The Insurance Regulatory and Development Authority (IRDA), the insurance regulator of India, recently issued Indian microfinance institution (MFI) SKS Microfinance a fine of INR 5 million (USD 91,800) for collecting corporate insurance agent fees beyond the premium price. SKS committed the violations while acting on behalf of Bajaj Allianz Life Insurance Company Ltd., an Indian life insurance company jointly owned by Bajaj FinServ of India and Allianz of Germany.
The policies in question were sold to microborrowers at a cost of 1 percent of the loan amount, which was billed as a fee for a “Death Relief Fund” that would pay off the microloan in case of the death of the borrower. However, “The documents establish that the premium is only about 0.55 percent of the loan amount and not 1 percent as charged for the so called death protection fee,” stated the IRDA order issuing the fine. The order also criticized SKS for collecting this fee as a service charge without properly informing policy-holders. “It is clear that about half of the amount charged is actually service charge and was not disclosed to the members as additional cost,” the order said.
As of September 30, 2012, SKS reported total assets of USD 354 million and a gross loan portfolio of USD 250 million disbursed to approximately 3.9 million borrowers. As of March 2012, SKS reported return on assets (ROA) of -45.8 percent and return on equity (ROE) of -111 percent. SKS does not accept deposits.
By Nicole Boyd, Research Associate
About SKS Microfinance
SKS Microfinance is a for-profit microfinance institution (MFI) that was launched in 1998. SKS converted into a public limited company in May 2009 and launched an initial public offering on July 28, 2010. It since diversified into offering gold loans and loans to small stores, microcredit and microinsurance services. SKS currently trades on the Bombay Stock Exchange and India’s National Stock Exchange. As of September 30, 2012, SKS reported total assets of USD 354 million and a gross loan portfolio of USD 250 million disbursed to approximately 3.9 million borrowers. As of March 2012, SKS reported return on assets (ROA) of -45.8 percent and return on equity (ROE) of -111 percent. SKS does not accept deposits.
About Insurance Regulatory and Development Authority (IRDA)
The Insurance Regulatory and Development Authority (IRDA) is the regulator of the insurance industry in India. Formed by the Indian parliament in 1999, the mission of IRDA is “to protect the interests of the policyholders” and “to regulate, promote and ensure orderly growth of the insurance industry.” According to IRDA’s 2011 annual report, the Indian insurance industry consists of a total of 49 insurance companies in the public and private sectors.
Sources and Additional Resources:
IRDA order, “In Respect of M/S. SKS Microfinance Ltd.” http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo1887
MicroCapital. February 5, 2013, “MICROCAPITAL BRIEF: Indian Microlender SKS Microfinance Reports Profits After Seven Quarters of Losses,” http://www.microcapital.org/microcapital-brief-indian-microlender-sks-microfinance-reports-profits-after-seven-quarters-of-losses/
MicroCapital. May 27, 2012, “MICROCAPITAL BRIEF: India’s Insurance Regulatory and Development Authority (IRDA) Finds “Massive Problems” with Practices of SKS Microfinance,” http://www.microcapital.org/microcapital-brief-indias-insurance-regulatory-and-development-authority-irda-finds-massive-problems-with-practices-of-sks-microfinance/
MicroCapital. November 26, 2010, “MICROCAPITAL BRIEF: SKS Microfinance of India Under Investigation by Insurance Regulatory and Development Authority (IRDA) for Violating Norms in Insurance Practices,” http://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 http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance
MicroCapital Universe Profile: Insurance Regulatory and Development Authority (IRDA) http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=IRDA
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