SKS Microfinance

SKS Microfinance Ltd.
NBFC
Industry Finance
Founded 1998
Headquarters Hyderabad, India
Area served
 India
Key people
 M R Rao CEO- Managing director
Number of employees
 over 20000
Website http://www.sksindia.com/

SKS Microfinance Limited (SKS) is a non-banking finance company (NBFC), regulated by the Reserve Bank of India. SKS' mission is to provide financial services to the poor. The company operates across 19 of 28 Indian states.

According to a CRISIL Report on Top 50 Indian Microfinance Institutions (MFIs), SKS Microfinance is the largest MFI in India with more borrowers, more branches and more loans as of 30 September 2008.[1] SKS was founded in 1997 by Vikram Akula, who also served as its executive chair until November 2011.[2]

SKS charges an annual effective interest rate between 26.7% and 31.4% for core loan products.[3] At the end of financial year 2010 on 31 March 2011, the company listed a gross loan portfolio of US$925,844,433 with 6,242,266 female active borrowers.[4]

SKS plans "to serve 50 million households across India and other parts of the world and also to create a commercial microfinance model that delivers high value to our customers".[5] The theory is that providing financial services to low-income households helps alleviate poverty.[6]

SKS practices a standardised process of managing loans. They reach borrowers in distant villages. In order to prevent the poor borrowers from getting caught in a debt trap by taking loans from loan sharks, the organization charges interest rates that clients are willing to pay to avoid starvation.

A 24 February 2012 Associated Press report linked SKS loan collection policies to multiple suicides. Company officials denied the claim, but the Associated Press said internal documents and interviews with more than a dozen current and former employees, independent researchers and videotaped testimony from the families of the dead, showed that top SKS officials had information implicating company employees.[7]

Operations

SKS Microfinance follows the Joint Liability Group (JLG) model. The methodology involves lending to individual women, using five– member groups as the ultimate guarantor for each member.[8] Through group lending, situations of adverse selection and moral hazard due to asymmetric information are better managed.[9] "Social collateral" replaces asset collateral (which is lacking in the poorer segments of society). Such a system works because India is still a highly community-centric society. The concept of honour and respect within society is deeply rooted in Indian culture and willful default invites condescending glances, humiliation and even ostracism.[10]

Products

SKS Microfinance offers 8 financial products and services to its clients - Income Generation Loans, Mid-Term Loans, Mobile Loans, Sangam Store Loans, Housing Loans, Funeral Assistance, Gold Loan, and Life Insurance.[11] The company lists some of the social benefits of its financial product and service offerings as "providing self-employed women financial assistance to support their business enterprises, such as raising livestock, running local retail shops called kirana stores, providing tailoring and other assorted trade and services."[11]

Microfinance is not suitable for those who need not just access to finance but livelihood training, social and health inputs. SKS has a unique "Ultra Poor" program for this group. Under the program, the beneficiaries receive training to run an income-generating enterprise, financial education and an asset. Over an 18-month period these beneficiaries are trained to become self-sufficient and graduate into regular microfinance. The first phase of the Ultra Poor program was conducted in Medak district of Andhra Pradesh where nearly 500 women were covered. In all, 426 women have successfully graduated from this program. In the next phase, the Ultra Poor Program is being planned in some of the poorest districts of Orissa and Jharkhand.

Finance

SKS has raised money from several companies and individual sponsors. In July 2009, Bajaj Allianz made an investment of $10 million (INR 50 crore), the first-ever investment by an insurance company in an Indian microfinance institution. In March 2006, SKS closed its first round of equity investment; the largest microfinance investment in India to date - $3.2 million from some of the world’s leading microfinance investors, and then eclipsed this accomplishment with a second round equity investment of $11.5 million in March 2007. In November 2008 SKS raised equity worth $75 million (Rs 366 crore), the largest equity raised by an MFI to that date. The third round of equity worth Rs 147 crore was raised in January 2008. SKS leverages its equity with public sector, private sector and multinational bank debt.

Leadership

SKS founder Vikram Akula resigned from the board on 23 November 2011. PH Ravikumar, an independent director and former chief executive officer of NCDEX is taking over as the interim non-executive chairman of the only listed microfinance institution.[12]

Awards

SKS was ranked as the number one MFI in India and number two in the world by MIX Market. Business Week rated SKS as one of India's most influential companies. SKS received numerous awards including the CGAP Pro-Poor Innovation Award, the ABN-Ambro/Planet Finance Process Excellence Award, Citibank Information Integrity Award, the Digital Partners SEL Award, SHG Foundation funding and the Grameen Foundation USA Excellence Award. SKS is the only MFI in India to receive the MIX Transparency Certification. The Unitus Equity Fund made a large investment into SKS in 2006.[13]

Public offering

On 28 July 2010, SKS Microfinance debuted on the Bombay Stock Exchange. SKS's chairperson and founder, Vikram Akula, claimed that the Initial Public Offering (IPO) was to finance growth, enabling the firm to reach a larger number of poor people.

The grandfather of microfinance Muhammad Yunus, expressed doubt that Akula would be able to blend SKS's social mission with the demands of a traditional profit-maximizing business. The main obligation of any public company is to make profits for shareholders, while the main obligation of an MFI is to serve the poor. Yunus predicted that SKS would ultimately put its shareholders' interests above those of the poor. "By offering an IPO, you are sending a message to the people buying the IPO there is an exciting chance of making money out of poor people. This is an idea that is repulsive to me. Microfinance is in the direction of helping the poor retain their money rather than redirecting it in the direction of rich people," Yunus said.[14] He added further, "If they do it, I cannot stop them but I would encourage genuine Microcredit programs."[15]

In a face-to-face debate at the 2010 Clinton Global Initiative, Akula insisted that going public is the only way for an MFI to raise sufficient funds to provide micro-loans for 3 billion people in need worldwide. Yunus contradicted Akula by saying that microfinance is, first of all, banking. Therefore, Yunus continued, MFIs needed to obtain banking licenses, which would enable them to take deposits from the public and, thus, become self-sustaining.[16]

However, the differing legal frameworks in Bangladesh and India could justify SKS Microfinance's IPO initiative. Yunus's Grameen Bank in Bangladesh is funded primarily by deposits raised from its own borrowers and non-members, whereas Indian MFIs are prohibited by law from collecting deposits. For them, funding must come from outside. Given India's much larger scale, the only sufficient external sources to provide that are commercial capital markets.[17]

Suicide link allegation

An independent investigation commissioned by the company linked SKS employees to at least seven suicides, according to a report by the Associated Press. A second investigation commissioned by an industry umbrella group that probed the role of many microfinance companies did not draw conclusions but pointed to SKS involvement in two more cases that ended in suicide, the report said. Neither study has been made public. According to the Associated Press report, "More than 200 poor, debt-ridden residents of Andhra Pradesh killed themselves in late 2010, according to media reports compiled by the government of the south Indian state. The state blamed microfinance companies — which give small loans intended to lift up the very poor — for fueling a frenzy of overindebtedness and then pressuring borrowers so relentlessly that some took their own lives."[7]

Job Cuts

Once considered the microfinance capital, crisis-hit SKS Microfinance cuts 1200 jobs and closes 78 branches in Andra Pradesh.[18]

References

  1. ↑ Angel Broking, "SKS Microfinance,"
  2. ↑ "Vikram Akula quits SKS". The Hindu (Chennai, India). 23 November 2011.
  3. ↑ "SKS Microfinance Limited | MFIs in India". Mixmarket.org. 1997-01-01. Retrieved 2012-07-17.
  4. ↑
  5. ↑ "SKS: Know SKS: Our Approach". Sksindia.com. Retrieved 2012-07-17.
  6. ↑ Jonathan Murdoch, "The Microfinance Promise,"
  7. ↑ 7.0 7.1 Kinetz, Erika. "AP IMPACT: Indian lender SKS' own probe links it to borrower suicides, despite company denials". Associated Press Business Writer. Associated Press/Yahoo. Retrieved 25 February 2012.
  8. ↑ "SKS: Know SKS: Our Approach: Methodology". Sksindia.com. Retrieved 2012-07-17.
  9. ↑ Prabal Roy Chowdhury, "Group-lending with sequential financing, joint liability and social capital,"
  10. ↑ Eric Savage, Abhijit Ray & Abhishek Fogla, "Indian Microfinance: Swimming Fully Clothed!," http://www.lcsi.smu.edu.sg/downloads/SocialSpace2010-EricSavage&AbhijitRay&AbhishekFogla.pdf
  11. ↑ 11.0 11.1 "SKS: Our Work: What We Do: Our Products". Sksindia.com. Retrieved 2012-07-17.
  12. ↑ "SKS will miss Akula; to raise funds via QIP in FY12 - CNBC-TV18". Moneycontrol.com. Retrieved 2012-07-17.
  13. ↑ Sarkar, Keya. "India: A hotspot for micro finance". Retrieved 6 March 2015.
  14. ↑ ABCNews, SKS Launches India's First Microfinance IPO
  15. ↑ Microfinance Focus, "Microfinance pioneer Prof Yunus raises concern over SKS IPO,"
  16. ↑ Clinton Global Initiative," Special Session: Profiting from the Poor? A Discussion on Microfinance IPOs
  17. ↑ Microfinance Focus, "Exclusive: SKS Microfinance journey to IPO – An inside story,"
  18. ↑ "SKS Microfinance cut 1,200 jobs in Andhra Pradesh". The Times Of India. Retrieved 10 May 2012.

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