SKS Microfinance Scandal, Controversy And Financial Performance

SKS Microfinance Limited is a NBFC or non-banking finance company under the control Of Reserve Bank of India, working with a mission to eradicate poverty among the poor providing financial assistance to the small business endeavors. It was founded in 2007 and until November 2011, currently they have 2403 branches with a client base over 7.7 million in 19 states in India.

At the end of last financial year 2011 they had 6,242,266 active female borrowers with a loan portfolio totaling USD $ 925, 844, 433.

As per CRISIL Report on 30 September 2008, SKS Microfinance Limited is the largest among 50 Indian Microfinance Institutions in terms of branches, borrowers and total loans. It is the only listed MFI in Asia.

The reason for the super- growth of SKS Microfinance is easy to understand. Many people in the poverty stricken India, mostly in the remote rural areas are devoid of all legal banking facilities. Even if some facilities are found the process of granting loan is so cumbersome, it easy for the illiterate poor villagers to approach small private lenders.

This was the vacuum where SKS Microfinance stepped in.

Is it really possible to keep poor borrowers happy when the shareholders are smiling as the profits of the company growing fast and faster? In the June, last year, the Andhra Pradesh and Kerala Government asked few MFI to comply with local lending rules. Few MFI, along with SKS Microfinance went to court in protest of these government directives. Later, the Andhra Pradesh Government passed ordinance for reducing interest rate. SKS moved to Supreme Court challenging it.

The governments of two southern states were worried over two main issues—the higher rate of interest charged to the poorest of the poor and the borrowers were coerced by goons hired by the MFIs for repayments.

The main argument against SKS Microfinance is its aggressive growth. More than 200 debt- ridden villagers have killed themselves in Andhra Pradesh in 2010. Many blamed the MFIs – which give small loans to them at higher interest rate, instead of lifting them up, put them further to more poverty with indebtedness then persistent pressure and coercion for repayment so relentlessly that many took their own lives.

Financial Performance Of SKS Microfinance

Many wonder, is it possible to earn money while helping people to get out of poverty?  Yes! SKS Microfinance Limited has done it – from mere $12 million in 2003 it has grown over $ 9.26 billion in 2011. The Micro Finance Institutes borrow from banks at around 12% and lend to the poor at anything between 25% and 31%. The rates of profitability for some of the financial institutions are mentioned here:

HDFC Bank 1.7%, S B.I 1.1% & SKS Microfinance Limited 6.8%

The Earnings per share for SKS Microfinance Limited shot up by the end of two financial years 2009 and 2010 shot up by 346% and 59% respectively. The company, as per the audited report dated 31 March 2011, had a net profit of Rs. 1116.308 million as compared to Rs 1739.539 million on the same date year before.

The total income for the company has increased from the previous figure of Rs 9585.141 million to Rs 12695.396 million on 31 March 2011. Although the total income for the March quarter ended 2011has come down to Rs 1938.456 million from Rs 3044.938 million of the same period previous year.

SKS Microfinance Problems

SKS Microfinance is facing recovery problems in Gujarat and West Bengal after the crisis of Andhra Pradesh in last October, 2011. The crisis arose there because of high rate of interest and alleged coercive recollection procedure. The MD and CEO Mr. RR Rao, of the company is hopeful that the profitability on return on asset will be achieved at 3% by expanding business in other states in India excluding Andhra Pradesh and by the expansion of non- micro-finance business like gold loan.

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