PREFACE

An effort has been made to understand in detail about SKS MICROFINANCE. Its products, services, functions, financial statements have given a clear view of how a microfinance company operates. Micro financing and poverty reduction goes hand in hand. SKS MICROFINANCE is one of the most important reasons why Micro financing has gained momentum in India where poverty has been the biggest threat since decades. The following project also reveals how the services of SKS MICROFINANCE helped changing the life of many, especially women, in the country.

TABLE OF CONTENTS Serial No. 1. 2. 3. 4. 5. 6. 7. Contents Non Banking Financial Companies Micro Finance Institutions SKS Microfinance Limited Financial Statements of SKS Microfinance Limited Introduction to Case Studies Recent News Articles Conclusion Page No. 2 3 5 20 23 27 32

NON BANKING FINACIAL COMPANIES

Meaning NBFC means Non-banking financial company. A non-banking financial company (NBFC) is a company registered under the Companies Act, 1956 of India and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature, leasing, hirepurchase, insurance business, chit business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. NBFCs are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these institutions are still exercised under bank regulation. Difference Between Bank and NBFCs NBFCs are doing functions akin to that of banks; however there are a few differences: a. An NBFC cannot accept demand deposits; b. An NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue cheque drawn on itself; and c. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors unlike in case of banks. Services Provided By NBFCs NBFCs offer most sorts of banking services, such as loans and credit facilities, private education funding, retirement planning, trading in money markets, underwriting stocks and shares, TFCs (Term Finance Certificate) and other obligations. These institutions also provide wealth management such as managing portfolios of stocks and shares, discounting services e.g. discounting of instruments and advice on merger and acquisition activities. The number of nonbanking financial companies has expanded greatly in the last several years as venture capital companies, retail and industrial companies have entered the lending business. Non-bank institutions also frequently support investments in property and prepare feasibility, market or industry studies for companies.

MICRO-FINANCE INSTITUTIONS
Meaning MFIs are Microfinance institutions offer financial services to underprivileged and impoverished communities. To most, microfinance means providing poor families with very small loans (microcredit) to help them engage in productive activities to grow their tiny businesses. Over a period of time, microfinance has come to include a broader range of services (credit, savings, insurance and others) as it has been realised that the poor, who lack access to traditional formal financial institutions require a variety of financial products. Microfinance started with the recognition that poor people had the capability to lift themselves out of poverty if they had access to affordable loans. High repayment rates in the industry have changed the perception that the poor are not credit worthy. With the right opportunities, the poor have proved themselves to be productive and capable of borrowing, saving and repaying, even without collateral. Microcredit or Microfinance is the process of granting small loans to poor people, primarily to women, who have no collateral and are marginalised. These women tend to use their income to benefit their households and children. The process is accomplished through a microfinance institution that:

recruits and trains responsible, appropriate borrowers, each of whom establishes her small business helps them form groups that are accountable for each other's loans distributes funds for loans meets with groups of borrowers to collect loan repayments and to guide their endeavours

Examples of enterprises established include, buying a buffalo to sell its milk; starting a kirana store; manufacturing sweets; selling soft drinks; grinding spices; sewing; candle making; collecting fallen hair for wigs and extensions; repairing watches; tea or petty shops; vegetable stands; bicycle repair; carpentry and welding shop or an auto rickshaw. In groups of five to ten, the women support each other emotionally and financially by guaranteeing the repayment of each of their loans. With as little as INR 4,000 (USD 85), a borrower can start a kirana store. With INR 10,000 (USD 212), a borrower can purchase a milking cow / buffalo, sewing machine, or set up an embroidery unit. Many of the women become leaders in their communities and undertake projects that benefit all the residents. The repayment of loans plus interest generates funds that can be reinvested as a second and third loan or used to start other women on their journey toward sustainable prosperity. The

entire community benefits from improvement projects taken on by these newly confident and capable leaders. Microfinance institutions broadly operate under a wide range of legal structures. They could be registered as NGO, Trusts, Sec 25 Companies, Cooperative Societies, Cooperative Banks, Regional Rural Banks, Local Area Banks, Public and Private Sector banks, Business Correspondents and Non-Banking Finance Companies. Bibi Hanifa is a successful micro entrepreneur from Hubli who has set up an incense-stick unit along with a group of women in her neighbourhood. Earlier they worked as daily wage labor at a nearby factory and earned a meagre income. Today, thanks to the simple system of taking loans and repaying them, these women manage a successful enterprise and dream of a better and more prosperous tomorrow.

NBFC Status An Increasing number of microfinance institutions (MFIs) are seeking non-banking finance company (NBFC) status from RBI to get wide access to funding, including bank finance. Micro-Finance Institutions of India Forbes magazine named seven microfinance institutes in India in the list of the world's top 50 microfinance institutions. Bandhan, as well as two other Indian MFIsMicrocredit Foundation of India (ranked 13th) and Saadhana Micro Fin Society (15th) have been placed above Bangladesh-based Grameen Bank (which along with its founder Mohammed Yunus, was awarded the Nobel Prize). Besides Bandhan, the Microcredit Foundation of India and Saadhana Microfin Society, other Indian entries include Grameen Koota (19th), Sharada's Women's Association for Weaker Section (23rd), SKS Microfinance Private Ltd (44th) and Asmitha Microfin Ltd (29th).

SKS (SWAYAM KRISHI SANGAM) MICROFINANCE

INTRODUCTION 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. It claims that its mission is to empower the poor by providing them collateral-free loans for income generation. SKS Microfinance is registered with the RBI as a non-deposit taking NBFC and is regulated by the RBI.

PRODUCTS AND SERVICES OF SKS MICROFINANCE SKS Microfinance offers 8 financial products and services to its clients - Income Generation Loans, Mid-Term 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. SKS serves millions of poor women across tens of thousands of villages and urban slums in India. It has achieved this scale through an innovative combination of using a for profit model, drawing on best practices from the business world and deploying technology. They are using the channel that we have created to provide a full range of financial services to the poor. By providing the poor this range of economic tools, they are looking forward to the eradication of poverty.

SKS Microfinance Ltd offers a range of products and services, which have been developed based on the financial needs of working of poor women. Offerings are classified into Proprietary and Distributor products.

A. Proprietary products a. Income Generation Loans (IGL) - Aarambh Features: Loans range from Rs.4, 000 to Rs. 10,000 for the first loan; subsequent loan amounts determined by past credit history and increased each in set increments unto a maximum ofRs. 26,000. Term of the loan is 50 weeks with principal and interest payments due on a weekly basis. 12.5% flat interest rate / 24.55% annual effective interest rate. Benefit: Provides 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 trades and services. b. Mid-Term Loan (MTL) - Vriddhi Features: Loan amounts range from Rs.2,000 to Rs. 14,000 in each annual cycle. Available any time after the completion of 20 weeks & before 40 weeks of an IGL cycle. Term of the loan is 50 weeks with principal and interest payments due on a weekly basis. 12.5% flat interest rate 24.55% annual effective interest rate. Benefit: Provides 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 trades and services. c. Emergency Loans and Advances - Raksha Features: Interest free emergency loans range from Rs. 500 to Rs. 2,000. Term of the loan is 20 weeks with a bullet repayment.3.Interest free funeral advances of Rs.1,000 adjusted out of the claim settlement of loan cover insurance. Benefit: Designed to meet the unforeseen emergency requirements of members. Disbursed within 24 hours of request. Funeral advance paid to a members family upon the death of the member or her spouse.

d. Life Insurance Loans Features: Interest free loans of Rs. 500. Term of 25 weeks with principal repaid weekly. Benefit: Issued to members to pay their life insurance premiums during the initial 25 week period. Helps to promote habit of savings and reduction of vulnerability among members. e. Mobile Loans Features: Financing of mobile phones and telephone services. Loan amounts range from Rs.1,500 to Rs. 3,000. 26.14% annual effective interest rate and loan processing fee of 1%. Term of 25 weeks. Benefit: Provides financing for mobile phones and telephone services to our members. f. Sangam Store Loans Features: Working capital loans ranging from Rs.1,000 to Rs. 12,500. Interest free. Term of the loan is14 days. Benefit: Provides working capital loan to fund the needs of members who own and operate the kirana stores. The program allows these members to purchase their inventory of consumer goods and groceries from a national wholesaler at wholesale prices. g. Housing Loan Features: Loans range from Rs. 50,000 to Rs.150,000. Members must have completed at least 3 IGL cycles to qualify or one ILP to be completed. Term of loan is 3 to 5 years with principal and interest payments due on a monthly basis. 11.9% flat interest rate , 21% annual effective interest rate. In addition, loan processing fee of 2% collected upfront.

Benefits: Provides financial access to women for construction of new houses or improvement & extension of existing houses. B. Distributor Loan Life Insurance Feature: Weekly payment of Rs. 20 for the term of five years. Benefits: Upon death, we disburse to the beneficiary the full sum assured of Rs. 5,000plus the account value, which is equal to the aggregate of the premiums paid plus interest accrued, if any, less any charges for the administration of the policy. In the event the death is deemed an accidental death, the beneficiary receives Rs. 10,000 plus the account value. Upon maturity in five years where no death has occurred, we disburse to the policyholder the account value.

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NEW INITIATIVES SKS is currently reaching over one lakh (1,00,000) villages in India with a presence in 19 states and 2,379 branches. SKS has begun leveraging this extensive branch network and its financing ability to provide more financial services to the bottom of the pyramid. In this direction, SKS undertook initiatives like mobile handset financing, financing loans against gold collateral and lending to kirana stores (Sangam stores). Mobile Financing Programme India has a high potential in the mobile telephony market, but the high cost of mobile handsets is a key deterrent for rural borrowers of SKS. Considering this, SKS has launched a mobile finance program that offers its borrowers mobile phones at a relatively lower price with the option of paying in small, easy installments. SKS has partnered with Nokia India Pvt. Ltd. to supply quality handsets to its borrowers. A loan product has been designed to facilitate finance for handset purchases. Under this program, SKS has disbursed 3.5 lakh mobile loans to its borrowers in six states of India. This initiative has instilled confidence in its borrowers and improved their business through better access to communication.

Sangam stores A Sangam store is a kirana store run by an SKS borrower. The objective of SKSs Sangam store lending initiative is to enable Sangam store owners to buy from a wholesale vendor fast-moving consumer goods and groceries which they would then resell in their retail kirana stores. This will give them access to quality products at competitive prices. It also saves the borrower time and transport costs. About 8% of the total borrower base of SKS is running kirana stores (i.e 5 lakh kirana stores). With SKS providing finance and the wholesaler facilitating delivery to kirana stores, SKS and their partner wholesaler can both enhance the volume of business done by Sangam stores and meet working capital needs of Sangam store owners.
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A suitable credit product has been designed to meet this specific need. SKS partnered with one of the worlds most reputed wholesalers, Metro Cash and Carry (India) Pvt. Ltd., in Hyderabad. SKS enrolled 3,500 stores and is now planning to expand this program geographically (to Bengaluru and Kolkata) as well as to different customer segments (nonborrowers). SKS is building new relationships to extend the non-borrower program across the country. SKS has also developed a mobile based MIS system to collect and consolidate orders and track the loan portfolio. The enhanced software system will help SKS in scaling the program in multiple locations working with multiple partners. This program can act as the first step in creating distribution channels for a wide range of other non-financial products. SKS believes that it can offer profitable products that benefit its approximately 5 lakh Sangam store owners and which have trickle-down benefits to its broader borrower base. Gold loan Currently, the gold loan market is predominantly operated by usurious pawn-brokers with players in the organized sector having limited reach in the rural markets. To bridge this gap, SKS has initiated the Gold Loan pilot project. The objective is to enable borrowers to get loans at competitive rates to increase their business, to fulfill personal needs and to address other emergencies. SKS plans to target its current borrowers as well as new ones with the product. A pilot project has been launched in three locations in Karnataka and in two centres in Gujarat to test the product and processes.

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BEYOND MICROFINANCE While credit for Micro-enterprise has been the anchor of microfinance, SKS knows that it is not just enough. Therefore, SKS provides quality English medium primary education to children of rural India at very low costs through the Bodhi Academy, it ensures better health for children across rural India through mass scale immunisation and deworming programmes. For the destitute sections of society who do not have even the social collateral to access microfinance, SKS manages the Ultra Poor Programme through its NGO. Helping the ultra poor While microfinance works well for the upper poor and poor sections of society, the ultra poor sections of society need much more than finances. Swayam Krishi Sangam, the NGO arm of SKS Microfinance works alongside the ultra poor to restore hope, dignity and broaden their opportunities. The Ultra Poor Graduation Pilot is the flagship programme of SKS NGO. Facilitated by CGAP - Consultative Group to Assist the Poor (housed at the World Bank), and modelled after the highly-successful BRAC Ultra Poor Programme of Bangladesh. SKS has adapted the programme to Indias socio-economic development environment and policies. SKS endeavours to create a standard, scalable and replicable Ultra Poor Graduation Model that blends research, innovation and technology. The SKS Ultra Poor Programme addresses the challenge of extreme poverty in its three manifestations, economic, social and health, and aims to graduate ultra poor clients to a point where their growth is self-sustainable. An intensive 18-month programme helps enhance the awareness levels about government resources, social issues and health care, and creates stable livelihoods. Upon graduation, many members may choose to join microfinance organisations or government sponsored SHG (Self Help Group) Bank linkage programme to sustain livelihoods and diversify into new opportunities. SKS scientifically targets the extreme poor at the bottom of the socio-economic pyramid through participatory poverty identification tools. The logic is to re-connect the extreme poor to quality living and lost opportunities in livelihoods. The core value of our work is that no eligible ultra poor person is left out of the process. Our 18-month graduation pilot in Medak district of Andhra Pradesh has created a positive impact among 426 ultra poor women have graduated into mainstream economic activities. In the next phase, the Ultra Poor Programme is being planned in some of the poorest districts of Orissa and Jharkhand.

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Deworming the world Deworm The World has tied up with SKS NGO and SKS Microfinance to provide deworming tablets to 1 million children of 5 to 15 years age in Andhra Pradesh state in Southern India. While DTW helps fund the programme, SKS Microfinance uses its village-level network to distribute the tablets with support and assistance from Government PHCs. The SKS NGO is supporting the programme. In Phase 1, three districts in Andhra Pradesh - Kurnool, Adilabad and Warangal - will be covered under the programme. Feed the Children, a US-based voluntary organisation, has donated the tablets to SKS in Phase 1.

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Service Quality Sangam Leader Meetings Sangam Leader Meetings provide an interactive platform for SKS members. Thousands of our centre (sangam) leaders help in gathering member feedback on SKS services and help us better understand their needs. In FY09, through the 150 Sangam leaders meeting conducted, we managed to reach out to approximately 60,000 Sangam leaders representing 2.8 million members in the states of Andhra Pradesh, Karnataka, Maharashtra, Orissa, West Bengal, Madhya Pradesh, Chhattisgarh, Gujarat, Rajasthan and parts of Uttar Pradesh. Special desks and suggestion boxes are set up at the SLMs where member feedback and issues are registered and addressed. Surveys on existing products happen at every SLM. These sessions also help members understand and know SKS better. The SLMs are a great way to connect with our members and build brand loyalty. Many of our new initiatives like retail insurance, education and housing projects are an outcome of feedback and inputs received at SLMs. SKS expects to conduct SLMs every year across all operating states. Toll Free Number We are piloting a dedicated toll-free phone number for our members. This service will help members register their complaints and issues, as well as obtain information on existing products and services. The toll-free number service is monitored by a dedicated team which ensures that issues and complaints registered are resolved in a timely manner. Software and other tools have been developed to ensure smooth operations. The service will be rolled out in phases in the coming months. Group Leader feedback We obtain feedback from group leaders through pre-paid postal letters. The letters are preprinted in vernacular languages with well-defined fields where group leaders provide feedback. In the first phase of this initiative, more than 65,000 letters have been dispatched to group leaders of selected branches in Andhra Pradesh, Karnataka, Bihar, Uttar Pradesh and West Bengal. Nearly, 4,000 of these letters have been received and data is being collated.

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WORKING METHODOLOGY OF SKS SKS has identified the barriers to scaling microfinance what it calls the 3 Cs of Capital, Capacity and Costs and has taken an innovative approach to overcome these barriers. These three principles, using a profit-oriented model, drawing on best practices from the business world for scaling and using technology have helped us create a new generation of microfinance institution and enabled us to reach numbers that otherwise the microfinance sector has not seen before. Capital Many believe that microfinance should be a social business, meaning investors should get their investment back but no profits. SKS has a different view. If the microfinance industry is going to provide the estimated INR 2,399.35 billion (USD 51.4 billion) of credit needed by the poor, it must tap commercial capital markets and that means structuring microfinance so that investors can expect a return on their investment. That is why SKS converted from a non-profit NGO to a profit Non-Banking Financial Company (NBFC) regulated by the Reserve Bank of India in 2005. Capacity With rapid scaling comes the challenge of building organisational capacity. Rather than look at conventional microfinance models, SKS based its business strategy on principles borrowed from fast-scaling consumer businesses. SKS standardised its products and front-line processes and adopted factory-style training models that have helped corporate giants scale up rapidly thereby boosting our own workforce capabilities and growth. Costs SKS Microfinance firmly believes that technology is one of the key enablers for scaling microfinance. For SKS, technology is an investment that is adding value to what and how we offer financial solutions to our members. SKS Microfinance is among the first to develop and deploy an industry standard MF technology platform in-house, delivering superior value to our end customers. The systems designed and deployed at SKS have enabled the business to grow rapidly since its simple to use, saves time, is accurate and allows for data highlights to be transferred to the Head office when needed. SKS is now investing in putting up a robust IT backbone with a world class data backup centre delivering mission critical services and connectivity across our branch offices to manage the next phase of growth. The new agile and scalable technology architecture is capable of handling the challenges specific to the microfinance sector. A web-based Business Intelligence portal using state-of-art technology and a highly flexible and scalable platform has also been deployed to support the business growth and operations.

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SKS Microfinance follows the Joint Liability group Model. The methodology involves lending to individual women, utilising five member groups where groups serve as the ultimate guarantor for each member. Our approach is to provide financial services at the doorstep of members in villages and urban colonies. This allows the poor convenience and savings in terms of cost and time associated with travelling to mainstream banks and enables SKS staff to promptly and fully collect repayments. Our loans are designed for convenience with small weekly repayments corresponding to cash flows. Small first loans inculcate credit discipline and collective responsibility. Interest and loan repayments are simplified for easy comprehension. The step by step procedure of SKS Microfinance: 1. Village selection: Before starting operations, our staffs conduct village surveys to evaluate local conditions like population, poverty level, road accessibility, political stability and means of livelihood. 2. Projection meeting: After a village is selected, SKS staff introduces the community to its mission, methodology and services. 3. Mini projection meeting: Follow-up with interested women, and direct appeal to those who may not have attended earlier because of religious, class, caste or gender barriers. 4. Group formation: Women form self-selected five-member groups to serve as guarantors for each other. Experience has shown that a five-member group is small enough to effectively enforce group peer pressure and, if necessary, large enough to cover repayments in case a member needs assistance. 5. Compulsory group training: CGT is a four-day process consisting of hour-long sessions designed to educate clients on SKS processes and procedures and to also build a culture of credit discipline. Using innovative visual and participatory teaching methods, SKS staff introduces clients to our financial products and delivery methods. CGT also teaches clients the importance of Collective responsibility, how to elect group leaders, how to affix signatures, and a pledge that serves as a verbal contract between SKS and its members. During this training period, SKS staff collects quantitative data on each client to ensure qualification requirements are met, as well as to record base-line information for future analysis. On the fourth day, clients take a Group
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6. Centre meeting: As additional groups are formed within a single village, a Centre(Sangam) emerges. During Centre Formation, groups are combined to form a centre of 3to 10 groups or 15 to 50 members. Weekly Centre meetings serve as a time to conduct financial transactions. Meetings are held early in the morning, so as to not interfere with clients daily activities. A leader and deputy leader are selected to facilitate meetings and ensure compliance with SKS procedures. In addition to financial transactions, members use the weekly meetings to discuss new loan applications and community issues. Centre meetings are conducted with rigid discipline in order to sustain the environment of credit discipline created during CGT.

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IMPACT The poor have no access to financial services that they need. This financial exclusion leads to the creation of a society where the poor lack opportunity. They pay a premium of products and services due to this. SKS aims to bridge this gap and bring the complete range of financial services to the doorsteps of its members. It also aims at adding value by using its network to distribute quality products and services that its members need. We believe that the most important way to improve the lives of the poor is through economic development. It is the foundation on which other human development - such as education and health - can be built. At SKS we are proud of improving the lives of more than 6 Million members through microfinance, which in turn fosters economic development. Each member is able to use microfinance to make a better life for herself and her family. Microfinance enables people to earn income and build assets, which mean families eat better, they can afford health care, and children are more likely to attend school. Within the microfinance sector, SKS has been able to distinguish itself through its performance. We have successfully applied methods from the business world, such as the use of standardisation and automation, to build an organisation that leads the microfinance industry in a number of areas, including rapid growth, high quality service to our members, streamlined delivery, transparency and innovative products.

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FINANCIAL STATEMENTS OF SKS MICROFINANCE

BALANCESHEET OF SKS MICROFINANCE LIMITED Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital WIP Investments Inventories Sundry Debtors Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Total Assets March 2012 72.36 72.36 4.51 0.00 357.81 0.00 434.68 415.46 0.00 415.46 850.14 March 2012 76.16 55.55 20.61 0.00 0.20 0.00 0.21 169.57 169.78 969.52 520.41 1,659.71 0.00 762.34 68.05 830.39 829.32 850.13
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March 2011 72.32 72.32 9.41 0.00 1,699.09 0.00 1,780.82 2,167.41 68.64 2,236.05 4,016.87 March 2011 62.49 34.19 28.30 2.82 3.76 0.00 1.92 334.15 336.07 3,704.96 223.76 4,264.79 0.00 194.02 88.78 282.80 3,981.99 4,016.87

March 2010 64.53 64.53 4.18 0.00 889.33 0.00 958.04 2,579.57 115.10 2,694.67 3,652.71 March 2010 44.13 21.54 22.59 1.77 0.20 0.00 2.95 225.50 228.45 3,046.47 748.02 4,022.94 0.00 368.43 34.08 402.51 3,620.43 3,652.70

In crores March 2009 57.06 47.90 1.93 9.16 605.86 0.00 664.85 2,097.13 39.44 2,136.57 2,801.42 March 2009 30.67 12.69 17.98 0.99 0.00 0.00 2.14 157.93 160.07 1,470.77 1,389.09 3,019.93 0.00 222.38 15.11 237.49 2,782.44 2,801.41

INCOME STATEMENT March 2012 2011 438.08 1,164.06 0.00 0.00 438.08 1,164.06 34.22 99.79 0.00 0.00 472.30 1,263.85 0.00 0.00 251.89 0.72 1,297.59 35.68 0.00 1,585.88 1,147.80 1,113.58 200.14 1,313.72 10.02 0.00 1,323.74 -1.14 1,324.88 35.71 1,360.60 1,585.88
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Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit

2010 896.05 0.00 896.05 62.80 0.00 958.85 0.00 0.00 213.59 1.21 149.55 25.04 0.00 389.39 506.66 569.46 288.41 281.05 12.60 0.75 267.70 -0.89 266.81 92.86 173.95 389.39

2009 518.03 0.00 518.03 35.97 0.00 554.00 0.00 0.00 135.47 0.69 72.57 13.00 0.00 221.73 296.30 332.27 194.43 137.84 10.85 2.94 124.05 -0.27 123.78 43.56 80.22 221.73

2008 162.47 0.00 162.47 7.54 0.00 170.01 0.00 0.00 47.50 0.00 4.21 27.78 0.00 79.49 82.98 90.52 56.47 34.05 5.11 0.00 28.94 -0.33 28.61 12.01 16.58 79.49

0.00 0.00 326.35 1.92 372.47 26.65 0.00 727.39 436.67 536.46 347.89 188.57 16.15 0.00 172.42 -1.75 170.67 59.05 111.63 727.39

Total Value Addition Preference Dividend Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) 723.57 188.04 0.00 59.45 723.24 15.43 0.00 244.93

0.00

0.00

0.00

0.00

0.00

645.27 26.96 0.00 147.82

515.71 15.56 0.00 126.77

443.32 3.74 0.00 47.86

CASH FLOW STATEMENTS 2012 -1323.75 1340.72 -67.91 -1209.83 62.99 389.15 452.14 2011 172.43 -634.50 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

RATIO ANALYSIS Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%)
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2012 10.00 --158.63 60.54 36.20 --262.00

2011 10.00 -60.38 160.95 224.24 -37.51

Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio

-245.19 -264.29 -285.79 -285.79 -288.14 -288.14 -132.17 -316.29 -316.05 59.45 59.45 -157.22 1.52 2.00 0.97 0.66 -6.10 0.97 -5.56 -5.75 -410.91 ---0.18

33.27 36.12 10.25 10.25 8.83 8.83 12.95 6.30 6.40 244.93 244.93 13.73 6.56 14.95 1.26 1.14 1.58 1.26 1.54 1.37 -477.49 ---20.77

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CASE STUDY OF SKS MICROFINANCE

Name: Bandaru Lakshmi Children: Two Daughters, One Son Place: Atukula Bazaar, Suryapet, Nalgonda District Business: Sells Readymade Garments Lakshmi starts her day very early. She completes all the household chores and sets out to make a living. She sells readymade garments in the nearby villages and earns INR 500 (USD 10) everyday. This is todays Lakshmi. When Lakshmi with her family came to Atukula Bazaar, in Suryapet, they were penniless. The family had no hope of surviving. Her husband was not doing too well at his business and no one was ready to lend them money. Lakshmi was worried about how they would bring up their two daughters and son. Lakshmi came to know about SKS operations in her village and she took an income generating loan of INR 10,000 (USD 212). With that amount she started to buy and sell readymade garments in the nearby villages. With a heavy load on her head, she went door to door and worked hard to pool up money. Confident about the sales and her hard work, she took a second income generating loan of INR 12,000 (USD 255). Later, she took a loan of INR 14,000 (USD 297) to purchase the readymade cloth for more sales. Her daily earnings were growing steadily. Today, she clocks a monthly income of INR 30,000 (USD 638) per month. Lakshmi is an inspiration to many today. A role model of sorts to other members at Suryapet, Lakshmi recently felt most rewarded when her eldest daughter secured a job in Infosys. Thanks to the loans SKS extended to me time and again, I was able to give my children a decent education. Today people respect our family and I am grateful, says Lakshmi, her eyes brimming with tears of gratitude and joy

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CASE STUDY OF SKS MICROFINANCE

Name: Ameena Bi Children: Two Daughters, One Son Place: Chowdadena Halli, Narsapur Mandal, Kolar, Karnataka Business: Florist When Ameena Bi and her husband Abdul Latif from Kolar worked as daily wagers they could barely make INR.120 (USD 2) per day as wages. While Ameena was a construction labour, Abdul worked at a shop making mattresses. With three school-going children to fend for, they had a tough time making ends meet. Three years ago, they sensed hope round the corner when Ameena learnt about SKS. She joined an SKS centre near home and availed her first Income Generation Loan of INR 10,000 (USD 212). The couple dreamt of having a small shop selling mattresses, pillows and cushions. Cotton and cloth are sourced from wholesale dealers in Bangalore and an assistant was hired to help with the work. It takes approximately three hours to make a single mattress and we charge INR 600(USD 12) for the same. The Assistant is paid Rs.40 per mattress, explains Abdul. Twenty-five weeks later Ameena took a Mid-Term loan of INR 2, 000 (USD 42) and with her fathers help set up a small enterprise selling flowers. She sources flowers from her own little garden and the wholesale flower bazaar in Kolar. She has also hired two assistants who help her make garlands and she pays them Rs.40 per day (less than a dollar). Soon she created a sales channel using local trucks that would help transport her flowers to nearby local markets. Ameena and Abdul were gaining confidence in themselves with every passing day. Atthe end of 50 weeks, Ameena took her second Income Generation loan of INR 12,000(USD 255) which the couple used judiciously to expand their business. Today, Ameena earns INR 300 (USD 6) per day and during festive and wedding seasons this amount goes up significantly. Abdul too earns INR 300 (USD 6) - INR 400(USD 8.5) on an average per day. They have come a long way in the three years of using microfinance and look forward to when they can access an Individual loan which would help them further build their business. I am happy with the services rendered by the Company. Our lifestyle has improved and we are respected and loved by all. Today we dream of a larger business and a better life for our children, says a grateful Ameena.

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SOCIAL RESPONSIBILITY OF SKS MICROFINANCE While credit for Micro-enterprise has been the anchor of microfinance, SKS knows that it is not just enough. Therefore, SKS provides quality English medium primary education to children of rural India at very low costs through the Bodhi Academy; it ensures better health for children across rural India through mass scale immunisation and deworming programmes. For the destitute sections of society who do not have even the social collateral to access microfinance, SKS manages the Ultra Poor Programme through its NGO The SKS Ultra Poor Programme addresses the challenge of extreme poverty in its three manifestations, economic, social and health, and aims to graduate ultra poor clients to a point where their growth is self-sustainable. An intensive 18-month programme helps enhance the awareness levels about government resources, social issues and health care, and creates stable livelihoods. Upon graduation, many members may choose to join microfinance organisations or government sponsored SHG (Self Help Group) Bank linkage programme to sustain livelihoods and diversify into new opportunities.

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RECENT NEWS ARTICLES ABOUT SKS MICROFINANCE LIMITED

SKS MICROFINANCE: FUTURE STILL CLOUDY Investors of SKS Microfinance cheered a report by a committee appointed by Indias central bank released Wednesday that recommended creating a non-banking finance company, or NBFC, for microlenders. But while the report allays fears about the survival of for-profit microlenders in India, its recommendations on capping margins also threaten to erode the industrys profits. Microlenders have been anxiously awaiting the report put together by a panel set up by the Reserve Bank of India late last year to suggest long-term and structural changes in the functioning of microfinance institutions, or MFIs. This came after allegations of microlenders charging high interest rates and, in some cases, being overly aggressive in the collection of loan repayments caused a backlash against the industry. The report recommends that the RBI should be the sole regulator of the newly created category of MFI-NBFCs. This comes as good news for microlenders, analysts say. Making the RBI the sole regulator protects the sector from the whims and fancies of politicians while also proposing that MFIs be given the flexibility to fix the frequency of repayment with their borrowers as deemed appropriate, said Ambit Capital in a research note. The recommendation is crucial, especially for SKS Microfinance, the largest microlender in the country by assets and the only one to be listed on the stock exchanges. On Thursday, SKS Microfinance shares rose to an one-month high of 756 rupees ($16.6) and were up 6.6% at 712.60 rupees in afternoon trade. SKS shares have lost 34.3% over the past three months in the face of regulatory heat from the state of Andhra Pradesh, where the bulk of the banks lending activity is concentrated. In December, the state passed a bill seeking to cap interest rates in the microfinance sector, prevent strong-arm recovery tactics and also to make the collection cycle monthly rather than weekly. As a result, loan collections for SKS and other microlenders have plummeted in recent months, sparking concerns about a jump in bad loans.

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The report also recommends that loans to MFIs by banks should be included in the so-called priority sector category, a move which would benefit microlenders. Banks in India are required to have a fixed percentage of their advances as loans to the priority sector category and are eager to lend to these segments in order to meet the stipulation. But the committee has also recommended capping interest rates charged on individual loans by microlenders at 24% and defined a fixed operating margin, or the difference between what MFIs charge end-borrowers and what the institutions themselves pay for funds. For MFIs with a loan book above 1 billion rupees, the panel has recommended a cap of 10% on average margins, but allowed margins of 12% for those with a smaller book. JP Morgan estimates SKS margins have been in the range of 12%-17% over the past twothree years years. It says MFIs will now have to cut costs significantly if they are to maintain profitability levels. With high profits no longer a given, SKS investors will now have to rely on the companys management skills to cut operating expensesnot an easy task when youre in the business of servicing small-sized loans for customers usually located in far-flung areas.

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MICROFINANCE CHALLENGES Inherent in the market for microfinance is a deep debate about its goals should it be a profit making industry or a market that purely helps serve the poor? According to Dr. Vikram Akula, one of the founders of SKS Microfinance, SKS will reach its maximum amount of clients by remaining profitable; the more profitable SKS is, the more capital we can raise, the more poor people we can serve. However, the Indian Federal Reserve Bank has recently created a special panel to examine concerns over high interest rates, so called coercive recovery processes, and multiple lending practices by various microfinance institutions. The perception from some sources is that big MFIs, like SKS, do not provide low enough interest rates to benefit borrowers. There are also concerns that corporate governance in the microfinance sector promotes overly aggressive lending strategies. Are these accusations accurate? Are any of these concerns being exaggerated? According to Akula, these concerns are part of a witch hunt. He says. . . The reason there is such hostility to the SKS model is that we are upsetting a lot of vested interests. We are breaking the hold of village loan sharks and we are introducing a private sector model for development that many traditional NGOs hate. We are making it difficult for the media because our model cannot be explained in a nice tidy sound bite. It is neither development as usual nor is it business as usual. SKS blends the best aspects of both. There is certainly merit to both sides. On one hand, the microfinance community is in a high growth stage, bordering on potentially aggressive policies to maintain profitability for shareholders. On the other hand, the SKS Microfinance business model testifies to the convergence between financial and social performance objectives. Although the dissent against SKS Microfinance might be exaggerated, SKS is pro-actively searching for ways to expand its financial services to the poor, with the intention of making its services more cost-effective and accessible. Specifically, SKS is planning to provide a diversified range of financial products, ranging from housing to micro insurance to lending against gold and then scaling the new products. These plans will result in a heightened supply of financial services, as well as a heightened demand for career bankers around the world. In addition to internal risk management policies, there is an emergence of microfinance transparency organizations, like MF Transparency which is a US-based nongovernmental organization that was created in July 2008. It is not surprising that private industry is resolving many of these concerns, absent public intervention.

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SKS FINANCE PLANS TO ADD SOME FINANCIAL SERVICES SKS Microfinance Ltd., an Indian lender to the poor backed by Sequoia Capital, plans to branch out into financial services including life insurance targeting the countrys rural regions after its founder quit. Going forward, we will look at elements other than microfinance that are relevant for financial services in the rural areas, said P.H. Ravikumar, who took over as interim chairman after founder Vikram Akula stepped down yesterday. Akula has struggled to revive earnings at the company, modeled on Nobel laureate Muhammad Yunuss Grameen Bank, after the southern Indian state of Andhra Pradesh unveiled tougher collection rules for microlenders. He presided over an 88 percent drop in the companys shares since it began trading in August 13, 2010, and three straight quarters of losses. SKS needs to find a new business model if it is to maximize shareholder value, said Sanjay Sinha, managing director Of Micro-Credit Ratings International Ltd. in Gurgaon. Thats because the revival of microfinance in India could be a long-term rather than a short-term prospect until federal regulations are in place for the sector, he said. Shares of the company fell 2.4 percent to 112.65 rupees at 11:20 a.m. in Mumbai, after surging as much as 5.5 percent. The benchmark Sensex fell 1.1 percent. Akulas exit may also have been dictated by the fact that he was not in favor of the conversion of the microfinance company he founded, said Sinha. Akula, 43, will be a consultant to SKS till March 2012, according to a statement from the company yesterday. Beyond Microfinance The company, based in Hyderabad, plans to raise 9 billion rupees ($172 million) selling shares by March and use the proceeds to fund its microlending business, Ravikumar said. The company posted a second-quarter loss of 3.85 billion rupees. I have witnessed first-hand the amazing impact SKS has had in India, Vinod Khosla, founder of Khosla Ventures and a SKS shareholder said in the statement. But a lot more needs to be done.

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SKS wants to target marginally higher income families in rural areas and generate revenue from other services, including housing finance and becoming business correspondents for banks, said Ravikumar, a director on the board for the past five years. It will take about six months to put plans in place, he said. Akulas exit follows the ouster of Chief Executive Officer Suresh Gurumani in October last year. Its the companys second high-level departure since its listing last year. SKS began operating in 1998 as a nongovernmental organization led by Akula, a doctorate in political science from the University of Chicago. Akula, a former McKinsey & Co. consultant, studied the training of unskilled workers at McDonalds Corp. and Burger King Holdings Inc. in 2005 and used the learnings for loan officers at SKS. Farmer Suicides Microlenders, including SKS, which offer loans to the poor starting from $100, saw their collections plunge after Andhra Pradesh in October 2010 capped the interest microfinance companies can charge and barred them from coercing borrowers to repay debt following suicides by farmers unable to pay debt. Indias government is considering a bill that will have the Reserve Bank of India regulate the industry. The Micro Finance Institutions (Development and Regulation) Bill will make it necessary for all micro lenders to register with the central bank, create a reserve fund from profits, and audit their results each year.

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CONCLUSION
The prosperities and banes of Microfinance have often been a debatable issue. Studies of Microfinance have depicted that the borrowers experienced an average of 20% increase in income. SKS Microfinance has done an extremely great job by banking the unbanked till date. Expanding employment opportunities and increasing hours of employment per week have also been noted amongst successful borrower households. Women reported a direct correlation between having money and increased status and recognition - resourceful women using the loans to empower themselves. Significant change in household and community status could be derived by women who maintained control of their loans. While it is acknowledged that within most loan schemes borrowers do experience improved incomes, there are many variables which influence the extent of success at an individual, organisational and environmental level for example who is initially targeted, their skill level, gender, marital status, and what external support is available. Ongoing access to loans has had a positive impact on borrowers household security. Not only does SKS finance lend money, it lends hope, status and a bright future to many people. However it is necessary for SKS to make profits beneath these activities or else it has to jeopardise its existence.

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