Bandhan CEO Chandra Shekhar Ghosh poses with Piggy banks at his Salt Lake office in Kolkata. Photo by Subir Halder.
Little known micro lender Bandhan Financial Services recently won a Reserve Bank of India approval to offer banking services in the country. Chandra Shekhar Ghosh, the firm's CEO, talks about the journey so far and the challenges going forward, in an interview with INDIA TODAY'S MG Arun and Malini Banerjee at Bandhan's office at Salt Lake City in Kolkata. Edited excerpts:
Q: When you ventured into micro-finance over a decade ago, did you have an idea that some day you will be entering the banking sector?
A: I did not have any such idea. It is sheer chance that things have come to this level. I lost my father just when I completed my Masters in Statistics from the Dhaka University. I had four brothers and two sisters younger to me, so it was necessary that I should earn to support my family.
When I took up a job with an NGO, I was sent to backward regions in North Bengal in Bangladesh, where the poorest of the poor lived. I had never seen such poverty before. People were living without food, sometimes without even a single meal a day. There was this practice of people 'selling' themselves, where they take Rs 15 in advance and commit to work, whereas the actual wages would have be Rs 50. People bought potato, boiled it and ate for three days of the week, and went hungry for the remaining days. The thought of how someone could sustain himself on such low wages began to bother me.
Q: What were the financing options that were available then for the poor?
A: Money lenders were giving money at rates as high as 700 per cent. When people needed money, banks asked for guarantee such as land. They asked for documents showing land ownership, which people may not have, they told people to sign documents, which they don't know how to. But still they went to money lenders since that was the easiest way then. It did not need much time to understand that the root cause of their problem was poverty, and that their income cannot be enhanced. On the one side, inflation was growing, but their income wasn't growing in a corresponding manner.
Q: What was the most striking need they had, which made you spot an opportunity and offer your services?
A: What they needed was regular employment. The problem was that most NGOs were involved in creating awareness, and were not action oriented. If I increase the income, people will like to listen to me. If I fulfill the gap in their cash flow, my cash inflow should also be good. At forty, I took up the challenge of doing so. I was with the NGO Village Welfare Society (VWS) in Kolkata. In all, I have worked with 20 NGOs in Bengal, sometimes as consultant, and have visited every village. Apart from a sweet shop in the early days, we had a family business in hosiery, where I worked for two years. But I was not satisfied with that. I felt that the potential of providing rural finance was huge, and if I tap the market, I can fulfill two things simultaneously - I can sustain myself, as well as provide sustainability to all those in the rural areas who needed much help.
Q: When you entered micro finance, were you influenced by the model of Grameen Bank, which was doing some work in those parts?
A: I had heard about the Grameen Bank, and even gone to to them for some money, but they were not of much help.
Q: How tough was it in the initial days, after you quit the job at the NGO?
A: My family was not in agreement with my plans. When I quit in 2000, I had a salary of Rs 5000. I was getting into an unexplored territory. But money was not an issue for me, since my focus was on community development. Names like financial inclusion had not come then. I then tried to do the work through five NGOs, but found that no one was willing o finance them since there was no element of trust. Also, I needed to scale up. Small is beautiful, but being big is a necessity. In India, of the 120 crore people, 37 per cent live in poverty. That needed change, so the opportunity before us was quite big. I decided to start my operations in Konnagar, my hometown near Hoogly. I took loans from my relatives, but that dried up fast. I also joined a consultancy, since I had a good name as a trainer. But my income was not very regular.
Q: What was the approach of banks to your business in those days?
A: The first thing that banks ask when you approach for loans is "What is your background? You are not well known." I took Rs.1.75 lakh from a money lender on 7.5 per cent interest. Then, SIDBI gave Rs.20 lakh. I opened a branch in Bagnan. I had five employees by 2002. I invited SIDBI officials to visit Bagnan, and they saw good success there. By that time, we were lending money to 1,100 people, all women, drawn from different occupations - fish vendors, grocery shop owners and so on. We organised meetings in villages, and explain our methodology.
At that time, I began to give Rs.1,000 to Rs.3,000 as loans. People were surprised how we could lend money without taking any guarantee. We also decided to give quick disbursal, to build an trust in people. At that time, the interest rate we charged was as high as 30 per cent.
Q: After getting a firm footing for your operations, how did you scale up?
A: In 2005-06, SIDBI said that if we needed to grow and reach more customers, we need to build scale. Operating as an NGO had its limitation. In 2006-07, we formed Bandhan Financial Services as an NGO. Today, we have 5.5 million clients, and all of them are women. Women form the nucleus of the family. I have recognised that we should invest in women for growing the future. They will use money for the betterment of their children in a much better way than men.
Q: What were the success stories of women borrowers then?
A: One borrower took a Rs.3,000 loan from Bandhan many years earlier to start a small business, making paper pouches to pack medicines at chemists' stores. In another five years, she took Rs.35,000 from Bandhan to expand the business, and today employs 35 people, including two MBA graduates to help in marketing the pouches. That Rs.3,000 has changed her life. She is now planning a larger office to expand.
We have only 0.5 per cent default in our business. Today, we operate in 22 states, have 2,016 branches, and 13,000 employees on our payroll. Our loan outstanding is Rs.6,200 crore. We disburse about Rs.1000 crore in a month. This year, we will add one million new customers. Half of our operations are in unbanked areas.
Q: What would you attribute your success to?
A: I focus on developing a relationship with the customer. Understanding your customer is very important in microfinance. Continuously training of your executives is a must. We go to places where people do not have access to finance. India is a country where as much as 60 per cent of the people have no bank account, and only 10 per cent can access bank credit. How will these people run their business, who will give them credit? For the economy to grow, we need to develop new entrepreneurs. How many branches will I open to employ 55 lakhs? But in microcredit, I am able to help 55 lakh enterprises. If anyone wants to start an enterprise, the first question is, "where do I get the money?". We market our services from door to door, and our existing customers are our brand ambassadors.
Q: How profitable can this business be? The regulations say you cannot go above the ten per cent margin.
A: Profit will come within ten per cent margin, only if organisational efficiency is high. To make it profitable you need to have the scale also.
Q: What do you think helped you gain a bank licence?
A: We are different because we already have an established network. So, we are strong in the financial inclusion part. My people keep meeting 1 million people every day. So we have the data base and information about these people. That is a big strength. We are confident that we will be prepared to launch banking services within the 18 months time frame.
Q: What is the road ahead now? How are you gearing up to the launch of your banking services?
A: There is a difference in the structures of NBFC and banks. We are in the planning stages. However, microfinance will be a part of our overall DNA. This is my core, I cannot forget my parent. Most of my customers will also continue to get my services. Today, if we are catering to twenty women borrowers, we have not been able to reach across to the other eighty. Now we expect to widen the base.
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