SKS Microfinance: Managing Growth and Continuity of a Social Enterprise
| Case Code: LDEN073 Case Length: 25 Pages Period: 2009-2010 Pub Date: 2011 Teaching Note: Available |
Price: Rs.500 Organization : SKS Microfinance Industry :Microfinance Countries : India Themes: Social Entrepreneurship, Entrepreneurship, Venture Financing |
Abstract Case Intro 1 Case Intro 2 Excerpts
Introduction
In April 2010, SKS Microfinance Ltd. (SKS), the leading Microfinance Institution (MFI) in India, announced that it planned to raise about US$350 million by selling 6.8 million equity shares through an Initial Public Offering (IPO). The decision sparked a hot debate on the subject of profit vs. altruism in the case of MFIs. This was because MFIs are considered as "social enterprises" which provide financial support in the form of small loans to the millions of poor people in the developing countries. One of the vehement critics of SKS's decision was Muhammad Yunus (Yunus), the Nobel Laureate who founded the Grameen Bank. Yunus strongly opposed SKS's decision saying it was a "mission drift" from doing social good.
But Vikram Akula (Akula), the 41-year-old Indian-American founder of SKS, maintained that he firmly believed that a for-profit model in microfinance was essential in India to reach out to the 150 million poor as quickly as possible.
Akula, inspired by Yunus's Grameen Bank, realized that there were three major constraints in India in providing microfinance to the poor. He depicted them in terms of three "C"s - Capital constraints, Capacity constraints, and the high Cost of delivering micro loans. In order to overcome capital constraints, he designed SKS as a for-profit model of business and was thus successful in attracting big Silicon Valley2venture capitalists to fund the institution. In order to overcome the capacity constraints, he took cues from the best practices of global giants such as McDonald's and Starbucks and implemented them in an innovative way to standardize the microfinance operations of SKS and attain rapid scalability.
Akula also promoted the use of modern technology to minimize the cost of operation for the firm.As of 2010, SKS was the largest MFI in India and it was growing at the rate of 200% per annum. It was adding over 50 new branches and 130,000 new customers every month and had a loan default rate of less than 1%...
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