SKS Microfinance
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Bharat Financial Inclusion Limited (formerly known as SKS Microfinance Limited) or BFIL is a banking & finance company (NBFC), licensed by the
Reserve Bank of India Reserve Bank of India, abbreviated as RBI, is the central bank of the Republic of India, and regulatory body responsible for regulation of the Indian banking system and Indian rupee, Indian currency. Owned by the Ministry of Finance (India), Min ...
. It was founded in 1997 by Vikram Akula, who served as its executive chair until working. The company's mission is to provide financial services to the poor under the premise that providing financial service to poor borrowers helps to alleviate poverty. In 2011, the company operated across 11 Indian states.


History


Founding (1997 to 2005)

In 1997, inspired by
Grameen Bank Grameen Bank () is a microfinance, specialized community development bank founded in Bangladesh. It provides small loans (known as microcredit or "grameencredit") to the impoverished without requiring collateral. Grameen Bank is a statutory ...
, Vikram Akula founded Swayam Krishi Sangham (SKS Society) as a non-profit organization. However, unlike Grameen bank, SKS used an aggressive commission based system to encourage loans, thus forming a network of loan marketers who were not direct employees of SKS, but worked on a commission basis in smaller villages of Andhra Pradesh. SKS used a network of loan sharks to pursue matters with defaulters. In 2003, Akula created a for-profit arm under the name of SKS Microfinance Private Limited. In order to capitalize the new business, Akula established the SKS Mutual Benefit Trusts (MBTs), which fundraised among women from
Andhra Pradesh Andhra Pradesh (ISO 15919, ISO: , , AP) is a States and union territories of India, state on the East Coast of India, east coast of southern India. It is the List of states and union territories of India by area, seventh-largest state and th ...
villages. The Mutual Benefit Trusts were used as vehicles to funnel grants for the non-profit SKS Society to the for-profit SKS Microfinance, a move that would be illegal to do directly. In 2005, SKS Microfinance raises enough funds to become a
non-banking financial company A non-banking financial institution (NBFI) or non-bank financial company (NBFC) is a financial institution that is not legally a bank; it does not have a full banking license or is not supervised by a national or international banking regulator ...
.


Growth and IPO (2005 to 2010)

In 2007, SKS Microfinance raised $11.5 million through equity investments led by
Sequoia Capital Sequoia Capital Operations, LLC is an American venture capital firm headquartered in Menlo Park, California, specializing in seed stage, early stage, and growth stage investments in private companies across technology sectors. the firm had appro ...
. In 2008, it further raised $74.5 million through equity investments led by Sandstone Capital. On 28 July 2010, SKS Microfinance debuted on the
Bombay Stock Exchange BSE Limited, also known as the Bombay Stock Exchange (BSE), is an Indian stock exchange based in Mumbai. It is the 6th largest stock exchange in the world by total market capitalization, exceeding $5 trillion in May 2024. Established with t ...
with an IPO that was oversubscribed 14 times.
Muhammad Yunus Muhammad Yunus (born 28 June 1940) is a Bangladeshi economist, entrepreneur, and civil society leader who has been serving as the Chief Adviser of Bangladesh, Chief Adviser of the Interim government of Muhammad Yunus, interim Yunus ministry, g ...
expressed concern that going public would put the demands of shareholders ahead of the poor. He added further, "If they do it, I cannot stop them but I would encourage genuine Microcredit programs." SKS founder Vikram Akula resigned from the board on 23 November 2011. In 2015, P. H. Ravi Kumar became the non-executive chairman. The company's shares meanwhile lost 96% of their value from a high of Rs. 1491.50 in 2010.


Debtor suicides crisis (2010 to 2014)

In September 2010, reports surfaced in the media of nearly 200 suicides by defaulters of a number of micro finance institutions, including SKS finance. This led to an enquiry by the Andhra Pradesh government. In a 2012 cover story,
The Hindu ''The Hindu'' is an Indian English-language daily newspaper owned by The Hindu Group, headquartered in Chennai, Tamil Nadu. It was founded as a weekly publication in 1878 by the Triplicane Six, becoming a daily in 1889. It is one of the India ...
reported that a marked shift took place in the values and incentives of SKS in 2008, after large scale investment began to flow in from venture capitalists and prospectors including Boston-based Sandstone Capital and Sequoia Capital. An independent investigation commissioned by the company linked SKS employees to at least seven suicides of creditors in
Andhra Pradesh Andhra Pradesh (ISO 15919, ISO: , , AP) is a States and union territories of India, state on the East Coast of India, east coast of southern India. It is the List of states and union territories of India by area, seventh-largest state and th ...
. A second investigation said SKS may have been involved in two other suicide cases. In 2012, SKS Microfinance cut 1200 jobs and closed 78 branches in Andhra Pradesh. Interviews with family members of the deceased, by
BBC The British Broadcasting Corporation (BBC) is a British public service broadcaster headquartered at Broadcasting House in London, England. Originally established in 1922 as the British Broadcasting Company, it evolved into its current sta ...
suggested that the reason for these suicides appeared to be large sub-prime loans taken by the villagers, with the active encouragement of SKS loan agents. In 2014, the investors in the SKS Microfinance, Mauritius Unitus Corporation, Sequoia Capital India Growth Investments and SKS Mutual Benefit Trust as well as its founder Vikam Akula relinquished their roles as promoters.


Rebranding (2016 to present)

In 2016, SKS Microfinance was renamed to Bharat Financial Inclusion Ltd. In 2017, the company launched a loan approval system based on Adhaar to reduce the time and cost involved in the loan approval process. In the same year, it also launched its Kirana store (
general store A general merchant store (also known as general merchandise store, general dealer, village shop, or country store) is a rural or small-town store that carries a general line of merchandise. It carries a broad selection of merchandise, someti ...
) service which allowed its customers to do financial transactions by visiting its designated stores. Later in 2017, the company entered into discussions of a possible merger with
IndusInd Bank IndusInd Bank Limited is an Indian banking and financial services company based in Mumbai. It was established in April 1994 and promoted by the Hinduja Group. History IndusInd Bank was among nine 'new-generation' banks that obtained a bankin ...
. The merger received approvals from
Reserve Bank of India Reserve Bank of India, abbreviated as RBI, is the central bank of the Republic of India, and regulatory body responsible for regulation of the Indian banking system and Indian rupee, Indian currency. Owned by the Ministry of Finance (India), Min ...
,
National Stock Exchange of India National Stock Exchange of India Limited, also known as the National Stock Exchange (NSE), is an Indian stock exchange based in Mumbai. It is the List of stock exchanges, 5th largest stock exchange in the world by total market capitalization, ...
and
Bombay Stock Exchange BSE Limited, also known as the Bombay Stock Exchange (BSE), is an Indian stock exchange based in Mumbai. It is the 6th largest stock exchange in the world by total market capitalization, exceeding $5 trillion in May 2024. Established with t ...
later in 2018.


Products

SKS Microfinance offers life assurance and a variety of financial loans – income generation loans; mid-term loans; long-term Loans; loans for purchase of products like cook-stoves, solar lights, water purifiers, mobile phones, bicycles and sewing machines; and loans secured on gold jewellery. 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 with enterprises, such as raising livestock, running local retail shops called ''kirana'' stores, providing tailoring and other assorted trade and services." Loans were subsequently also offered to men, and for various reasons including marriage expenses and to purchase seeds.


Operations

SKs Microfinance follows the Joint Liability Group 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 In economics, insurance, and risk management, adverse selection is a market situation where Information asymmetry, asymmetric information results in a party taking advantage of undisclosed information to benefit more from a contract or trade. In ...
and
moral hazard In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs associated with that risk, should things go wrong. For example, when a corporation i ...
due to
asymmetric information In contract theory, mechanism design, and economics, an information asymmetry is a situation where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which can sometimes c ...
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. In Nov 2015, SKS Microfinance Ltd has cut interest rates by one percentage point to 19.75% on the loans it offers to low-income women borrowers, making it the sole Indian microlender to offer loans at a rate below 20%.The move came after Reserve Bank of India (RBI) decided to double the borrower limit for microfinance loans for less than 24 months. Lower interest rates can attract more borrowers in an increasingly competitive market. Microfinance companies, which had started lending at around 28-34% in 2010, are now able to charge lower interest rates because of newer avenues to raise funds at lower cost and their ability to operate more efficiently than before."SKS is the first company to charge sub-20% interest rates on the core income generating loans," the company claimed in a statement on Friday. This is the fourth time SKS has reduced interest rates since October 2014.


References


External links


Official siteSKS Microfinance News
* ttps://www.wsj.com/articles/SB10001424052748704104104575621822772077134 SKS Shares Drop on Microloan Backlash {{DEFAULTSORT:Bharat Financial Inclusion) Microfinance companies of India Community development financial institutions 1997 establishments in Andhra Pradesh Organisations based in Hyderabad, India 2018 mergers and acquisitions IndusInd Bank Companies formerly listed on the National Stock Exchange of India Companies formerly listed on the Bombay Stock Exchange