NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, September 12, 2017

The about 12-year-old journey of Bharat Financial Inclusion Ltd, formerly known as SKS Microfinance, has been tumultuous.

It suffered its biggest blow after the then undivided Andhra Pradesh promulgated a state law to severely restrict microfinance activity because of a spate of suicides by borrowers in late 2010, allegedly driven by coercive loan recovery practices. Subsequently, management differences saw the exit of its founder Vikram Akula and the central bank denied the microlender’s claim to run a small finance bank (SFB).

Bharat Financial overcame the stress and has since improved its profitability. But it now faces a potential takeover by the private sector lender IndusInd Bank, which some experts say is the only way for the survival of the microlender. The changing regulatory space has shrunk the microfinance industry to only three large companies, including Bharat Financial. Bharat Financial started its journey as a non-profit in 1998. Founded as Swayam Krishi Sangam by Vikram Akula, it later morphed into a non-banking financial company (NBFC) in 2005.

The microlender along with its peers saw unprecedented growth because of the reluctance of banks to serve the financial needs of poor customers who were not part of the formal banking system.

Five years later, it became the only microfinance lender to be listed on stock exchanges. In August 2010, Akula steered the initial public offering, which was subscribed almost 14 times. The success of SKS led to talks that other companies in the sector may also tap capital markets.

Photo courtesy of Peter Haden.