Vikram Akula's SKS Microfinance Pvt. Ltd.: The Making of a Successful Microfinance Institution

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Vikram Akula's SKS Microfinance Pvt. Ltd.: The Making of a Successful Microfinance Institution

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To serve 1,000,000 customers by 2010, SKS transformed itself in January 2005 from a non-profit NGO to a Non-Banking Finance Company (NBFC), regulated by the Reserve Bank of India (RBI). The NBFC status helped SKS have greater access to funds By catering to the financial needs of themarginalised and mostly illiterate members of the society like the backward castes, scheduled castes and scheduled tribes, who borrow from the village moneylenders at high interest rates and mortgage personal property, SKS has grown to 88 microfinance branches in the Deccan states of Andhra Pradesh, Karnataka, Maharashtra, Orissa and Madhya Pradesh [Exhibit XI]. It is reported that half the population in the Deccan region lives in poverty and the rates of hunger,malnutrition, and disease is amongst the highest in theworld.52 The average daily wage for this population is INR 20 ($0.42) for women and INR 30 ($0.63)53 for men, with only 200 days of work, depending on the rainfall. SKS has maintained a continuous focus on building capacity to serve a larger number of clients, by combining the GrameenModel of microfinance

credit delivery with efficient operation processes and innovativemanagement systems . It ensures that at least 40%of its newcustomers are fromthe ‘poorest' section of the society and earn less than INR 6,000 ($120) per year per capita. Since SKS believes that its clients are the best assessors for determining the nature of the business enterprise, it does not provide business development and other training services.

SKS lends to five-member groups of women and the group stands as a guarantor for each of itsmembers. The group formation process startswith the selection of villages based on the criteria of poverty level, number of poor households, road accessibility, political stability and safety. Next, the village level assessment ismade to evaluate the population, economic condition and activities, irrigation and agricultural status and presence of government development programmes. ‘Projection Meetings' are then held with the entire village to introduce SKS, itsmission,methodology and services. ‘Mini-Projection Meetings' are held there upon to identify and follow-up interested villagerswho formfivemember groups on their own. This is called ‘Group Formation'. Themembers of the groups should be unrelated to each other, aged between 18 and 59 years, and should live close to one another. The groups have to undergo a five-day ‘Compulsory Group Training'. It trains the members on arithmetic, howto sign their names, the importance of savings and collective responsibility and howto elect the group leaders apart fromthe SKSpledge.Only after successful completion of a ‘GroupRecognition Test' held on the fifth day is amember officially accepted as an SKS client [Exhibit XIII].With the formation of additional groups in a village, the groups are combined to form a ‘Sangam' (center) consisting of 4-12 groups or 20-60 clients. After the process of ‘Sangam Formation', the ‘Sangam' becomes responsible for repayment by all the groups, thus creating a dual joint liability system, wherein if a groupmember fails to repay the loan, the other groupmembers are disqualified from receiving another loan.

For a ‘Sangam', a leader and a deputy leader are appointed to assist in organisingmeetings and help themembers to complywith theSKSprocedures. Theweekly ‘Sangam'meetings, held early in themorning to avoid interference in the daily activity of its clients, are organised by the FieldAssistants and all financial transactions are conducted there. Suchmeetings are also used for perusal of new loan applications and discussions on the use of loans and other community issues.

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52] “SKS Microfinance Pvt. Ltd. Business Plan April 2005”, http://www.mixmarket.org/medialibrary/20501.25/SKS_Business_Plan_Latest.doc
53] Ibid.