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

Wednesday, February 18, 2015

On January 29, the board of SKS Microfinance, the country’s only listed microfinance entity, approved the company’s proposal to apply for a licence to set up a small finance bank, a new category of lenders that the Reserve Bank of India has created to drive financial inclusion. A few kilometres away from the SKS office in Hyderabad, Vikram Akula, who founded the company in 1997 and had to unceremoniously exit in 2011, is giving final touches to the application for a small finance bank for his start-up VAYA Finserv.

Though the top brass of SKS and VAYA do not wish to talk about each other, they are poles apart in size. While SKS has over 50 lakh clients, VAYA has just 9,883. Bandhan, the industry leader, has 61 lakh borrowers.

Industry watchers say Akula had made unsuccessful attempts to get back on the SKS board, but Akula denies that. “I was asked by a set of shareholders if I would consider coming back and joining the board. To that I said, ’yes, I would be delighted’. Finally, the overall shareholders decided against. It was not me asking to be put back on the SKS board,” he says. He is now talking about lending to the poor like he used to when he was with SKS. Reason: He is now free from the three-year non-compete pact he had entered with SKS on November 23, 2011. But can he do it all over again?

“The key learning from my experience has been the importance of preserving the ethos and culture of a social enterprise as it scales. It is critical to be thoughtful about everything from the type of investors you bring in to the rewards and recognition you give to your last mile field staff. I am incorporating these lessons in VAYA,” he stated.

But others in the industry were more forthright. Many who have known him or watched him over the years, without wanting to be identified, say he misjudged the extent to which Indian opinion leaders would accept the for-profit model to serve the poor. According to them, the opinion leaders were upset when Akula said that he will attract billions of dollars for microfinance by ensuring “extreme profits” for the investors. Some feel with success he got a bit arrogant, thought he and his creation, SKS, were invincible and did not take the local government seriously. A case in point was the client protection issues that SKS (being a leader then) did not address adequately. Those who have worked with Akula earlier see in him a penchant for micro-managing especially when dealing with the senior leadership.

According to his peers, if Akula succeeds in building a good team that can showcase the impact of his work with the poor, it could build faith in him among the regulators and stakeholders. They also say that Akula could do well if he focuses on risks, especially because VAYA at this stage is more dependent on bank funding than SKS was. VAYA is a business correspondent (an entity allowed to act as intermediary to collect deposits and offer loans on behalf of a bank in remote areas) and every loan needs to be approved by the banks, who according to Akula’s peers in microfinance institutions (MFIs), “can be quite whimsical”.