IFC Plays Pivotal Role in Microfinance Institution Bandhan's transformation into India’s Newest Bank

August 22, 2015

A loan from IFC client Bandhan enabled Sibiancy Kyriem to launch a successful clothing business. © Bandhan

A decade and a half ago, a unique institution called Bandhan was set up in one of the poorest parts of Eastern India. 

What started as a non-profit in the Indian state of West Bengal, to alleviate poverty and empower rural women, soon grew into a microfinance institution. Today, Bandhan serves over 6.5 million borrowers in the most underbanked parts of the country, mostly women, and operates from over 2000 branches in 22 of India’s 29 states. It has won global recognition through honors such as the World Economic Forum’s 2014 Global Growth Company Award and the Forbes India Leadership ‘Social Impact’ Award.


Last year, Bandhan obtained the Indian central bank’s approval to set up a bank. Bandhan Bank was launched on August 23, 2015, signaling a new era in Indian banking. IFC has been a shareholder in Bandhan since 2011 and a trusted partner—especially through this past year-long transformative process for Bandhan.


IFC had come in with a $29 million equity investment in Bandhan in 2011—marking the largest private sector investment in microfinance in India in the wake of the microfinance crisis. The investment made a difference to Bandhan—and to the sector—when it was needed most. Since then IFC has made further equity and debt investments in the institution with the total financial assistance amounting to almost $150 million.


Today, IFC is one of the largest institutional shareholders in Bandhan.  The World Bank has also supported Bandhan through its Scaling Up Sustainable and Responsible Microfinance project, which is being implemented by Small Industries Development Bank of India (SIDBI). 


India has over a third of the world’s unbanked population. The World Bank Group is committed to its goal of achieving Universal Financial Access by fiscal year 2020 and complementing the Indian  government’s financial inclusion initiatives. The private sector has to play its part. Bandhan has played a central role in this and will enhance its contribution further with this breakthrough milestone. 


“Financial inclusion is a strategic priority for IFC in India,” says IFC South Asia Director Mengistu Alemayehu. “IFC has been a long-term partner for Bandhan, to help expand access to financial services among the unbanked. IFC's increased investment in Bandhan comes at a critical point in its evolution, where Bandhan needs a strong shareholder to support its transition to a universal bank with a focus on low income households. Bandhan has benefited from our experiences in similar transformative projects globally. IFC will continue to strengthen Bandhan's capacity to meet its inclusion objectives." 


IFC reaches 11 million customers through all its microfinance investments in the country—that is nearly a third of the current outreach of microfinance institutions in India.


Women empower women


One of Bandhan’s millions of women borrowers, Sibiancy Kyriem, hails from Shillong, Meghalaya, a remote state in Northeastern India. The primary breadwinner of the family, 40 year-old Kyriem is a clothes trader who took a loan of less than $200 way back in 2008 for her shop on Nongmynsong Road in Shillong. She says:  “Bandhan has been a pillar of support for growth in my business.”


With her spotless repayment record, she was able to take loans six times since—not only has her trading business done brisk business, she now owns a restaurant as well on New Colony Road. Her four daughters have all pursued professional education, with master’s and Ph.D dissertations under their belts. Her son is in school.


Kyriem also regularly meets with a group of talented young women in her community, mentoring them to become entrepreneurs, “We meet every Wednesday, and I tell them—take loans for your business, not to buy clothes and DVDs!”


Why Bandhan counts


With its transformation into a full-fledged bank, Bandhan will be able to offer small, unsecured loans worth $20 to $1,000 to many more rural and semi-urban borrowers like Kyriem. It will also be able to broaden the range of financial services it can offer to underserved customers, especially women, across India. The customer base of Bandhan will grow many times over in the next five years.


“Bandhan” means “bonding.” For Chandra Shekhar Ghosh, Chairman and Managing Director for Bandhan, who started the institution with two staff members beside himself, Bandhan stands for bonding with communities, customers and staff in some of the poorest and remote parts of India. 


“Today, Bandhan has around 19,500 strong workforce,” Ghosh says. “We are well positioned in our journey to bring opportunities and empower communities, largely women. Our partnership with IFC has only strengthened our capacity and resolve as we achieve this new milestone and launch our bank branches across India.”


For a country with India’s poverty levels, and lack of access to financial services for most, Bandhan’s transformation will mark a milestone too important to miss in India’s development story.