NMIMS

SKS Microfinance
Write up

Prepared by- GROUP 7

Gaurav Singh D51

Ravish Saran D58

Dheeraj Wadhwani D61

Megha Agarwal E01

Dev Ashish E02

Varchas Bansal E04

About SKS Microfinance
SKS Microfinance Limited (SKS) is a non-banking finance company (NBFC), regulated by the Reserve
Bank of India. SKS' mission is to eradicate poverty by providing financial services to the poor. The
company operates across 19 Indian states: 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 with more borrowers, more branches and more loans as of 30 September 2008.
SKS was founded in 1997 by Vikram Akula, who also served as its executive chair until November 2011.
As of December 31, 2010, SKS had 7.7 million clients in 2,403 branches across the country.

SKS charges an annual effective interest rate between 26.7% and 31.4% for core loan products. 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.

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". The theory is that providing
financial services to low-income households helps alleviate poverty.

SKS practices a standardised process of managing loans. They reach distant villages by charging interest
rates that clients are willing to pay to avoid starvation, poor money management or government loan
sharks.

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

Microfinance
The term "microfinance" describes the range of financial products (such as microloans, microsavings and
micro-insurance products) that microfinance institutions (MFIs) offer to their clients. Microfinance began
in the 1970s when social entrepreneurs began lending money on a large scale to the working poor. One
individual who gained worldwide recognition for his work in microfinance is professor Muhammad
Yunus who, with Grameen Bank, won the 2006 Nobel Peace Prize. Yunas and Grameen Bank
demonstrated that the poor have the ability to pull themselves out of poverty. Yunus also demonstrated
that loans made to the working poor, if properly structured, had very high repayment rates. His work
caught the attention of both social engineers and profit-seeking investors.

Historically, the goal of microfinance was the alleviation of poverty. For many years, microfinance had
this primary social objective and so traditional MFIs consisted only of non-governmental organizations
(NGO), specialized microfinance banks and public sector banks. More recently, the marketplace has been
evolving. For example, some non-profit MFIs are transforming themselves into profit-seeking institutions
to achieve greater strength, sustainability and market reach. They are being joined in the microfinance
marketplace by consumer finance companies, like GE Finance and Citi Finance. "Big-box" consumer
retailers, like Wal-Mart, Elektra and Tesco are beginning to emerge as consumer lenders and a few are
venturing into microfinance. Although most MFIs still consider poverty alleviation the primary goal,
selling more products to more consumers is the primary motivation of many new entrants.

Microfinance Products and Services

The following products and services are currently being offered by MFIs:

 Microloans: Microloans (also known as microcredit) are loans that have a small value; most
loans are less than $100 in size. These loans are generally issued to finance entrepreneurs who
run micro-enterprises in developing countries. Examples of micro-enterprises include basket-
making, sewing, street vending and raising poultry. The average global interest rate charged on
micro-loans is about 35%. Although this may sound high, it is much lower than other available
alternatives (such as informal local money lenders). Moreover, MFIs must charge interest rates
that cover the higher costs associated with processing the labor-intensive micro-loan
transactions.

 Microsavings: Microsavings accounts allow individuals to store small amounts of money for

future use without minimum balance requirements. Like traditional savings accounts in
developed nations, micro-savings accounts are tapped by the saver for life needs such as
weddings,funerals and old-age supplementary income. 

 Micro-Insurance: Individuals living in developing nations have more risks and uncertainties

in their lives. For example, there is more direct exposure to natural disasters, such as mudslides,
and more health-related risks, such as communicable diseases. Micro-insurance, like its non-
micro counterpart, pools risks and helps provide risk management. But unlike its traditional
counterpart, micro-insurance allows for insurance policies that have very small premiums and
policy amounts. Examples of micro-insurance policies include crop insurance and policies that
cover outstanding balances of micro-loans in the event a borrower dies. Due to the high
administrative expense ratios, micro-insurance is most efficient for MFIs when premiums are
collected together with microloan repayments
SKS Microfinance
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. Through group
lending, situations of adverse selection and moral hazard due to asymmetric information are better
managed. "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.

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. 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."

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" programme for this group. 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.

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.
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 father 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."

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 micfofinance 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.

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. P. N. Vasudevan, founder and CEO of Equitas–
the fastest-growing MFI in India in 2009–argued 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.

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."

Job Cuts
Once considered the microfinance capital, crisis-hit SKS Microfinance cuts 1200 jobs and closes 78
branches in Andra Pradesh.
Exhibits:1 Balance Sheet

---------------
---- in Rs.
Cr.
alance Sheet of SKS ---------------
Microfinance ----
Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 72.36 72.32 64.53 57.06 44.33

Equity Share Capital 72.36 72.32 64.53 47.9 44.33

Share Application Money 4.51 9.41 4.18 1.93 0

Preference Share Capital 0 0 0 9.16 0

Reserves 357.81 1,699.09 889.33 605.86 167.85

Revaluation Reserves 0 0 0 0 0
Networth 434.68 1,780.82 958.04 664.85 212.18

Secured Loans 415.46 2,167.41 2,579.57 2,097.13 789.85

Unsecured Loans 0 68.64 115.1 39.44 0

Total Debt 415.46 2,236.05 2,694.67 2,136.57 789.85

Total Liabilities 850.14 4,016.87 3,652.71 2,801.42 1,002.03

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds

Gross Block 76.16 62.49 44.13 30.67 18.93

Less: Accum. Depreciation 55.55 34.19 21.54 12.69 4.84

Net Block 20.61 28.3 22.59 17.98 14.09

Capital Work in Progress 0 2.82 1.77 0.99 0.4

Investments 0.2 3.76 0.2 0 0

Inventories 0 0 0 0 0
Exhibit2: Profit and Loss Statement
 ---------------
---- in Rs.
Cr.
alance Sheet of SKS ---------------
Microfinance ----
Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 72.36 72.32 64.53 57.06 44.33

Equity Share Capital 72.36 72.32 64.53 47.9 44.33

Share Application Money 4.51 9.41 4.18 1.93 0

Preference Share Capital 0 0 0 9.16 0

Reserves 357.81 1,699.09 889.33 605.86 167.85

Revaluation Reserves 0 0 0 0 0
Networth 434.68 1,780.82 958.04 664.85 212.18

Secured Loans 415.46 2,167.41 2,579.57 2,097.13 789.85

Unsecured Loans 0 68.64 115.1 39.44 0

Total Debt 415.46 2,236.05 2,694.67 2,136.57 789.85

Total Liabilities 850.14 4,016.87 3,652.71 2,801.42 1,002.03

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds

Gross Block 76.16 62.49 44.13 30.67 18.93

Less: Accum. Depreciation 55.55 34.19 21.54 12.69 4.84

Net Block 20.61 28.3 22.59 17.98 14.09

Capital Work in Progress 0 2.82 1.77 0.99 0.4

Investments 0.2 3.76 0.2 0 0

Inventories 0 0 0 0 0

Sundry Debtors 0.21 1.92 2.95 2.14 0

Exhibit 3: Cash Flow

 ---------------
---- in Rs.
Cr.
alance Sheet of SKS ---------------
Microfinance ----
Mar '12 Mar '11 Mar '10

12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 72.36 72.32 64.53

Equity Share Capital 72.36 72.32 64.53

Share Application Money 4.51 9.41 4.18