SKS Microfinance, a microfinance institution (MFI) that serves groups of impoverished women in India, is reportedly considering new business growth avenues in an attempt to increase revenue and improve its reputation. Along with collateral-free loans, four new products would be offered: loans using gold as collateral, housing loans, loans to buy mobile phones and loans to local grocery stores in a supply arrangement with the cash-and-carry chain, Metro. “The pilot projects have been yielding very encouraging results,” says Vikram Akula, chairperson and founder of SKS Microfinance.
According to an Indian Newspaper Business Today, SKS Microfinance’s initial public offering (IPO) in August 2010 was oversubscribed nearly 14 times. However, the company’s fourth quarter results for 2010/2011 indicated a loss of INR 70 crore, equivalent to USD 15.6 million.
While Dr Akula sites external factors such as the Andhra Pradesh (AP) Microfinance Ordinance as causing the decline of SKS Microfinance, not everyone agrees. Sanjay Sinha, Managing Director of Micro-Credit Ratings International Limited, an agency that rates MFIs, said, “The IPO, the firm’s aggressive growth preceding it and the way it attracted others to follow suit laid the road to the current crisis.” In an open letter to CGAP (Consultative Group to Assist the Poor), a microfinance resource agency located at the World Bank, Dr Akula wrote: “The success of the IPO itself became a problem, tempting SKS promoters to take ill-timed management decisions, which invited further scrutiny and precipitated the Andhra government’s intervention.”
Business Today reported that of SKS Microfinance’s gross loan portfolio of INR 4,111 crore (equivalent to USD 917 million), the share attributable to Andhra Pradesh (including the overdue accounts) is INR 1,285 crore (equivalent to USD 286 million). Even accounting for the 10.3 percent recoveries continuing in the state, the company’s balance sheet would take a huge hit if SKS Microfinance were to write off such a large amount even over the course of several years.
By Carol Kim, Research Associate
About SKS Microfinance: SKS Microfinance is a microfinance institution (MFI) that was launched in 1998 and delivers microfinance products through a group-lending model to impoverished women in India. It is a for-profit, non-banking finance company that converted to a public limited company in May 2009 and launched an initial public offering on July 28, 2010. 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. According to 2010 data from the US-based nonprofit data provider Microfinance Information Exchange (MIX), SKS Microfinance reported total assets of USD 1.2 billion, a gross loan portfolio of USD 1.2 billion, approximately 6.6 million borrowers, return on assets of 6.3 percent and return on equity of 22.4 percent.
Sources and Additional Resources:
Business Today: “Stirred, but Not Shaken”, June 2011,
http://businesstoday.intoday.in/story/vikram-akula-sks-microfinance/1/15739.html
Business World: “Abrupt Fall From Grace”, http://www.businessworld.in/bw/2011_05_21_Abrupt_Fall_From_Grace.html?offset=0&max=1
Business Standard: “SKS to Revamp Business Model, Raise Rs 4,000 Cr”,
http://www.business-standard.com/india/news/sks-to-revamp-business-model-raise-rs-4000-cr/435142/
MicroCapital.org: “Paper Gains on Early Investment in SKS Microfinance Largely Evaporate For Sequoia Capital”, June 7, 2011, https://www.microcapital.org/microcapital-brief-paper-gains-on-early-investment-in-sks-microfinance-largely-evaporate-for-sequoia-capital/
MicroCapital.org: “Suresh Gurumani, Director of India’s SKS Microfinance, Resigns”, June 2, 2011, https://www.microcapital.org/microcapital-brief-suresh-gurumani-director-of-indias-sks-microfinance-resigns/
MicroCapital.org: “Supreme Court Schedules Hearing on Petition Filed by SKS Microfinance Against Over Regulation of Moneylending Act of India’s State of Andhra Pradesh”, May 23, 2011, https://www.microcapital.org/microcapital-brief-supreme-court-schedules-hearing-on-petition-files-by-sks-microfinance-against-over-regulation-of-moneylending-act-of-indias-state-of-andhra-pradesh/
MicroCapital’s Universe Profile: SKS Microfinance, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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