Bandhan: A microfinance group that beat corporates to a bank license

Dear readers, here we are poting a post on India's newly minted banking institutions. Know more about it.

The Reserve Bank of India granted "in-principle" approval for banking licences to infrastructure financing firm IDFC and Bandhan from among 25 applicants, including corporate heavyweights ADAG Group, Aditya Birla Group and Bajaj Group.

The RBI said it assessed the quantitative and qualitative aspects of the applicants, including their financial statements, 10-year track record of running businesses, proposed business model for the bank and demonstrated capabilities for running a bank, plan for expanding inclusion, and culture of compliance and integrity.

Bandhan was the only microfinance institution that applied for a banking licence.


Organisational Background

Bandhan (meaning togetherness) was born in 2001 under the leadership of Mr. Chandra Shekhar Ghosh, a Senior Ashoka Fellow. The main thrust of Bandhan is to work with women who are socially disadvantaged and economically exploited. Bandhan works for their social upliftment and economic emancipation.




To achieve the above objective, Bandhan is basically engaged in the delivery of microfinance services to the poor women.

Bandhan has been engaged in the delivery of microfinance service for the last 12 years. The model followed is individual lending through group formation.

All microfinance activities are carried under Bandhan Financial Services Private Limited (BFSPL), incorporated under the Companies Act, 1956 and also registered as a Non Banking Financial Company (NBFC) with the Reserve Bank of India (RBI).

The microfinance operations started from Bagnan, a small village which is 60 kms away from the city of Kolkata. In 12 years, Bandhan has travelled a wide geography of 22 States and Union Territories with special focus on eastern and underdeveloped states of North East.

Bandhan’s commitment towards triple bottom-line values is strongly asserted by its intervention in development activities. It believes that Microfinance is not the last word for development of the poor.

Aspiring to holistic development of the poor, Bandhan offers development activities in crucial fields of education, health, unemployment, livelihood and the like through its not-for profit entity. Besides, Bandhan also has a program exclusively for the hard core poor (generally believed to be bypassed by microfinance)

Here's all you need to know about one of India's newly minted banking institutions:

 • Bandhan Financial Services, the first microfinance institution in the country to win a bank licence, is also one of the youngest entities to be allowed to enter the banking space.

• The Economic Times reports that Bandhan is the biggest microfinance company in India, with a presence in 22 states. It is growing at 25-35 percent.

• Set up in 2001 by Chandra Shekhar Ghosh, Kolkata-based Bandhan began with a focus on working with "socially disadvantaged and economically exploited women," according to its website.

• Bandhan wants to reach 1 crore poor households by 2020, ET reports.

• In 2007, Forbes magazine ranked it #2 in its first ever list of the global top 50 microfinance institutions.

• According to ET, Ghosh will be the first private entrepreneur from Kolkata to set up a bank, post Independence
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• With 2,016 branches across 22 states and Union territories, Bandhan had over 52.33 lakh borrowers as of February.

• It disbursed Rs 963 crore of loans in February and has total loans outstanding of Rs 5,704 crore.

• Bandhan's current net worth is Rs 1,100 crore, of which Rs 96 crore is pure equity with a capital adequacy ratio of 21 percent.

• ET estimates that Bandhan will need to keep Rs 1,420 crore as statutory liquidity requirement and Rs 246 crore as cash reserves with the RBI.

• The Business Standard reports that the International Finance Corporation bought an 11 percent stake in Bandhan in 2011 for about Rs 135 crore, with the micro-lender being valued at approximately Rs 1,227 crore.

• Sidbi (Small Industries Development Bank of India) is the only other institutional investor in Bandhan, with a 10 percent stake.

 • According to BS, Ghosh owns 1.8 percent while two trusts, the Financial Inclusion Trust and the North East Financial Inclusion Trust, hold the balance.

• The institution charges 22 percent interest for loans up to Rs 15,000. Ghosh had earlier told BS that, if granted a banking licence, the rates could come down by 6-7 percent.

• Bandhan said the award of the banking licence was a recognition of the microfinance sector and their hard work to reach unbanked areas and provide financial services. "We will be able to offer full-fledged banking services to the poor people," Bandhan Chairman and Managing Director Ghosh said.

• Bandhan has loan schemes such as Samriddhi for the MSME sector and Sushiksha for education, among others. It also runs the Bandhan School of Development Management.