Vikram Akula's SKS Microfinance Pvt. Ltd.: The Making of a Successful Microfinance Institution
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Themes: Entrepreneurship
Pub Date : 2006
Countries : India
Industry : Banking
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Case Code : SEP0014
Case Length : 19 Pages
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Vikram Akula's SKS Microfinance Pvt. Ltd.: The Making of a Successful Microfinance Institution
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The SKS approach provides doorstep financial service to the villagers at the doorstep and an alternative to travel to mainstreambanks for their financial needs. The loans [Exhibit XIV] are designed in such away thatmembers canmake their small weekly repayments fromthe wages that they earn in a week. SKS also offers consumption and income generating enterprise loans so that the villagers do not have to resort to distress sale of their assets to tide over emergencies.However, the first loans are generally small as they aimto bring in credit discipline among themembers through collective responsibility. SKS also provides its clients a Loan Cover Insurance Scheme in partnershipwith Life InsuranceCorporation of India (LIC) with the support of Tata-AIGand ING-Vyasya. SKSacts as themaster policyholder for the termlife insurance for the insurers and handles all the transactions and claims.With a loan cover fee of 1%of the loan amount, the policy covers the loan amountwith interest for the termof the loan or one year, and the outstanding loan amount is written off and principal paid is returned to the client's nominee in case of death of the client or the client's spouse.SKSis also exploring introduction of health and livestock insurance of its clients to protect themagainst financial shocks. |
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Though SKS began its operations in the Telangana region (in the state ofAndhra Pradesh), one of the poorest parts of India in the drought prone, semi-arid Deccan Plateau, it expanded rapidly after 2003 and by January 2006, it had disbursed $ 47 million with a Portfolio at Risk of 1.98%[Exhibit XV]. Despite its rapid growth, SKS hasmaintained its efficiency and achieved amongst the best operating ratio [Annexure I] in the industry.54
Akula increased efficiency in operations of SKS by using technology and adopting a standardised “cookie-cutter” branchmodel that could be easily replicated. This enabled the branches to breakeven faster.55 SKS runs its operations according to an operationmanual that details the procedures for village survey to guidelines for approval of a new group. It also lays down themethods formanaging the village ‘Sangams', checks and balances for loan utilisation and repayment, and other unexpected events thatmight be encountered. SKS applies its novel approach towards its PovertyAssessment Methodology, Staffing Functions and in its InternalAuditDepartments
Recognised as a global leader in microfinance technology, SKS uses its award-winning Management Information System (MIS) [Exhibit XVII] and delivery solutions to increase its operational efficiency and reduce its costs. Simple loan management software designed byAkula's friends atMcKinsey and KPMGLLP, enables its loan officers,most of whomdo not have computer experience, to reduce the accounting time fromhours tominutes. The accounting functions are linked to theMIS so that all transactions can be entered and tracked in theMIS. TheMIS uses a simpleGraphicalUser Interface that is available in more than 100 languages, and can be learnt in a few days regardless of the user's education level or computer knowledge.As SKS is expected to rapidly expand in terms of products and reach, theMIS is designed in a series ofmodules that enable additions and subtractions with a high degree of flexibility and the capability to track 100 types of products. TheMIS systemis able to accurately track activity at themicro level and the reporting feature allowsmonitoring of the activity at an individual level. Thismonitoring also helps SKS to diversify its risks. For example, in some branches, the exposure of on buffaloes was very high as it had given 80%of the loans for purchase of buffaloes. This raised a huge risk of default in case of decline inmilk prices or an epidemic that affected buffaloes. The identification helpedSKS to diversify its lending for other purposes like tractor repair, brickmaking, tire re-treading and tea shops.
54] “SKS Microfinance Pvt. Ltd. Business Plan April 2005”, op.cit.
55] Ibid.