NMIMS

SKS Microfinance
Write up

Prepared by- GROUP 7 Gaurav Singh D51 Ravish Saran D58 Dheeraj Wadhwani D61 Megha Agarwal E01 Dev Ashish E02 Varchas Bansal E04

About SKS Microfinance

SKS Microfinance Limited (SKS) is a non-banking finance company (NBFC), regulated by the Reserve Bank of India. SKS' mission is to eradicate poverty by providing financial services to the poor. The company operates across 19 Indian states: Andhra Pradesh, Karnataka, Maharashtra, Orissa, Madhya Pradesh, Bihar, Uttar Pradesh, Rajasthan, Uttaranchal, Himachal Pradesh, Haryana, West Bengal, Jharkhand, Chhattisgarh, Gujarat, Kerala, Tamil Nadu, Punjab and Delhi. According to a CRISIL Report on Top 50 Indian Microfinance Institutions (MFIs), SKS Microfinance is the largest MFI in India with more borrowers, more branches and more loans as of 30 September 2008. SKS was founded in 1997 by Vikram Akula, who also served as its executive chair until November 2011. As of December 31, 2010, SKS had 7.7 million clients in 2,403 branches across the country. SKS charges an annual effective interest rate between 26.7% and 31.4% for core loan products. At the end of financial year 2010 on 31 March 2011, the company listed a gross loan portfolio of US$925,844,433 with 6,242,266 female active borrowers. SKS plans "to serve 50 million households across India and other parts of the world and also to create a commercial microfinance model that delivers high value to our customers". The theory is that providing financial services to low-income households helps alleviate poverty. SKS practices a standardised process of managing loans. They reach distant villages by charging interest rates that clients are willing to pay to avoid starvation, poor money management or government loan sharks. A 24 February 2012 Associated Press report linked SKS loan collection policies to multiple suicides. Company officials denied the claim, but the Associated Press said internal documents and interviews with more than a dozen current and former employees, independent researchers and videotaped testimony from the families of the dead, showed that top SKS officials had information implicating company employees

Microfinance
The term "microfinance" describes the range of financial products (such as microloans, microsavings and micro-insurance products) that microfinance institutions (MFIs) offer to their clients. Microfinance began in the 1970s when social entrepreneurs began lending money on a large scale to the working poor. One individual who gained worldwide recognition for his work in microfinance is professor Muhammad Yunus who, with Grameen Bank, won the 2006 Nobel Peace Prize. Yunas and Grameen Bank demonstrated that the poor have the ability to pull themselves out of poverty. Yunus also demonstrated that loans made to the working poor, if properly structured, had very high repayment rates. His work caught the attention of both social engineers and profit-seeking investors. Historically, the goal of microfinance was the alleviation of poverty. For many years, microfinance had this primary social objective and so traditional MFIs consisted only of non-governmental organizations (NGO), specialized microfinance banks and public sector banks. More recently, the marketplace has been evolving. For example, some non-profit MFIs are transforming themselves into profit-seeking institutions to achieve greater strength, sustainability and market reach. They are being joined in the microfinance marketplace by consumer finance companies, like GE Finance and Citi Finance. "Big-box" consumer

retailers, like Wal-Mart, Elektra and Tesco are beginning to emerge as consumer lenders and a few are venturing into microfinance. Although most MFIs still consider poverty alleviation the primary goal, selling more products to more consumers is the primary motivation of many new entrants.

Microfinance Products and Services The following products and services are currently being offered by MFIs:

Microloans: Microloans (also known as microcredit) are loans that have a small value; most loans are less than $100 in size. These loans are generally issued to finance entrepreneurs who run micro-enterprises in developing countries. Examples of micro-enterprises include basketmaking, sewing, street vending and raising poultry. The average global interest rate charged on micro-loans is about 35%. Although this may sound high, it is much lower than other available alternatives (such as informal local money lenders). Moreover, MFIs must charge interest rates that cover the higher costs associated with processing the labor-intensive micro-loan transactions. Microsavings: Microsavings accounts allow individuals to store small amounts of money for future use without minimum balance requirements. Like traditional savings accounts in developed nations, micro-savings accounts are tapped by the saver for life needs such as weddings,funerals and old-age supplementary income.

Micro-Insurance: Individuals living in developing nations have more risks and uncertainties in their lives. For example, there is more direct exposure to natural disasters, such as mudslides, and more health-related risks, such as communicable diseases. Micro-insurance, like its nonmicro counterpart, pools risks and helps provide risk management. But unlike its traditional counterpart, micro-insurance allows for insurance policies that have very small premiums and policy amounts. Examples of micro-insurance policies include crop insurance and policies that cover outstanding balances of micro-loans in the event a borrower dies. Due to the high administrative expense ratios, micro-insurance is most efficient for MFIs when premiums are collected together with microloan repayments

SKS Microfinance
Operations
SKS Microfinance follows the Joint Liability Group (JLG) model. The methodology involves lending to individual women, using five member groups as the ultimate guarantor for each member. Through group lending, situations of adverse selection and moral hazard due to asymmetric information are better managed. "Social collateral" replaces asset collateral (which is lacking in the poorer segments of society). Such a system works because India is still a highly community-centric society. The concept of honour and respect within society is deeply-rooted in Indian culture and willful default invites condescending glances, humiliation and even ostracism.

Products
SKS Microfinance offers 8 financial products and services to its clients - Income Generation Loans, MidTerm Loans, Mobile Loans, Sangam Store Loans, Housing Loans, Funeral Assistance, Gold Loan, and Life Insurance. The company lists some of the social benefits of its financial product and service offerings as "providing self-employed women financial assistance to support their business enterprises, such as raising livestock, running local retail shops called kirana stores, providing tailoring and other assorted trade and services." Microfinance is not suitable for those who need not just access to finance but livelihood training, social and health inputs. SKS has a unique "Ultra Poor" programme for this group. Under the programme, the beneficiaries receive training to run an income-generating enterprise, financial education and an asset. Over an 18-month period these beneficiaries are trained to become self-sufficient and graduate into regular microfinance. The first phase of the Ultra Poor programme was conducted in Medak district of Andhra Pradesh where nearly 500 women were covered. In all, 426 women have successfully graduated from this programme. In the next phase, the Ultra Poor Programme is being planned in some of the poorest districts of Orissa and Jharkhand.

Finance
SKS has raised money from several companies and individual sponsors. In July 2009, Bajaj Allianz made an investment of $10 million (INR 50 crore), the first-ever investment by an insurance company in an Indian microfinance institution. In March 2006, SKS closed its first round of equity investment; the largest microfinance investment in India to date - $3.2 million from some of the worlds leading microfinance investors, and then eclipsed this accomplishment with a second round equity investment of $11.5 million in March 2007. In November 2008 SKS raised equity worth $75 million (Rs 366 crore), the largest equity raised by an MFI to that date. The third round of equity worth Rs 147 crore was raised in January 2008. SKS leverages its equity with public sector, private sector and multinational bank debt.

Leadership
SKS founder Vikram Akula resigned from the board on 23 November 2011. PH Ravikumar, an independent director and former chief executive officer of NCDEX is taking over as the interim nonexecutive chairman of the only listed microfinance institution.

Public Offering
On 28 July 2010, SKS Microfinance debuted on the Bombay Stock Exchange. SKS's chairperson and founder, Vikram Akula, claimed that the Initial Public Offering (IPO) was to finance growth, enabling the firm to reach a larger number of poor people. The father of microfinance Muhammad Yunus, expressed doubt that Akula would be able to blend SKS's social mission with the demands of a traditional profit-maximizing business. The main obligation of any public company is to make profits for shareholders, while the main obligation of an MFI is to serve the poor. Yunus predicted that SKS would ultimately put its shareholders' interests above those of the poor. "By offering an IPO, you are sending a message to the people buying the IPO there is an exciting chance of making money out of poor people. This is an idea that is repulsive to me. Microfinance is in the direction of helping the poor retain their money rather than redirecting it in the direction of rich people," Yunus said.[14] He added further, "If they do it, I cannot stop them but I would encourage genuine Microcredit programs." In a face-to-face debate at the 2010 Clinton Global Initiative, Akula insisted that going public is the only way for an MFI to raise sufficient funds to provide micro-loans for 3 billion people in need worldwide. Yunus contradicted Akula by saying that micfofinance is, first of all, banking. Therefore, Yunus continued, MFIs needed to obtain banking licenses, which would enable them to take deposits from the public and, thus, become self-sustaining. However, the differing legal frameworks in Bangladesh and India could justify SKS Microfinance's IPO initiative. Yunus's Grameen Bank in Bangladesh is funded primarily by deposits raised from its own borrowers and non-members, whereas Indian MFIs are prohibited by law from collecting deposits. For them, funding must come from outside. Given India's much larger scale, the only sufficient external sources to provide that are commercial capital markets. P. N. Vasudevan, founder and CEO of Equitas the fastest-growing MFI in India in 2009argued that being for-profit in no way contradicts the clientfocused mission, inviting any critic to spend a day with us and then declare that not-for-profit format is the only way of being mission focused and I promise to quit my organization.

Suicide Link Allegation

An independent investigation commissioned by the company linked SKS employees to at least seven suicides, according to a report by the Associated Press. A second investigation commissioned by an industry umbrella group that probed the role of many microfinance companies did not draw conclusions but pointed to SKS involvement in two more cases that ended in suicide, the report said. Neither study has been made public. According to the Associated Press report, "More than 200 poor, debt-ridden residents of Andhra Pradesh killed themselves in late 2010, according to media reports compiled by the government of the south Indian state. The state blamed microfinance companies which give small loans intended to lift up the very poor for fueling a frenzy of overindebtedness and then pressuring borrowers so relentlessly that some took their own lives."

Job Cuts
Once considered the microfinance capital, crisis-hit SKS Microfinance cuts 1200 jobs and closes 78 branches in Andra Pradesh.

Exhibits:1 Balance Sheet

alance Sheet of SKS Microfinance

------------------ in Rs. Cr. -----------------Mar '12 12 m ths Mar '11 12 m ths Mar '10 12 m ths Mar '09 12 m ths Mar '08 12 m ths

Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Res erves Revaluation Res erves Networth Secured Loans Uns ecured Loans Total Debt Total Liabilities 72.36 72.36 4.51 0 357.81 0 434.68 415.46 0 415.46 850.14 Mar '12 12 m ths Application Of Funds Gros s Block Les s : Accum . Depreciation Net Block Capital Work in Progres s Investments Inventories Sundry Debtors Cas h and Bank Balance Total Current As s ets Loans and Advances Fixed Depos its Total CA, Loans & Advances Deffered Credit Current Liabilities Provis ions Total CL & Provis ions Net Current Assets Mis cellaneous Expens es Total Assets Contingent Liabilities Book Value (Rs ) 76.16 55.55 20.61 0 0.2 0 0.21 169.57 169.78 969.52 520.41 1,659.71 0 762.34 68.05 830.39 829.32 0 850.13 3.12 59.45 62.49 34.19 28.3 2.82 3.76 0 1.92 334.15 336.07 3,704.96 223.76 4,264.79 0 194.02 88.78 282.8 3,981.99 0 4,016.87 5.47 244.93 44.13 21.54 22.59 1.77 0.2 0 2.95 225.5 228.45 3,046.47 748.02 4,022.94 0 368.43 34.08 402.51 3,620.43 7.71 3,652.70 7.21 147.82 30.67 12.69 17.98 0.99 0 0 2.14 157.93 160.07 1,470.77 1,389.09 3,019.93 0 222.38 15.11 237.49 2,782.44 0 2,801.41 1.54 126.77 18.93 4.84 14.09 0.4 0 0 0 275.23 275.23 799.02 0 1,074.25 0 76.94 9.78 86.72 987.53 0 1,002.02 0.44 47.86 72.32 72.32 9.41 0 1,699.09 0 1,780.82 2,167.41 68.64 2,236.05 4,016.87 Mar '11 12 m ths 64.53 64.53 4.18 0 889.33 0 958.04 2,579.57 115.1 2,694.67 3,652.71 Mar '10 12 m ths 57.06 47.9 1.93 9.16 605.86 0 664.85 2,097.13 39.44 2,136.57 2,801.42 Mar '09 12 m ths 44.33 44.33 0 0 167.85 0 212.18 789.85 0 789.85 1,002.03 Mar '08 12 m ths

Exhibit2: Profit and Loss Statement

Profit & Loss account of SKS Microfinance

------------------ in Rs. Cr. -----------------Mar '12 12 m ths Mar '11 12 m ths Mar '10 12 m ths Mar '09 12 m ths Mar '08 12 m ths

Income Sales Turnover Excis e Duty Net Sales Other Incom e Stock Adjus tm ents Total Income Expenditure Raw Materials Power & Fuel Cos t Em ployee Cos t Other Manufacturing Expens es Selling and Adm in Expens es Mis cellaneous Expens es Preoperative Exp Capitalis ed Total Expens es 0 0 251.89 0.72 1,297.59 35.68 0 1,585.88 Mar '12 12 m ths Operating Profit PBDIT Interes t PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary item s PBT (Pos t Extra-ord Item s ) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in is s ue (lakhs ) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs ) 723.57 -188.04 0 59.45 723.24 15.43 0 244.93 645.27 26.96 0 147.82 515.71 15.56 0 126.77 443.32 3.74 0 47.86 -1,147.80 -1,113.58 200.14 -1,313.72 10.02 0 -1,323.74 -1.14 -1,324.88 35.71 -1,360.60 1,585.88 0 0 0 0 0 326.35 1.92 372.47 26.65 0 727.39 Mar '11 12 m ths 436.67 536.46 347.89 188.57 16.15 0 172.42 -1.75 170.67 59.05 111.63 727.39 0 0 0 0 0 213.59 1.21 149.55 25.04 0 389.39 Mar '10 12 m ths 506.66 569.46 288.41 281.05 12.6 0.75 267.7 -0.89 266.81 92.86 173.95 389.39 0 0 0 0 0 135.47 0.69 72.57 13 0 221.73 Mar '09 12 m ths 296.3 332.27 194.43 137.84 10.85 2.94 124.05 -0.27 123.78 43.56 80.22 221.73 0 0 0 0 0 47.5 0 4.21 27.78 0 79.49 Mar '08 12 m ths 82.98 90.52 56.47 34.05 5.11 0 28.94 -0.33 28.61 12.01 16.58 79.49 0 0 0 438.08 0 438.08 34.22 0 472.3 1,164.06 0 1,164.06 99.79 0 1,263.85 896.05 0 896.05 62.8 0 958.85 518.03 0 518.03 35.97 0 554 162.47 0 162.47 7.54 0 170.01

Exhibit 3: Cash Flow

Cash Flow of SKS Microfinance

------------------ in Rs. Cr. -----------------Mar '12 12 mths Mar '11 12 mths 172.43 -634.5 0.74 245.43 -388.33 777.48 389.15

Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents

-1323.75 1340.72 -67.91 -1209.83 62.99 389.15 452.14