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The IUP Journal of Entrepreneurship Development :
Bandhan: Commercializing a Social Cause
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Bandhan Financial Services Pvt. Ltd. (Bandhan), the largest microfinance institution in India, got an ‘in principle’ approval in April 2014 from India’s central bank, the Reserve Bank of India (RBI), to start full-fledged banking operations. Bandhan, which had been formed by Chandra Shekhar Ghosh with the social motive of giving small loans to the asset-less poor in unbanked regions of India, would now have to change its business model to play on a bigger turf and on a larger scale. While transforming itself into a bank would give it benefits like access to cheaper funds and increased scope of operations, the considerable liberty it enjoyed by being a microfinance entity would be lost.

 
 
 

In February 2013, after a gap of 10 years, the Reserve Bank of India2 (RBI) invited applications for the grant of new banking licenses in India.3 There were 26 applicants that included some highly reputed corporate houses of India. One of the applicants was Bandhan Financial Services Pvt. Ltd. (Bandhan), a major microfinance institution in India that had caught everyone’s eye for offering financial services to the bottom of the pyramid. An underdog amongst the big names such as the Aditya Birla group,4 Bajaj group,5 and several others, few were rooting for Bandhan, considering the wide chasm between banking and microfinance. Critics questioned how Bandhan, an institution with a social motive, and one widely known for giving small collateral free loans, would transform itself into a full-fledged bank with a profit motive. Also, they pointed out that Bandhan’s philosophy and values would be put to the test as it transformed into a banking entity.

As of 2014, Bandhan operated in 22 states and union territories in India through a network of over 2,016 branches and a workforce of 12,961 employees. It provided financial services to more than 5.5 million customers, giving out loans worth more than 10 bn (US$16.6 mn) in a month.6 It was the biggest microfinance institution in India, and was growing at a rate of 25-35%.7 Besides microfinance, its founder, Chandra Shekhar Ghosh (Ghosh), had led Bandhan into health, education, and other such services to bring about all-round development of the ‘hard core poor’,8 with a prime focus on women who were socially disadvantaged and economically exploited. Bandhan’s people-centric model, flexible methodology, collateral free loans, and trickle-down strategy,9 found many takers in the rural households of India. It was the only microfinance institution to have applied for a banking license.

 
 
 

Entrepreneurship Development Journal, Reserve Bank of India2 (RBI), Microfinance: An Indian Perspective, Challenges for Microfinance in India, Perceived Behavioral Control (PBC).