Putting down some thoughts on how some of the SFBs are going to evolve over the next few years. I have been following the writings from some of the seniors on this forum and there are some fresh perspective coming on the MFI and NBFC sector. Couple of perspectives I can recall are a) Liquidity chasing the sector b) Asset Liability Mismatch and High Debt
These thoughts in a way reinforced my bullishness on MFIs that have got SFB license and have been preparing to be a bank for quite some time now. I remember reading somewhere that "Today's MFIs are Tomorrows Banks". It is wishful thinking to assume that all MFIs will go down this road, but it does seem to be playing out that way for some of them.
Here is a quote from an article that appeared in 2012 where the author compares Bandhan and Ujjivan:
In some ways, the progression of Bandhan and Ujjivan follow a pattern set by many other microfinance companies in India. MS Sriram, a former professor of IIM Ahmedabad who has studied the sector, says the entrepreneurs created organisations in their own images—based on their background, interests, strengths and personalities.
Thus, Tara Thiagarajan, who came with faith in science and scientific approach, is building an organisation that reflects her vision. Nachiket Mor, who came in with an implicit trust in branch banking, helped in the creation of KGFS, a low cost regional rural bank. PN Vasudevan who spent several years at Cholamandalam is moving equitas in the direction of an NBFC. SKS, of course, continues to reflect the complex personality of Vikram Akula.
So does Bandhan and Ujjivan. Career banker Samit, a believer in processes and people, is building an organisation that will in effect morph into a bank once the regulations allow it.
And the NGO worker Chandra, blessed with a rustic intelligence and an instinct for jugaad, is building an organisation that will spread everywhere, but be firmly grounded around the needs and capabilities of its captive customer base. The path won’t be easy for either. Samit will face competition from banks trying to tap bottom of the pyramid market, and new and nimble players with no legacy systems and better technology. Chandra will find it difficult to replicate the model in other states, because it’s so integrated with the other aspects of society.
Looking back at this after 4 years, most things have progressed as anticipated. In hindsight, Bandhan being the first MFI to start operating as a bank had its own share of challenges and lost opportinites. Read this:
There were two major challenges — one is managing the conflict between the existing and lateral recruits and the other is IT. As an MFI, we used to hire rookies, mostly undergraduates, and train them to become our foot soldiers. It was much easier to manage them. After receiving the licence, we started hiring laterally for branch banking. There were potential conflicts between these two sets of people. We had to rationalise the expectation of the existing team and at the same time had to make the new set of people understand our ethos of business and what the grassroots customers look for.
The second challenge was IT. We had no experience of using IT of this scale. It was complicated and painful process of feeding 74 lakh customer data into the new system. We had slowed lending during that period. There was no new disbursement between June and September last year.
Ujjivan is likely to make this transformation next and it seems to have learnt from the mistakes of Bandhan and has put in place a good strategy (Focus on Employees/Best Employer, IT adoption, Lateral recruits from banks, etc.,) to make the transformation less painful.
Bandhan, with its focus on rural areas seems to be not so contend with its deposit base and is doing things that one would have least expected of them, such as targeting the affluent and moving to cities. Read this:
The bank has decided to open about 300 branches to add to its current tally of 700 in the next one year and a majority of these will be in urban pockets in step with its plan to target the affluent society. The new branches are planned aesthetically with special bay and e-lobby to cater to the riches.