From sweet shop to corner suite Shekhar Ghosh, named India’s Entrepreneur of the Year last year by The Economic Times, just bested moguls like Anil Ambani of Reliance Capital and the Aditya Birla Group in winning one of only two bank licenses recently awarded by the Reserve Bank of India.

1. Microfinance 2.0
By Stephen Bornstein
May 10, 2015
http://aroundwallstreet.com/2015/05/microfinance-2-0/
Fromsweet shop to corner suite
ShekharGhosh, namedIndia’s Entrepreneurof the Yearlastyear by The Economic Times,just bested
mogulslike Anil Ambani of Reliance Capital andthe AdityaBirlaGroup inwinningone of onlytwobank
licenses recently awardedby the ReserveBankof India.
Ghosh’sfirm, BandhanFinancial Services,isIndia’slargestmicrolender. Ithas$1.6 billionin small,
unsecured,outstandingloanstopoor,industrious Indianwomenwithtermsof one totwoyears. The
loansrange in size fromRs1,000 to Rs50,000 ($16-800). Bandhan’s loanrecoveryrate has been 100%.
Withits new license,Bandhan planstotransformitself fromamiddleman intoaprincipal. Inthe past,
Bandhanhas obtained asmuch as 80% of its fundingfromIndiancommercial banks whoprovidedthe
capital to satisfy theirregulatoryrequirementforsocially-orientedinvesting. Bandhanthen on-lent
those borrowedfundsto a currenttotal of 6.3 million womenentrepreneurs. Startingnow, Bandhan
will be givingthatcapital backto the big banksand takingdepositsdirectlyfrom itsown customers,
turningitself intoafull-fledgedcommercialbank,extendinglarger,longer-term,secured credittoa
widerpool of Indianbusinesses.
Ghosh,54, formed Bandhanas an NGOin 2001. Eightyearslater,he registeredBandhanasa for-profit,
non-bankingfinance company andprocured capital investmentsfromthe Small IndustriesDevelopment
Bank of Indiaand the International FinanceCorporationof the WorldBank. ThisJanuary,the IFC and
Singapore’ssovereignwealthfund(GIC) invested anadditional $258 millioninBandhanwhichbrought
the company’s capital base to almost$500 million, more thanenoughtoqualifyfor anRBI banking
license.
Bandhan(whichmeans“bonds”or “ties”inBengali) currently has2,000 branch offices and16,000 field
officersthroughoutIndia. Bandhanplanstoopen600 new branches,solicitdepositsfrom wealthy
Indiansandraise newequity toreplace the large commercial banksonwhichithas beenrelyingfor
funding. The RBIbankinglicense alsorequires Bandhantolistonthe BombayStock Exchange by2018.
Attractingdeposits shouldenableBandhantopaylessfor its fundingandloweritscurrentinterestrate
of 22.4% for small borrowers. Deposit-basedfundingof larger,longer-datedloans,however, will
increase Bandhan’s operatingcosts by requiringittodevelopnew bankingcapabilitiessuchasassessing
creditrisk and maintainingATMsaroundthe country.

2. To that end,Bandhanhas retainedDeloitte asanadviserandhired400 new employeeswithcommercial
and retail bankingexperience whoare now trainingall of Bandhan’s employees inbankingsystems.
Ghoshcame to KolkatafromBangladesh in1971. His familywere refugeesfromitsbreak-upwith
Pakistan. Ghoshworkedinhisfather’ssweet shopbefore earningamaster’sdegree instatisticsat
Dhaka University afterwhich he joinedanNGOinBangladeshcalledBRACwhichinspiredhisinterestin
microfinance. He returned toKolkatain 1997 to prove that microfinance couldworkinIndiawhere
poor borrowerswere beingchargedasmuchas 700% interestbylocal moneylenders. Afterfailingto
persuade any Kolkata-basedNGOtotake up microfinance,Ghoshputuphisentire life savingsof
Rs200,000 ($3,200) to launchBandhan.
Bandhanwill continue tofocusoncustomersexcludedfrommainstreambankingsuchasthose seeking
affordable housingorcapital for cottage industries. “While traditionalbanksassesstheir[success] by
balance sheets,”Ghoshsays,“Iassessmy organizationbythe numberof customers. By2020, I would
like toserve 20 million families.”