SKS at the Crossroads
Monday, September 28, 2009
By Shloka Nath
On a rainy afternoon at a five-star hotel in suburban Mumbai, Vikram Akula is making a fervent pitch to a group of potential investors in the enterprise he founded, SKS Microfinance (SKS). Akula and SKS chief executive Suresh Gurumani take turns at the mike to impress on the rainmakers the advantages of investing in SKS, well on its way to becoming the world’s biggest microlender. While their purpose is the same, the two men present a study in contrast. Akula, resplendent in his red kurta-pyjama, stands out against the dark-suited, ex-Barclays banker. While Akula tugs at the heart with his passion for the rural poor, Gurumani guns for the mind with staccato beats on operating margins, market share and return on equity.
On the stage, however, their rhythm is flawless. They tell the story of how SKS grew from a small not-for-profit with a mere 2,000 borrowers in 2001 to a vibrant company with 4.7 million customers in 19 states, a disbursement record of $1.8 billion and an outstanding loan book of $554 million. By any yardstick, these are impressive statistics. Given that 90% of India’s 3,150 microfinance institutions have fewer than 10,000 customers each, this sort of scaling up is an investor’s dream.
More importantly, SKS was one of the first to show that private capital could be harnessed to nurture sustainable livelihoods in villages. The company raised $153 million in equity capital along the way – a decisive show of harmony between the idealistic vision of Akula and the profit pragmatism of Gurumani.
Back at SKS, however, the two are not playing quite the same tune. The pressure from commercial capital for profit-linked growth is mounting and Akula must fight to save the social objective for which he founded SKS. The conflicts are now testing the very model of serving the poor through tiny loans and freeing them from the hold of loan sharks. “In my view, SKS right now is trying to reconcile its split identity and re-architect what the company stands for,” says Anna Somos Krishnan, a former SKS executive and now executive director of Planet Finance India, an international NGO for the development of microfinance.
SKS, like the sector it represents, is at a crossroads today. The company is working to become the world’s largest microfinance institution (MFI) next year by overtaking Muhammad Yunus’ Grameen Bank with 8 million customers. SKS is also on the verge of becoming the first-ever MFI in India to go public: It could sell its shares in an initial public offer in the first quarter of 2010 and thus offer existing shareholders an opportunity to book profits. Internal conflicts couldn’t have come at a worse time. Not only is the management divided on how to grow, but is also facing charges of overstretching and ’mission drift’ – of losing sight of its customers in favor of profitability and investor targets.