Bandhan Bank: Paving the way for financial inclusion in India

Two weeks ago, I had an opportunity to visit Bandhan Bank, a banking and financial services company headquartered in Kolkata, India. I thank my good friend, Mr. Chandra Shekhar Ghosh, for his gracious invitation to their 8th year-anniversary celebration.  My friendship with Chandra, Bandhan Bank’s founder and managing director, dates back to the early 2000s, when we were both students of the late Md. Shafiqual Haque Choudhury, the legendary founder of Association for Social Advancement (ASA) International. Shafique guided us in the replication of the ASA model in our respective microfinance organizations. 

Bandhan Bank is present in 35 out of 36 states and union territories in India, with 6,186 outlets that serve more than 30 million customers.  Through the years, it has focused on inclusive banking, reaching out to the unbanked and under-served segments of their population.  More than 70 percent of its branches are in rural and semi-urban areas.

Making history

In the Philippines, CARD Bank was the first microfinance non-government organization (NGO) to transform into a microfinance-oriented bank in 1997. Bandhan Bank followed a similar path.

Bandhan started as an NGO that provided micro-loans to support women entrepreneurs in 2001. It transformed into the Bandhan Financial Services Ltd. (BFSL) in 2006 and became India’s largest microfinance organization in 2010. In 2018, the Reserve Bank of India (their central bank and regulatory body) opened its doors to organizations interested in getting a license to operate a commercial bank. BFSL applied, although Chandra relates that at that time, they were not hopeful about getting the license since only two will be issued but there were many applicants. To their amazement, Bandhan became one of the two chosen institutions! 

In 2015, Bandhan Bank was granted a banking license, making it the first-ever microfinance institution to become a universal bank in India. On March 27, 2018, it was listed in the stock market and that same day emerged as the 8th most valued bank on the basis of market capitalization.

True to the mission

Bandhan Bank has truly expanded, but its mission remains the same – to build a financially inclusive India. It caters to clients from all socio-economic groups but focuses on the poor. It continues to operate using these basic microfinance principles: one center is composed of 30 women members; one accounts relationship officer (ARO) handles 4-5 centers per day (average of 500-750 clients per week); one unit manager (UM) handles four to five AROs; one area manager (AM) handles five UMs; and one regional director (RD) handles five AMs. The AM and the RD visit their assigned areas at least twice a month to conduct intensive monitoring so fraud is almost nil.  The span of control and management principle is always observed, so even during the pandemic, Bandhan recorded a 98 percent repayment rate. Thru Chandra’s digital initiative, Bandhan’s IT Team was able to develop a dashboard that shows the daily performance of key indicators – active loanees, loan releases, loan outstanding, expenses, and income, among others.  They can easily monitor the status of each unit down to the ARO level. 

We attended one of the center meetings in Goreia, Kolkota. Although it was raining, 28 out the 30 of Mahindi Center members attended, paid loan amortization and deposited savings. The meeting was very orderly, with the ARO recording all the transactions in the members’ passbooks and in his tablet. Members did saving/withdrawal transactions using their thumb prints, which had been recorded in the Bandhan system to avoid fraud. Most of the members had been with Bandhan for five to 20 years.   

We were able to observe how Bandhan implements its hardcore poverty program. First, they choose a poor village and conduct wealth ranking. The poorest households are supported through in-kind assistance, i.e., if a woman can do grocery business, then she is given 20,000 rupees worth of goods which she can sell for profit. This becomes her revolving fund, as Bandhan normally gives two loan cycles per client. If a client is interested in sewing, she will be given a sewing machine and textiles to start her business. This program, accordingly, is very successful in moving people out of poverty. 

We are very proud of Bandhan’s rapid expansion. Years ago, Chandra and his staff used to visit CARD to observe our experiences since we began the transformation from microfinance NGO to a bank much earlier.  Nowadays, Bandhan Bank is a great model of financial inclusion, demonstrating sustainable microfinance and banking practices that serve millions of poor people.

We celebrate Bandhan’s many successes. With Chandra and his team at the helm, we know that it will continue to grow as they leave no stones unturned. In fact, Bandhan Bank’s core purpose has graduated from financial inclusion to inclusive banking.  And it effectively transforms people’s lives. To quote Renuwara Bibi, one of their clients: “With Bandhan Bank’s support, I have been able to turn my life around.”