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Who are SKS and how messy has Indian MFI become

SKS is an Indian MFI who's business model I have no reliable information on but there seems to be so much buzz around them that I sugegst we log up what we can

When you go a world bank after hours sponsored presentation on mfis (dec 08) and hear fund managers saying that investment in mfis india has become overheated you know that the battle between true microcredit and false mfi has chosen India as one of its main zones
Vikram Akula in Business Standard, dated 22nd February 2008.

On his model being a replica of Grameen Bank: "maybe" the difference that SKS works on for-profit and expects to make a profit. Yunus' Grameen model talks of no-profit, no-loss.

On the interest rate being high: SKS charges on an average 26% diminishing interest. This breaks into 11% their own borrowing cost, 9% staff costs, 3% amenities and office costs, 2% loan-loss provision, between 1-2% profit.Wherever they have reached size, they have reduced the interest rates - for example in Andhra Pradesh and Karnataka to 24%. Their eventual goal is to reduce this to 21% if further efficiencies are achieved.

FMCG: In addition to offering loans, they are negotiating with FMCG product companies to offer FMCG goods at cheaper prices to their existing loan customers. Current customer base of SKS is around 1.7 million people. Targeted by March 2008 - 2 million, and by March 2009 - 4 million.

Investment in Gold: SKS is offering fixed price gold coins, which can be paid for by a weekly investment of Rs. 10-15. Once the investment is complete, the investor gets a certificate for the weight of gold, at market price, which can be traded any time for the current market price of gold.

Education: SKS is teaming up with education provider and infrastructure provider to set up schools. SKS will finance the families. Infrastructure provider will set up school buildings. Education provider will provide the teaching. The cost of the education is expected to be Rs. 250 per child per month (which will be borrowed from SKS and paid to the providers). They expect to start with 20-30 schools in May 2008, and extend this to over 300 schools.
Posted by Badri at 9:43 AM 0 comments Links to this post
Labels: India, Microcredit, SKS
SKS Microfinance gets third round of investment

US based Silicon Valley Bank and Columbia Pacific have together invested Rs. 147 crore (around US$ 36.75 million) in SKS Microfinance in December 2007. In the earlier round of investment made in October 2007, a clutch of investors, including Sequoia Capital, Unitus Equity Fund and Vinod Khosla had invested Rs. 50 crore (US$ 12.5 million).

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aug 2007
Quotes from the article in Business Standard::
These last few months have been marked by deals in the microfinance industry never witnessed before. With $12.5m into Spandana (of which $10m came from JM Financial), $11.5m in SKS Microfinance (majority from Silicon Valley-based Sequoia Capital) and a whopping $27m in Share (of which $25 m came from Dubai based Legatum Capital), suddenly all MFI CEOs seem to be talking about raising capital and doing it quick lest they miss the bus.


Unitus India, which works with MFIs in what it calls a “partnership mode” (helping with grants, capacity building, etc) before investing in equity, has made three investments to date out of the 10 companies it has partnered. Unitus has put in two rounds of equity in SKS Finance (with which its association is over four years) and Bangalore-based Ujjivan Finance.


The disappointment over the last eighteen months, according to both Prasad and Farias, is that despite dealing with a cross-section of companies in the MF space they have not come across much of product innovation. “Attempts at product innovation have at best been half-hearted,” laments Prasad.

The other disappointment has to do with the policymakers. Despite a lot of discussion on the subject and mention of the sector in budget documents, on the ground not much had changed for MFIs or their clients.
This piece of 2007 history of India's evolution of MFI is also telling


The Hindu has a review of this book - Indian edition brought out by Penguin Books here. It is pertinent to quote the last paragraph from the review here:
The book, first published in 1998, has just been published here in India. This is nine years too late. Perhaps, if it had come sooner we would not be seeing the Micro-Finance Sector (Development and Regulation) Bill 2007 in its current shape. The Bill seems to be a travesty of the original intentions of the micro-finance movement and takes a top down approach to supplying credit to the poor. Yunus has clearly specified a bottom up approach to make the scheme work “as intended”. The Bill, in the name of increasing the supply of credit to the poor, could actually put the deposits of the poor at risk and open the way for unscrupulous “charities” to manipulate the thrift market for their own ends. What this will do to the existing thousands of crores of deposits that self-help groups have in the commercial banking sector is anyone’s guess. One hopes a better assessment of consequences is made and more caution exercised before gifting the sector to so called micro-finance institutions. Please read the book Mr.Chidambaram.
and this is all part of India's 2007 sudden reviews of how does true microcredit work

Business shouldn't be Govt. Business - Yunus

Nepali Times has an interview with Mohammad Yunus here. Here is Yunus on privatised, free market economy...
What relationship do you advise a government to have with the private sector?

First, the only thing any government can do is have the humility to accept that it cannot change people’s lives, and that it can only help people who are changing their own lives. But most governments simply mess up people’s lives, something they are good at. My experience is that business should not be the business of government. Business should be in the hands of the private sector, which produces jobs and services. I define private sector broadly to include both businesses that make profits and do good for society at large such as by building schools, hospitals and the like.
Also interesting is Yunus' views on government run micro-credit program.
In Nepal, government promoted microcredit programs through five regional grameen banks, all of which failed. Is microcredit an area in which a government can play an active role?

I explained to your finance ministers that running microcredit programs through the government would never work. Things get politicised. Loans are given to friends and supporters, who do not pay back. Political supporters are hired as bank officers, and they do no work. I have seen this happen in every country where the government runs micro credit programs. So, the first principle is: no matter what sort of micro credit program you run, do it away from the government. Choosing partners such as NGOs or socially-oriented private businesses comes next. I define a socially-oriented private business as a business that can get its investments back from a socially useful venture but earns no dividend.
1 SEWA, unlike other micro finance institutions, is a registered bank, regulated by RBI. This is both good and bad - SEWA can tap low cost funds, NBFCs cannot. But the banking norms have to be followed which are stricter.

Vyas feels, total poverty removal is not possible without government intervention and microfinance alone can not make that happen.

SEWA has an exciting range of products but its unclear whether they sustain themsleves or get gov grants -
Microfin claims to be the oldst MFI in India - it has ambitious scaling up objectives and has taken on investment fund partners not a model that we can quickly verify as true to microcredit's social business ownership
Sequioa, the investor behind Google, recently took a stake in SKS, India's largest microfinancier.

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