SKS Microfinance: On the Road to Redemption|Finance|Case Study|Case Studies

SKS Microfinance: On the Road to Redemption

            
 
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Case Details:

Case Code : FINC085
Case Length : 20 pages
Period : 2010-2013
Pub. Date : 2013
Teaching Note : Not Available
Organization : SKS Microfinance
Industry : Microfinance
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Background Note

SKS was started in 1996 by a young entrepreneur, Vikram Akula (Vikram). When pursuing his PhD in Political Science at the University of Chicago, Vikram had the vision of starting a microfinance institution to uplift the poorer sections of the society in India. His dissertation was in the area of poverty alleviation strategies which focused on ‘How to scale microfinance faster’. While studying in the US, Vikram realized that microfinance institutions could sustain themselves in the long run only by following a for-profit model.

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After returning to India from the US, he faced lot of difficulty in starting a new microfinance organization as he couldn’t raise the required funds. Finally, he started SKS by raising an initial amount of Rs. 2.36 million from 357 people (mostly from his family and friends). Vikram was inspired by Bangladesh banker Muhammad Yunus and SKS was established based on Yunus’s Grameen Bank model. SKS was initially registered as SKS Society, a Non-governmental Organization (NGO), in 1997 and it started its operations in Tumnoor Village in Medak District, Andhra Pradesh, in 1998. SKS expanded its operations rapidly and in course of time, it won several awards for its achievements (Refer to Exhibit II for major awards and achievements of SKS). Most of the money it received in the form of awards was also reinvested to fund the expansion of its operations.

SKS used a lot of advanced technological enhancements like the use of smart cards to monitor the loans of borrowers. It made huge investments in acquiring modern technology in the microfinance sector and thereby reducing transaction costs. The use of the latest technology helped in the automation of a number of business processes and lowering of operating costs for the company. SKS developed its own fully automated and user friendly Management Information System (MIS) called SKS MAPS (Monitoring, Accounts, Portfolio, and Smart Cards) to monitor its business processes. Recognizing the efforts of SKS, Friends of Women’s World Banking, India , gave its first loan of Rs. 500,000 to SKS in 2002. Later in 2004, SKS got its first partnership loan from ICICI for Rs. 200 million. These funds were used to further expand its operations.

By the year 2003, Vikram had arrived at the idea of converting SKS into a for-profit organization to fuel its growth. Toward that end, he founded a private company called SKS Microfinance Pvt. Ltd. and five for-profit Mutual Benefit Trusts (MBTs). The objective was to enhance the social and economic welfare of the company and MBTs’ members. Vikram raised US$ 500,000 in 2003 through donations via MBTs and invested the amount in SKS Microfinance Ltd. to become its sole owner...

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