SKS Microfinance
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| Type | NBFC |
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| Industry | Finance |
| Founded | 1998 |
| Headquarters | Hyderabad, India |
| Area served | India |
| Key people | Vikram Akula Chairperson and founder, M R Rao CEO- Managing director |
| 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 claims its mission is to eradicate poverty by providing financial services to the poor. The company operates across these 19 states of India: Andhra Pradesh, Karnataka, Maharashtra, Orissa, Madhya Pradesh, Bihar, Uttar Pradesh, Rajasthan, Uttaranchal, Himachal Pradesh, Haryana, West Bengal, Jharkhand, Chhattisgarh, Gujarat, Kerala, Tamil Nadu, Punjab and Delhi.
According to a CRISIL Report on Top 50 Indian Microfinance Institutions (MFIs), SKS Microfinance is the largest MFI in India in terms of number of borrowers, number of branches and total loans as of September 30, 2008.[1] Founded in 1997 by current chairperson Vikram Akula, SKS as of December 31, 2010, has 7.7 million clients (2010) [2] in 2,403 branches in the 19 states across India . SKS charges an annual effective interest rate between 26.7% and 31.4% for core loan products.[3] At the end of 2010's financial year 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's hopes "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 hope is that much poverty can be alleviated by providing financial services to low-income households.[6]
SKS practices a standardised processes of delivering and recovering loans, which enables them to reach out to the most customers cost effectively. They are able to expand the business to reach further villages by charging a small interest rate, one that clients are willing to pay in order to avoid starvation, poor money management, or government loan sharks.
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[edit] Operations
SKS Microfinance follows the Joint Liability Group (JLG) model. The methodology involves lending to individual women, utilising five member groups where groups serve as the ultimate guarantor for each member.[7] Through the innovation of group lending, situations of adverse selection and moral hazard due to asymmetric information are better managed.[8] Social collateral replaces asset collateral (which is lacking in the poorer segments of society), and 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 the Indian psyche and wilful default may invite condescending glances, humiliation and even ostracism.[9]
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.[10] 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]
SKS has had to raise money from several different companies and individual sponsors in order to help these women. In July 2009, Bajaj Allianz made an investment of $ 10 million(INR 50 crore) in SKS Microfinance which was the first-ever investment by an insurance company in an Indian microfinance institution. In November 2008 SKS raised equity worth $ 75 million(Rs 366 crore), the largest equity raised by an MFI in the world. The third round of equity worth Rs 147 crore was raised in January 2008. 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.
It leverages its equity to raise debt from public sector, private sector and multinational banks operating in India. This capital has helped the organisation scale up operations and reach out to millions of poor households across the length and breadth of India.
Since microfinance is not suitable for the destitute in society who need not just access to finance but livelihood training, social and health inputs, SKS has a unique Ultra Poor programme for this section of society. Under the programme, 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 programme was conducted in Medak district of Andhra Pradesh where nearly 500 women were covered. In all, 426 women have successfully graduated from this programme. In the next phase, the Ultra Poor Programme is being planned in some of the poorest districts of Orissa and Jharkhand.
Vikram Akula, founder of SKS Microfinance resigned from the board on 23-November-2011. PH Ravikumar, an independent director on the board of SKS India and former chief executive officer of NCDEX is taking over as the interim non-executive chairman of the only listed microfinance institution[12]
[edit] Awards
SKS was ranked as the Number 1 MFI in India and number 2 in the world by MIX Market. Business Week has rated SKS as one of the most influential companies. SKS has 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. SKS was selected by Unitus as the most promising microfinance organization in India.
[edit] IPO
On July 28, 2010, SKS Microfinance, India's biggest Microfinance Institution (MFI), made its debut on Bombay Stock Exchange, offering its shares to the general public. SKS's Chairperson and Founder, Vikram Akula, claimed that Initial Public Offering (IPO) has been made to raise more funds so that SKS could reach out to a larger number of poor people. However, others, most notably the father of microfinance Muhammad Yunus, expressed doubt that Akula will be able to juggle SKS's social mission with the demands of a traditional profit-maximizing business. The main obligation of any public company is to make dividends for its shareholders, while the main obligation of an MFI is to serve the poor. Yunus is afraid that in the end SKS will have to put its shareholders' interests above the ones 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.[13] He added further, "If they do it, I cannot stop them but I would encourage genuine Microcredit programs."[14]
In their face-to-face debate at 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 micfofinance is, first of all, banking. Therefore, Yunus continued, MFIs need to work towards obtaining banking licenses, which will enable them to take deposits from the public and, thus, become self-sustaining.[15]
However, the differing legal frameworks in Bangladesh and India could justify SKS Microfinance's IPO initiative. Yunus' 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 by necessity. Given the magnitude of demand, the only sufficient external sources to provide that are the commercial capital markets. P.N. Vasudevan, founder and CEO of Equitas – the fastest-growing MFI in India in 2009 – argues that being for-profit in no way contradicts the client-focused mission, inviting any critic “to spend a day with us and then declare that not-for-profit format is the only way of being mission focused and I promise to quit my organization.”[16]
[edit] References
- ^ Angel Broking, "SKS Microfinance," http://indiamicrofinance.com/wp-content/uploads/2010/07/sks-ipo-angel-broking.pdf
- ^ CGAP, "Indian Microfinance Goes Public: The SKS Initial Public Offering," http://www.cgap.org/gm/document-1.9.47613/FN65.pdf
- ^ Mix Market, "SKS Microfinance Private Limited," http://www.mixmarket.org/mfi/sks
- ^ Mix Market, "SKS Microfinance Private Limited," http://www.mixmarket.org/mfi/sks/data
- ^ http://www.sksindia.com/our_approach.php
- ^ Jonathan Morduch, "The Microfinance Promise," http://www.jstor.org/pss/2565486
- ^ http://www.sksindia.com/methodology.php
- ^ Prabal Roy Chowdhury, "Group-lending with sequential financing, joint liability and social capital," http://www.isid.ac.in/~planning/workingpapers/dp04-23.pdf
- ^ Eric Savage, Abhijit Ray & Abhishek Fogla, "Indian Microfinance: Swimming Fully Clothed!," http://www.lcsi.smu.edu.sg/downloads/SocialSpace2010-EricSavage&AbhijitRay&AbhishekFogla.pdf
- ^ http://www.sksindia.com/our_products.php#1
- ^ http://www.sksindia.com/our_products.php#1
- ^ http://www.moneycontrol.com/news/business/sks-will-miss-akula-to-raise-funds-via-qipfy12_623405.html#toptag
- ^ ABCNews, SKS Launches India's First Microfinance IPO http://abcnews.go.com/Business/wireStory?id=11270209
- ^ Microfinance Focuse, "Microfinance pioneer Prof Yunus raises concern over SKS IPO," http://www.microfinancefocus.com/news/2010/04/09/microfinance-pioneer-prof-yunus-raises-concerns-over-sks-ipo/
- ^ "Clinton Global Initiative," Special Session: Profiting from the Poor? A Discussion on Microfinance IPOs http://www.clintonglobalinitiative.org/ourmeetings/2010/meeting_annual_multimedia_player.asp?id=83&Section=OurMeetings&PageTitle=Multimedia
- ^ Microfinance Focus, "Exclusive: SKS Microfinance journey to IPO – An inside story," http://www.microfinancefocus.com/news/2010/05/17/exclusive-sks-microfinance-journey-to-ipo-an-inside-story/
