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Spreading the Wealth

By offering credit to the underserved, Bandhan has expanded its business, enabled people at the bottom of the socioeconomic pyramid to become more productive, and essentially given a boost to India’s economic growth.

March 2020

When Bandhan Bank opened its doors five years ago, its goal was to meet the financial needs of the underserved—primarily female entrepreneurs—and the self-employed in many remote areas of India. Today, Bandhan is India’s largest microfinance lender with nearly 5,000 branches that serve more than 20 million customers.

With its financial interests deeply aligned with sustainable, inclusive, and community-oriented business practices, Bandhan is one of our many portfolio businesses that makes an impact, addressing several major social and environmental challenges identified by the United Nations Sustainable Development Goals.

Bandhan built its business around the belief that people at the bottom of the socioeconomic pyramid were unable to fully utilize their skills, because they lacked access to credit. By extending credit to this population, Bandhan estimated that people could leverage their skills to expand income generating activity, which would in turn help expand India’s economy as a whole. Given that the country has the second-largest unbanked population in the world, after China, Bandhan had a huge opportunity to serve people outside of the traditional banking system who had yet to build a credit history.

In its five years of operation, Bandhan has become a notable part of India’s economic growth story. It has expanded rapidly and now controls about 20 percent of India’s microloan market, according to estimates by MFIN, an Indian microfinance association. Most recently, Bandhan bought Gruh Housing Finance, which enabled Bandhan to expand its financing options to include affordable housing loans to low-to-middle income borrowers.

Bandhan’s borrower profile is mostly from industries that have been relatively resilient throughout the coronavirus pandemic, including agriculture, affordable housing, food processing, healthcare, rural transportation, and computer and internet providers. The company also reported that its microfinance portfolio has been resilient during past crises, such as during Cyclone Fani in May 2019, and through the 2017 farm loan waiver programs implemented in four Indian states, which increased defaults rates and put pressure on public banks.

Bandhan Bank’s predecessor was a not-for-profit microfinance organization. The company’s evolution into a bank from a pure-play microlender has benefited its microfinance customers because as a bank it is able to offer lower interest rates on loans.

In addition to its central mission of providing financial products, Bandhan aims to improve health care, entrepreneurship, and financial literacy by working with Bandhan-Konnager, an organization focused on poverty alleviation and women’s empowerment. Among other things, the organization conducts credit workshops and seeks to identify people who could benefit from microloans.

Sustainable Development Goals

The Sands Capital six investment criteria tend to lead us to businesses that are innovators or vital facilitators of change in industries undergoing significant transformation. Many of these businesses operate in high impact spaces such as technology and life science.

Bandhan addresses SDG 1: No Poverty; SDG 2: Zero Hunger; SDG 3: Good Health and Wellbeing; SDG 4: Quality Education; SDG 8: Decent Work and Economic Growth; SDG 10: Reduced Inequalities; and SDG 17: Partnerships for the Goals.

Disclosures:

The business profiled was selected based on its reported alignment with one or more U.N. Sustainable Development Goals.

The views expressed are the opinion of Sands Capital Management and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The views expressed were current as of the date indicated and are subject to change. Past performance is not indicative of future results. A company’s fundamentals or earnings growth is no guarantee that its share price will increase. Forward earnings projections are not predictors of stock price or investment performance, and do not represent past performance. The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. There is no assurance that any security will continue to be owned by Sands Capital Management. You should not assume that any investment is or will be profitable. All company logos and website images are used for illustrative purposes only and were obtained directly from the company websites. Company logos and website images are trademarks or registered trademarks of their respective owners and use of a logo does not imply any connection between Sands Capital and the company. GIPS®-compliant presentations and additional disclosures for the related composites may be found at Sands Capital Annual Disclosure Presentation

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