MICROCAPITAL BRIEF: India’s Insurance Regulatory and Development Authority (IRDA) Finds “Massive Problems” with Practices of SKS Microfinance

In conducting a set of field inspections, the Insurance Regulatory and Development Authority (IRDA), an Indian supervisory body, reportedly has detected “massive problems” in the handling of insurance by SKS Microfinance, a microfinance institution (MFI) in India. The irregularities include “receiving the cheques of death claims from its insurers on its name, which is illegal.” SKS allegedly has also collected higher commissions on insurance policy sales than is allowed by IRDA.

IRDA reportedly has requested that SKS explain these findings and is expected to hold a hearing before determining whether any punitive action will be taken. SKS has denied any wrongdoing.

As of 2012, SKS retails life and other insurance products backed by approximately 10 insurance companies. For the year 2011, SKS earned INR 366 crore (USD 63.5 million) from the distribution of insurance policies. For the year 2011, SKS reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 389 million, a gross loan portfolio of USD 341 million, approximately 4.3 million borrowers, return on assets (ROA) of -66.1 percent and return on equity (ROE) of -152 percent.

By Brendan Millan, Research Associate

About SKS Microfinance: SKS Microfinance is a microfinance institution (MFI) that was launched in 1998. It delivers microfinance products through a group-lending model to impoverished women inIndiaas a for-profit, non-banking finance company. The firm has also diversified to provide funeral assistance, gold loans and loans to individual small stores. SKS converted into a public limited company in May 2009 and launched an initial public offering on July 28, 2010. Its equity investors include Quantum Hedge Fund, Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus. As of December 31, 2011, SKS reports total assets of USD 389 million, a gross loan portfolio of USD 341 million, approximately 4.3 million borrowers, return on assets (ROA) of -66.1 percent and return on equity (ROE) of -153 percent.

About Insurance Regulatory and Development Authority (IRDA): Formed by the Indian Parliament in 1999, IRDA is the agency in charge of regulating the insurance industry in India. The mission of IRDA is “to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.”

Sources and Resources:

[1] The Hindu Business Line: “IRDA Finds ‘Massive Problems’ in SKS Micro’s insurance Operations” by G. Naga Sridhar. http://www.thehindubusinessline.com/industry-and-economy/banking/article3446545.ece?homepage=true&ref=wl_home

MicroCapital.org story, May 11, 2012, “MICROCAPITAL BRIEF: SKS Microfinance to Cut 1,200 Jobs, Close 78 Branches in Andhra Pradesh, India”, https://www.microcapital.org/microcapital-brief-sks-microfinance-to-cut-1200-jobs-close-78-branches-in-andhra-pradesh-india/

MicroCapital.org story, February 28, 2012, “MICROCAPITAL BRIEF: 76 Criminal Cases Pending Over Alleged Role of Microlenders in Borrower Suicides in India’s Andhra Pradesh”, https://www.microcapital.org/microcapital-brief-76-criminal-cases-pending-over-alleged-role-of-microlenders-in-borrower-suicides-in-indias-andhra-pradesh/

MicroCapital.org story, February 27, 2012, “MICROCAPITAL BRIEF: Internal Documents Collected by Associated Press Implicate SKS Microfinance Staff in Borrower Suicides in Andhra Pradesh, India”,https://www.microcapital.org/microcapital-brief-internal-documents-collected-by-associated-press-implicate-sks-microfinance-staff-in-borrower-suicides-in-andhra-pradesh-india/

MicroCapital.org story, November 26, 2010, “MICROCAPITAL BRIEF: SKS Microfinance of India Under Investigation by Insurance Regulatory and Development Authority (IRDA) for Violating Norms in Insurance Practices”, https://www.microcapital.org/microcapital-brief-sks-microfinance-of-india-under-investigation-by-insurance-regulatory-and-development-authority-irda-for-violating-norms-in-insurance-practices/

MicroCapital Universe Profile: SKS Microfinance, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance

MicroCapital Universe Profile: Insurance Regulatory and Development Authority (IRDA), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=IRDA

Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/

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