MICROCAPITAL BRIEF: India's Bandhan Microfinance Institution to Cut Interest Rates as a Commercial Bank

Bandhan Microfinance, a microfinance institution (MFI) based in Kolkata, India, has applied for a banking license to convert to a commercial bank, which reportedly will reduce costs, reduce interest rates on loans and increase the number of clients [1]. The current interest rate on loans that Bandhan offers is 22 percent; as a commercial bank it can potentially offer rates as low as 12 percent because it can fund loans from deposits, thus reducing its dependence on borrowing costly funds from other banks [2]. In a statement attributed to Bandhan chairman Chandra Shekhar Ghosh, converting to a commercial bank is part of the strategy to enable Bandhan to “cater to about 2.5 billion borrowers by 2020.” Bandhan has already started training employees to work in the banking branches, which will focus on corporate and retail clients. The bank will continue to devote approximately 60 percent of its lending to unbanked populations in rural areas. The institution announced its plans to convert in April 2013.

According to the US-based nonprofit Microfinance Information Exchange (MIX), as of year-end 2012, Bandhan Financial Services reported total assets of USD 833 million, return on equity (ROE) of 37.6 percent and return on assets (ROA) of 6.44 percent. As of March 2013, Bandhan has a gross loan portfolio of USD 814 million and 4.4 million active borrowers.

By Meghan Gillis, Research Associate

About Bandhan Microfinance

Bandhan is a microfinance institution (MFI) based in Kolkata, India that was founded in 2002. As of March 2013, it operates approximately 1,803 branches in 18 states in India. It offers microenterprise loans as well as loans for individuals to pay for health emergencies. According to the US-based nonprofit Microfinance Information Exchange (MIX), as of year-end 2012, Bandhan Financial Services reported total assets of USD 833 million, return on equity (ROE) of 37.6 percent and return on assets (ROA) of 6.44 percent. As of March 2013, Bandhan has a gross loan portfolio of USD 814 million and 4.4 million active borrowers.

Sources and Additional Resources

[1] Business Standard: “MFI Bandhan applies for banking licence,” http://www.business-standard.com/article/finance/mfi-bandhan-applies-for-banking-licence-113070100753_1.html

[2] Business Standard: “We will continue with doorstep banking services: CS Ghosh,” http://www.business-standard.com/article/finance/banking-licence-will-help-us-reduce-interest-rate-by-10-chandra-shekhar-ghosh-113071300215_1.html

MicroCapital brief, April 16, 2013, “MICROCAPITAL BRIEF:Indian Microfinance Institution Bandhan to Apply for Banking License,” https://www.microcapital.org/microcapital-brief-indian-microfinance-institution-bandhan-to-apply-for-banking-license/

MicroCapital. February 29, 2012, “MICROCAPITAL BRIEF: Bandhan Financial Services Sells $112m in Securitized Loans to Industrial Development Bank of India (IDBI), Axis Bank, Development Credit Bank,” https://www.microcapital.org/microcapital-brief-bandhan-financial-services-sells-5b-in-securitized-loans-to-industrial-development-bank-of-india-idbi-axis-bank-development-credit-bank/

MicroCapital. September 20, 2011, “MICROCAPITAL BRIEF: Indian Microfinance Institution Bandhan Financial Services to Apply for Banking License,” https://www.microcapital.org/microcapital-brief-indian-microfinance-institution-bandhan-financial-services-to-apply-for-banking-license-2/

MicroCapital Universe Profile: Bandhan Microfinance
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bandhan+Microfinance

Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page/