The Story Behind `Bandhan: The Making Of A Bank’

Chandra Shekhar Ghosh, the founder of Bandhan, fascinated me. He was operating in West Bengal, a state not too well known for its work culture and politically extremely sensitive where entrepreneurship was largely confined to running chowmein and momo stalls and riding auto rickshaws (now, battery operated totos).

He was running a highly efficient microfinance company based in Kolkata, employing thousands of people. In 2010, in the aftermath of the Andhra Pradesh law which killed many microfinance companies operating in southern part of India, Bandhar thrived in the east. 

I started inviting him to join the panel discussions on microfinance and financial inclusion I was moderating in Mumbai. He was not necessarily the most articulate person in the room but extremely passionate about the subject and his arguments were full of earthy wisdom.

I remember once, on being asked how he could keep his cost of operations so slow, his answer was, “If you want to catch rats, you won’t need tigers – the cats can do the job.” That was his way of saying he would not need highly qualified finance professionals to do the job; simple folks can do it. 

In 2014, Bandhan got a banking license along with IDFC Ltd. There were 25 entities that had had applied for a license and some of them were large corporate houses and big finance companies with reputation and track record. Till that time, a banking license was a big deal in India – before Bandhan only 13 new banks were set up since Independence in 1947.

Of course, the scenario has changed in past two years. Around the time Bandhan and IDFC banks were set up, the Reserve Bank of India gave conditional licenses to 10 small finance banks and 11 payments banks. One small finance bank has already been set up and three payments banks license holders have surrendered their licenses. The Reserve Bank is also in the process of offering licenses for universal banks on tap and exploring the possibility of setting up newer kinds of banks such as wholesale banks and custodian banks.

I wanted to tell the story not so much about Bandhan Bank but about how Ghosh set up a microfinance business, and how he and his team implemented changes that were needed to make it a universal bank—a transformation that I watched from a ringside seat.

As for my role in Bandhan, let me borrow an analogy from cricket. If commentator Harsha Bhogle were asked to join the administration of the Indian cricket team, he would probably see his job as analysing the playing style of each member, crunching the data, delving into cricket history and offering a broader perspective, besides having his own insight into the dressing room by virtue of the personal relationships he had cultivated. My part in telling Bandhan's story is no different.

 There have been many books on microfinance, in India and overseas. Most of them have been written either from the point of view of the borrowers—how microfinance has changed their lives—or are academic studies on how such entities work, different models of microfinance, risk management, etc. This book is different—it is written from the point of view of the organization.

It’s about how a microfinance structure is built, and about entrepreneurship. In that sense it has busted quite a few myths. It does not project Ghosh as a messiah for the poor, or as an agent for change, but as an entrepreneur who seems to have hit upon a magic formula—running a profitable business and at the same time doing good to the poor.

The book is broadly divided into three parts. One part deals with the history of Bandhan as a microfinance company, the making of the bank and what the future holds for it.

The second part has two chapters on two key personalities in Indian microfinance industry: Vijay Mahajan, of the Basix Group, and Vikram Akula, the ousted promoter of SKS Microfinance Ltd, Asia’s first listed microfinance company. The last part traces the history of microfinance in India, its trials and tribulations, the crisis of 2010 that nearly killed off the industry and its subsequent resurrection.

While Ghosh has been successful in achieving the balance between doing business profitably and giving money to those people who are not touched by India’s banking system, Mahajan has probably become a victim of too much of idealism and Akula saw his agenda being hijacked by the private equity investors.

The book is an attempt to tell a story about Bandhan, which, more than being a financial intermediary, is a way of life, both for the organization as well as for its millions of borrowers. Like my previous two books, this one too is a journalistic exercise, based on extensive research and interviews with hundreds of people.

The objective was not to write a coffee-table book to flatter Bandhan; rather, it was to take a close look at its business model and ethos to understand what makes it successful. Is it the scale? Does it have to do with austerity? Or is it an earthy, common-sense approach that has eluded others?

As a microfinance company, Bandhan has been enormously successful, combining profitability and inclusive financing. Will it be able to replicate this in its new avatar as a universal bank? That’s another story.

Tamal Bandyopadhyay is the author of two best-sellers --  "A Bank for the Buck" and "Sahara: The Untold Story". He writes a popular weekly column on finance, Banker's Trust, every Monday at Mint where he is a Consulting Editor. You can buy his new book "Bandhan: The Making of a Bank" here.