MONTE-CARLO, Monaco: The 2014 World Entrepreneur of the Year is a modest banker from India on an audacious mission: to build a people-focused financial-services giant that reaches out to the two-thirds of Indian consumers, or 800 million people, who don’t currently have a bank account.
Uday Kotak, the 55-year-old founder and 50% owner of Mumbai-based Kotak Mahindra Bank, is challenging a cozy, state-dominated banking establishment that serves only the most affluent. As he accepted the World Entrepreneur of the Year (WEOY) award at a gala, fireworks-studded banquet in Monaco on June 7, he stated, “I accept this award on behalf of 1.2 billion Indians” – all of whose lives he hopes to change.
Kotak founded what has become India’s fourth-largest private-sector bank in 1985, using $250,000 borrowed from family members and friends. What started as a bill-discounting service is now a financial conglomerate with 12.5 million customers, 25,000 employees, and assets of US$19 billion. But what really matters is the company’s future: Kotak said he wants to build India’s first bank that can compete with the world’s top financial institutions.
Some 10,000 companies in more than 50 countries applied for recognition in Ernst & Young’s Entrepreneur of the Year Program in 2013. All 51 country finalists attended a four-day conference, where they pitched a 10-person judging panel in hopes of being named world champions. They also networked with each other and heard from world-class speakers such as domestic diva Martha Stewart, and Sir Alex Ferguson, the former Manchester United manager who may be the winningest coach in professional sports.
The chair of the judging panel, Canadian entrepreneur Rebecca MacDonald of Just Energy Group, said the judges looked at both a company’s numbers – their growth records and financial health – and their commitments to “giving back” to society. She said the judges saw so many worthy contenders that they deliberated for four hours before unanimously agreeing on a winner.
“India is not an easy place to start a bank,” MacDonald noted. “It’s a very difficult market and highly-regulated, and it takes a brave man to do that.” Above all, she said, by providing Indian business with more competitively priced financial services, “You are potentially creating many new entrepreneurs in India, and that was very important to the judging panel.”
In fact, the real story of this year’s WEOY competition may not be the economic impact of the 51 finalists, but their commitment to social responsibility. From their concerns for employees’ rights to overt campaigns for fighting poverty, disease, crime and environmental degradation, this year’s WEOY finalists distinguished themselves through their personal crusades to make the world a better place. EY itself supports this trend at WEOY by bringing in speakers such as Muhammed Yunus, the Nobel Prize-winning founder of the microcredit movement, and holding sessions on topics such as philanthropy, public policy and youth unemployment.
Kotak’s story illustrates how startups can create social good simply by challenging traditional business practices – and then launch formal campaigns for social change once they have achieved financial stability.
Kotak Mahindra Bank (KMB) moved into the banking business when Kotak noticed India’s main banks were lending money at 17% and paying depositors 6%. “The banks were getting an 11-point spread… state-owned banks that were supposed to be building society.” Kotak says those spreads gave KMB lots of room to move into the market and undercut the big banks’ lending rates while still making a decent profit.
In rural India, the company began lending money to many people who had never before dealt with banks. They were used to covering their financial shortfalls by dealing with money lenders, essentially local loan sharks who charge high rates of interest. By lending to these people, KMB built its business while helping its customers reduce their borrowing costs.
Today the company has diversified into insurance and investments, and boasts 600 branches and revenue of US$2.8 billion. It also operates in the U.S., U.K., the United Arab Emirates, Singapore and Mauritius, primarily serving Indians abroad.
But Kotak believes the bank’s future lies at home: “Why should we look at other places when two-thirds of India is still unbanked?” He says KMB has the opportunity to reach more customers than the country’s entire banking sector has done to date. “We can bring millions of people into society, and make a small difference in the future of the world.”
Kotak says his social conscience was sparked in his youth. He grew up in a cotton-trading family, in a multi-generational household with 16 family members under one roof. “It was capitalism at work and socialism in the home,” he said. That experience, he said, helped him create KMB’s team-based employee culture and sparked KMB’s philanthropic efforts at improving education in India, especially for young women. Kotak says their interests have often been neglected in India’s traditionally male-dominated culture.
He has built his business on three principles: “Prudence, humility and simplicity.” That means avoiding the over-leveraging that has plagued many banks, and shunning complex products such as derivatives that no one really understands.
Kotak told a press conference that he is especially optimistic about his company’s prospects following last month’s Indian elections, which saw a pro-business party under Hindu nationalist leader Narenda Modi form a majority government.
Asked if he has any regrets in his business career, Kotak said, “I could have been a little bolder. I could have gotten here faster. I was too influenced by advisors who told me that risk management was the most important part of banking.”
Asked to give his best advice for startup entrepreneurs, he said: “Go for it, but keep in mind that the probability of success is low. But success is enthralling, so it’s worth the risk.”
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