relationships between new employees of the Bandhan Bank and the employees of “Bandhan, the MFI" have to be managed. Growth and scale will invariably make organizations more bureaucratic and less personal. It is often said that what brought us here won’t take us there. It is equally true that one should stick to the familiar and the success formula that has worked. So, which is right? Both are right. Luck and sagacity are needed to pick the one that works in a given context.
The book on Bandhan ends with two additional chapters on two prominent characters of the Indian microfinance sector—Vijay Mahajan (VM) and Vikram Akula. It is difficult for me to believe—since I know VM reasonably well—that he walked around with a halo after 2005 and allowed hubris to set in. The tragic tale of the eventual failure of his microfinance-cum-livelihood initiative is as much a repayment of karmic debt from previous births as it is a case of management failures, if not more.
V. Anantha Nageswaran is an independent financial markets consultant based in Singapore. Read Anantha’s previous Mint columns at www.livemint.com/baretalk