Microfinance institutions must evaluate a borrower’s business capacity rather than relying solely on automated credit checks, according to Chandra Shekhar Ghosh, founder and former managing director and chief executive officer of Bandhan Bank. Speaking in New Delhi, Ghosh emphasized that microcredit functions as business credit rather than personal consumption debt.
The Bottom Line
- Microcredit requires physical field visits and group meetings to accurately gauge operational cash flow and borrower capacity.
- Digital lending alone risks over-indebtedness by ignoring whether a small-scale business can actually generate returns to repay the principal.
- Ghosh has transitioned from managing the bank to overseeing the group’s broader financial strategy, focusing on mutual funds, life insurance, and technology subsidiaries.
Why Microcredit Demands Physical Underwriting
As the microfinance sector navigates growing concerns over customer over-indebtedness, industry leaders are debating the limits of automation. Ghosh argued that treating microloans like personal consumption debt breaks the fundamental mechanics of grassroots financing. Without physical site visits and group interactions, lenders miss critical operational indicators.
“If you make the process complex, a person who needs ₹50,000 will go to the moneylender, not to you,” Ghosh stated, pointing out that informal local lenders often charge 5 per cent a month. By contrast, maintaining disciplined group meetings ensures that borrowers understand accountability while allowing loan officers to observe active business use.
Balancing Digital Tools and Traditional Group Models
Technology plays a growing role in backend operations, yet complete digitization of microcredit risks undermining repayment discipline. Approximately 60 per cent of customers already possess verifiable credit histories through formal bureaus, while the remaining 40 per cent enter the system as new borrowers.
While digital paperwork and bureau checks streamline onboarding, abandoning physical group meetings causes borrowers to disengage. Ghosh noted that when Covid hit, external pressure to migrate entirely to digital channels was resisted to protect the portfolio’s structural integrity. Incremental credit expansion—raising loan limits by only 10 to 20 per cent annually based on demonstrated capacity—prevents systemic defaults.
Strategic Shift Toward Insurance and Group Holdings
Having stepped down as managing director more than two years ago, Ghosh now serves as group chair, steering strategic holdings across mutual funds, life insurance, and global technology subsidiaries in the US, UK, India, and Dubai. The life insurance segment has expanded rapidly, with premium income scaling from approximately ₹335 crore to ₹1,000 crore over a two-year period.
Capital allocation across these non-banking entities adheres to strict regulatory frameworks, where holding companies reserve 25 per cent while maintaining the capacity to distribute 75 per cent as dividends. Meanwhile, untapped potential remains in rural deposit mobilization through recurring savings models, where micro-deposits gradually convert into fixed-income assets.
| Strategic Segment | Key Operational Focus | Growth Trajectory |
|---|---|---|
| Microcredit Lending | Business capacity assessment via physical group meetings | Controlled 10%–20% annual credit limit expansion |
| Life Insurance | Expanding premium income and health insurance coverage | Tripled premium revenue from ₹335 crore to ₹1,000 crore |
| Technology & Global Tech | Voice-to-text underwriting integration across subsidiaries | Expanded operations to US, UK, India, and Dubai |
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
