Bandhan, India’s largest microfinance company, with a $1.6bn outstanding loan portfolio, is preparing to make the leap from provider of small, unsecured loans to poor rural borrowers to fully-fledged bank that can take deposits and offer other financial services, including bigger, longer-term secured loans. Becoming a bank will bring about dramatic changes to Bandhan, its 16,000 employees and its 6.3 million borrowers. For a smooth transition and a lasting impact, Bandhan needs to have a strategic framework in place. Amongst many things, Bandhan must focus on the following: 1. Target Customer
Bandhan will now be competing with 101 scheduled banks and thus must continue to play to its strength i.e. rural and economically weaker customers. Their “Micro-banking” vertical with its proven expertise in small loan business should continue to bridge the last mile gap between the bank and the customer in the rural area. The modus operandi must stay the same - personal contact. Field workers (which are over 10,000 in number) should provide doorstep services with the handhold devices for money deposit and withdrawal. Their second vertical of “General Banking” should particularly provide loans to SMEs and MSMEs under priority sector lending. As their penetration is high in Eastern India, particularly West Bengal, most of their 600 branches should be targeting this area. The low income states, namely Bihar, Chhattisgarh, Madhya Pradesh and UP, and North-eastern states amount to INR 3.2 trillion of the viable and addressable debt demand which is 32.3%1 of the debt demand in the MSME sector. Thus Bandhan should aim to quickly expand into these states to enhance their image of a “Pro-Poor” Bank.
In the beginning, Bandhan should offer vanilla products. On the liability side, there will be savings and fixed deposits and on the asset side, besides their loan portfolio, they can offer small loans for commercial vehicles and affordable housing. Over the next...
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