MICROCAPITAL STORY: Indian Government-owned Bank of Baroda to Establish Microfinance Division

The Bank of Baroda, a state-owned Indian bank, plans to establish a microfinance division as part of its strategy to service the rural areas of India that are largely unreached by financial institutions, according to Chairman and Managing Director of Bank of Baroda, Anil K. Khandelwal. As of March 2007, the Bank of Baroda had 38,000 employees and 2,700 branches in 21 countries. It had USD 36.4 billion (INR 143,146 crore or 1.43 trillion) in total assets and a return on assets (ROA) of 0.72 percent.

Out of 203 million Indian households, three-fourths, or 147 million, are located in rural areas and 89 million are farmer households. Seventy-three percent have no access to formal sources of credit. Fifty-one percent of this population lacks access to any source of credit–formal or informal. To address this issue of financial inclusion, Mr. Khandelwal explained, the Bank of Baroda has adopted Dungarpur district in Rajasthan, one of the most underdeveloped districts in the country, and dedicated USD 14 million (INR 550 million) to development operations in the area over the next three years (2007 to 2010). The bank has already identified 350 “thrust branches” that it will equip to offer microfinance services in the coming year, which is also the bank’s 100^th year in operation. It has also founded an institute for microfinance in Jaipur and appointed 90 field employees to execute the bank’s programs.

Dungarpur district consists of over 800 villages with a population of over 1.1 million (predominantly tribal) people. The literacy rate is below 25 per cent and income levels are extremely low. Health care and educational facilities are also underdeveloped.

The bank aims to provide financial assistance to families in Dungarpur district for dairy and agriculture development in coordination with district administration, the Centre for Micro Finance (CMF), a research institute that works with microfinance institutions (MFIs) to provide high-level training and strategy-building, and PEDO, a local NGO. As well, the bank will establish over 400 Farmers’ Clubs in order to provide local people with expert advice on agricultural and financial issues, form 300 new self-help groups, and train 4,000 youths and women for employment through a program called Baroda Swarozgar Vikas Sansthan (BSVS). The bank will also sponsor six months of microfinance training for certain qualifying youths.

The Bank of Baroda has set up three Baroda Grameen Paramarsh Kendras (BGPKs) at three centers in Dungarpur District. At these centers, local people, particularly farmers, can share information, engage in problem solving and credit counseling, and access the internet to find out about crops, weather conditions and agricultural practices.

Besides the USD 14 million that will go to development projects, the bank will provide USD 63,500 (INR 2.5 million) in scholarships to approximately 50 tribal girls and an additional USD 63,500 to organize health camps in the villages of Dungarpur, Mr. Khandelwal said.

Additional Resources:

Times of India: “BoB to start a micro finance division”

Bank of Baroda Newsletter: “Bank of Baroda adopts Dungarpur District, Rajasthan for total Integrated Rural Development & complete financial inclusion”

Bank of Baroda

Bank of Baroda: Key Financial Indicators

Bank of Baroda: Business Indicators

LiveMint.com: “Targeting the unbanked in India will be lucrative.” By Tamal Bandyopadhyay.

Centre for Micro Finance (CMF)

Bloomberg.com: Currency Calculator