AGON 2015

PLUTUS15
SKS Microfinance: On the Road to Redemption
Our four-pronged strategy -- comprising calibrated credit cost approach, cost structure
optimization, cash flow management to deliver promises, and capital raise -- has helped us
weather the Andhra Pradesh microfinance crisis of October 2010.1
S. Dilli Raj, CFO of SKS Microfinance, in October 2012.
We have been struck a blow by external forces. Now we are reinventing our company and
microfinance. Thats what we are going to focus in this year. Reinvention of microfinance will
focus on consolidations of existing customer base, diversifying product offerings and continuing to
build consensus to resolve issues in Andhra Pradesh.2
Vikram Akula, Founder of SKS Microfinance in May 2011.
On January 24, 2013, SKS Microfinance (SKS), Indias only listed micro lender, declared a net
profit of Rs.a 11.5 million for the quarter ending December 31, 2012.3 The announcement was
noteworthy considering that SKS had been incurring losses for seven consecutive quarters before
the third quarter of Fiscal Year (FY) 2012-2013 (Refer to Exhibit-I for the consolidated Income
Statement and key highlights of the Balance Sheet of SKS from FY 2007-08 to FY 2011-12).
The companys return to profit followed a turnaround plan initiated by the management of SKS to
cope with the crisis that had engulfed the microfinance sector in India since 2010. The
microfinance sector in India faced a severe crisis after the state of Andhra Pradesh enacted an
ordinance in October 2010 which placed severe restrictions on the activities of microfinance
companies operating in the state. The ordinance by the Andhra Pradesh government was the result
of a number of allegations regarding the business practices followed by Microfinance Institutions
(MFIs) operating in the state. MFIs were accused of resorting to aggressive recovery practices
which had allegedly led to the suicides of many small borrowers from the state. The ordinance
made it difficult for MFIs to collect dues from the borrowers. Banks and other financial
institutions, a major source of funds for MFIs, also stopped lending to them. The non recovery of
dues and the halt in the flow of funds from banks made it difficult for SKS to expand its
operations. The crisis also led to the exit of SKSs founder, Vikram Akula, due to heavy pressure
from investors.
The management of SKS came out with new strategies to help it emerge from the crisis. SKS
started to expand in other Indian states like West Bengal, Bihar, Orissa, etc. where there were no
restrictions on the operations of MFIs. It repaid some of its debts from the revenue generated from
these other Indian states. It also raised some capital to fund its expansion. New guidelines issued
by the Reserve Bank of Indiab (RBI) also eased some of the pressure on SKS to raise funds. It cut
costs by closing down branches and removing employees in areas where it had stopped operations.
Efficient cash flow practices, securitization deals, and Qualified Institutional Placements (QIP)
also helped SKS to overcome the crisis. SKS also started diversifying into other areas like gold
a

Rs. stands for Indian Rupee (or INR), the official currency of the Republic of India. As of January 29,
2012 one US$ is equal to Rs. 53.77.

The Reserve Bank of India, headquartered in Mumbai, Maharashtra, is the central bank of India and
controls the monetary policy of the country.
1

SKS Microfinance: On the Road to Redemption

loans, loans to small traders, and loans for the purchase of mobile phones to protect itself from
future negative policy decisions related to the microfinance sector. On the consumer front, SKS set
up an external ombudsman and a toll-free helpline to resolve the grievances of borrowers. It started
proper verification of the background of prospective borrowers and instructed its recovery agents
not to resort to any aggressive collection practices while dealing with the borrowers Meanwhile,
SKS was awaiting the passage of the Microfinance Institutions (Development and Regulation) Bill
(MIB) in the Indian parliament. The bill would override any other state legislation and make the
RBI the sole regulator of MFIs in India. SKS hoped that the passage of the bill would help it to
grow faster in the future.

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. After returning to India from the US, he faced
lot of difficulty in starting a new microfinance organization as he couldnt 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 c and
SKS was established based on Yunuss Grameen Bank model. SKS was initially registered as SKS
Society, a Non-governmental Organizationd (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 Womens World Banking, India e, gave its
first loan of Rs. 500,000 to SKS in 2002. Later in 2004, SKS got its first partnership loan from
ICICIf for Rs. 200 million.4 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
c

Muhammad Yunus is a Bangladeshi banker and development economist. He started a microfinance

organization called Grameen Bank in 1983. Muhammad Yunus and Grameen Bank won the Nobel Peace
Prize in 2006 for their efforts toward the economic and social development of the poor and
underprivileged classes.
d
Non-governmental Organizations are legally constituted organizations run by natural people and operate
independently of governments.
e
Friends of Womens World Banking, India, headquartered in Ahmedabad, Gujarat, India, is a non-profit
organization which assists microfinance and microenterprise organizations in India.
f

ICICI was a finance company engaged in project financing to the Indian industry. It was merged with its
subsidiary ICICI Bank in 1994.
2

SKS Microfinance: On the Road to Redemption

through donations via MBTs and invested the amount in SKS Microfinance Ltd. to become its sole
owner. During the period 2004-05, Vikram left for the US to work as a consultant in McKinsey &
Companyg and appointed Sitaram Rao as the CEO of SKS. Sitaram Raos stint led to a five-fold
growth in the company and made SKS into one of the leading MFIs in India. In the year 2005,
SKS went completely from being a non-profit organization to a for-profit organization with SKS
Microfinance Pvt. Ltd. being converted into a Non-banking Financial Companyh (NBFC). In 2005,
SKS Microfinance Ltd. (SKS) bought SKS Societys microfinance portfolio for US$ 780,000. The
proceeds were used to buy an additional stake of US$ 1 million in SKS.
Vikram became the Chairman of SKS in 2008 and appointed a banking veteran Suresh Gurumani
(Gurumani) as its new CEO and MD. In 2009, SKS emerged as the number one MFI in India and
the number two in the world.5 By the year 2010, SKS had expanded its operations to 19 states in
the country. It developed one of the most successful models in microfinance with a good profit
margin and a recovery rate of 99 percent. Being a privately held company, it became difficult for
SKS to raise more money to fund its further expansion. To expand its reach, Vikram decided to tap
the capital markets and embark on an Initial Public Offering (IPO) of its shares. The shares of SKS
opened for subscription on July 28, 2010. The IPO, which was targeted at raising US$ 353 million,
got a very good response and was oversubscribed by 13.69 times.67 SKS became the first
microfinance company in Asia to go in for an IPO. Analysts said that the excellent growth of the
company fuelled by the good margins and high recovery rate for its micro loans were the key
reasons for the success of the IPO.

SKS IN CRISIS
In the year 2010, the flourishing microfinance industry in India plunged into a deep crisis. Some
analysts and the government of the southern Indian state of Andhra Pradesh accused the industry
of charging higher interest rates from the borrowers and resorting to strong-arm tactics to recover
the loans from the poor. It was reported that, unable to repay the loans, many of the poor
borrowers had taken their own lives. Reports said that a shocking 200 borrowers from the
microfinance institutions had committed suicide in late 2010.8 And 20 borrowers were reported to
have committed suicide in the first two weeks of October 2010 itself.9 The government of Andhra
Pradesh put the blame squarely on the business practices of the microfinance institutions. The
states minister for rural development, Vasant Kumar, said, Only because of the coercive methods
used by the microfinance institutions, such incidents are taking place.10
In October 2010, the government of Andhra Pradesh initiated a heavy crackdown on the activities
of all microfinance institutions operating in the state.11 It banned several of their activities while
putting heavy restrictions on the others. According to a new Andhra Pradesh Micro Finance
Institutions (Regulation of Money Lending) Ordinance issued by the government, all the MFIs had
to declare the effective rate of interest that they charged borrowers. Also, they should not take any
security from the borrowers. The ordinance explicitly stated that no coercive methods should be
used by the MFIs for loan recovery and stipulated that all the MFIs operating from the state should
be compulsorily registered with the RBI. Only five of the forty MFIs which were operating from
the state were registered with the RBI.12 The government of Andhra Pradesh also told the
borrowers that they need not repay the loans they had taken from the microfinance institutions. It
said that it was forced to take action due to the suicides committed by the borrowers. It said that
the private MFIs were charging a very high interest rate which ranged from 24 percent to 30
g

McKinsey & Company, headquartered in New York City, New York, US, is a leading management
consulting firm in theworld.

Non-banking finance company 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 of local authorities. Non-banking finance companies are regulated by the RBI.
3

SKS Microfinance: On the Road to Redemption

percent per year. Many poor people could not get loans from the regular commercial banks due to
their poor credit records and the delays in getting a loan from the banks. The government of
Andhra Pradesh defended its action by stating that the high margins which were earned by these
microfinance institutions were used to sustain the high profits and extravagant salaries of the
promoters. The Andhra Pradesh governments action led to the total cessation of the microfinance
business in a state which had often been touted as the microfinance capital of India.
However, SKS defended its business model saying that it wanted to promote its shareholder value
through the promotion of the welfare of the weaker sections in the society. It added that the interest
rates which it charged for its loans were competitive when compared to the rates charged by the
village money lenders. Some local moneylenders and direct finance companies operating from
Andhra Pradesh charged interest rates which ranged from 36 percent to 120 percent. SKS filed a
petition in the Andhra Pradesh high court urging the court to allow it to continue with its business
operations. In the petition to the high court, SKS said, The Companys effort is to maximize its
capital with a social angle.13
Many analysts blamed the Andhra Pradesh government for damaging the prospects of a flourishing
industry. They said that MFIs were being unnecessarily blamed when all they were doing was
promoting the welfare of the weaker sections of society. Analysts opined that many of the farmer
suicides which were prevalent in India for many reasons other than microfinance were also being
falsely attributed to the business practices of MFIs. The crackdown on the MFIs also drove many
of the poor borrowers back to the moneylenders who charged much higher rates of interest. In a
study conducted by MicroSave India Private Limited14 (MicroSave) in four districts in Andhra
Pradesh, nearly 59 percent of the respondents took loans from moneylenders in the absence of
MFIs.15 But, some other analysts said that the blame for the mess which followed the ordinance
rested both with the government and MFIs. They said that in a rush to expand aggressively, MFIs
had failed to follow proper credit appraisal practices before disbursing loans. Some borrowers
were given loans without the MFIs checking their repayment capacity or past credit histories.
Many borrowers used the money they borrowed for consumption purposes and could not repay
later. Lack of appropriate credit checks also resulted in some borrowers getting loans from
multiple MFIs and thereby exceeding their total credit limit. Some politicians who were closely
linked to local moneylenders also pushed for action against the MFIs. Commenting on the
controversy related to MFIs in India, The Economist noted, Chasing growth, MFIs seem to have
piled into the same villages, lending to the same people. Some recovery methods have involved
intimidation. The MFIs, however, are less abusive, as well as far cheaper, than traditional
moneylenders. Their troubles in AP stem from a mixture of institutional rivalry, politics, and
ideology.16

THE ENSUING CARNAGE

The new ordinance issued by the government of Andhra Pradesh had a drastic influence on the
business of MFIs operating in the country. As most of the business of MFIs was concentrated in
Andhra Pradesh, the non-recovery of loans in the state brought the business activities of SKS to a
near standstill. It became very difficult for the organization to raise more loans from banks as the
latter were unwilling to lend to the sector. As MFIs could not raise their own money in the form of
public deposits, they had to mostly depend on loans raised from banks and other major financial
institutions to expand their operations. The total halt in the loans from banks bought their
operations to a decline. Commenting on the non-availability of funds to the microfinance sector,
Alok Prasad, CEO of Microfinance Institutions Network, said, With the promulgation of the
Andhra Ordinance regulating MFIs in 2010, the industry found itself in an environment of
heightened regulatory and political risks which resulted in bank funding coming to a virtual halt in
2011.17
4

SKS Microfinance: On the Road to Redemption

The crisis that was sparked by the ordinance issued by the Andhra Pradesh government was in turn
followed by some major problems related to the top management of SKS. Just before the government
ordinance was issued restricting the activities of MFIs in the state, the board of SKS had terminated the
services of its CEO Suresh Gurumani and appointed MR Rao as its new CEO.18 Gurumani, who was
instrumental in SKS coming out with an IPO, was blamed for the aggressive business practices
followed to maintain the growth rates of the company. He resigned even from the board of SKS in May
2011.19 The huge losses suffered by SKS in the wake of the crisis led to a steep fall in share prices,
much to the anger of shareholders. Some shareholders accused the management of not taking adequate
steps to stop the fall in share prices. Bowing to the pressure from investors, Vikram resigned as
Chairman and member of the board of SKS in November 2011.20 The management of SKS, however,
said that Vikrams resignation was voluntary and that no pressure had been exerted on him by the
board.21 But Vikrams resignation and the appointment of a new management failed to lift the
confidence of investors and the share price continued to
plummet. From an all-time high of Rs.1,490 , the stock price of SKS crashed to an all-time low of
Rs.54.4 in June 2012 (Refer to Exhibit- III for stock chart of SKS).2223

ON THE ROAD TO REDEMPTION

After the crisis,, which nearly choked many MFIs to death, SKS and the other MFIs in the country
started to follow many new strategies in a bid to revive their growth. As its operations in Andhra
Pradesh were still in a limbo, SKS started to focus on expanding in other Indian states. Other
Indian states where the growth of the microfinance business was still at a nascent stage did not put
any fresh restrictions on the business activities of MFIs. The microfinance sector as a whole was
also experiencing good growth rates in many other Indian states. While Andhra Pradesh was
experiencing near zero percent growth, other states experienced a 10 to 15 percent growth in the
year 2012.24 In the second quarter of Fiscal Year 2012-13 itself, SKSs loan disbursements in nonAndhra Pradesh markets increased by 25 percent.25 SKS had started focusing on the states like
West Bengal, Karnataka, Madhya Pradesh, Bihar, and Orissa to restart its stalled operations and
boost revenues. In the immediate aftermath of the crisis, SKS had to restrict its business activities
in other states too. As banks stopped lending to MFIs and its recovery rate in Andhra Pradesh fell
to almost zero, SKS used the recoveries from other states to repay its debt. 26 The recovery rate of
SKS in its non-Andhra Pradesh portfolio remained at 97 percent, giving it more of a leeway to
spread its business faster and wider.
SKS started to raise more capital to fund its expansion activities. While it was the Andhra Pradesh
governments policy decision restricting the business activities of MFIs which had choked its
business, it was again the intervention of a policy making body which imbued some confidence in
the business of these MFIs. Responding to demands from the microfinance industry to save the
industry, the RBI issued new guidelines for MFIs in August 2012.27 Through these guidelines, the
RBI took a number of steps to revive the fortunes of the microfinance industry. As per the new
guidelines, MFIs could charge more than 26 percent on the loans given to poor borrowers. The
RBI also gave a five-year time frame to MFIs to make full provisioning against their bad loans.28
The RBI stipulated that NBFCs and MFIs which wanted to convert themselves into NBFC-MFIs
would have to maintain net owned funds at Rs. 3,000 million (US$ 537,200) by March 31, 2013.
The new RBI guidelines paved the way for registered MFIs to raise money from banks and other
sources. SKS raised Rs. 9,980 million from banks during the fourth quarter of the Fiscal Year
2011-2012.29 This was more than double the amount (Rs. 4,170 million) it managed to raise
during the first three quarters of 2011-2012.
Another important step that SKS took to achieve a turnaround was to cut costs. While it was
improving its branches and employee number in other promising states, it cut down on the number
of branches and employees in unviable states like Andhra Pradesh. By the second quarter of the
FY 2012-13, it reduced its total number of branches from 2,400 before the crisis to 1,300 and its

SKS Microfinance: On the Road to Redemption

staff strength from 25,730 to 11,480. The number of branches in Andhra Pradesh was reduced
from 566 to 121 during the same period. This optimization of its operations led to a reduction of its
personnel cost by 47 percent for this period and its operational expenditure by 45 percent (Refer to
Exhibit-IV for the operational highlights of SKS from FY 2007-08 to FY 2011-12).30 It started to
follow efficient cash flow management practices by meeting all its obligations in time. Dilli Raj,
the CFO of SKS, said, We have met all our financial obligations in a timely manner, which has
helped us come out of supply-side shock.31 SKS put more emphasis on a smooth cash flow so
that its operations did not get stalled in the face of a crisis (Refer to Exhibit- V for the Cash Flow
Statement of SKS for the FY 2010-11, 2011-12). Good recovery rates in non-Andhra Pradesh
states also ensured a problem free cash flow management. Smoother cash flow was given more
importance than returning to profits and cleaning its balance sheet of bad debts. This helped in
boosting the confidence of lenders and investors and allowed it to get more funding. Dilli Raj
added, We embraced the principle that, in a crisis period, cash flows are more important than
balance sheet and balance sheet is more important than Profit & Loss (P&L).32
The net worth of many major MFIs was wiped out in covering the non recoveries in Andhra
Pradesh. As a result, many of them opted for corporate debt restructuring packages after the crisis.
SKS, being a listed company, did not opt for debt restructuring in order to protect the value of its
shareholders. Instead, it recapitalized itself through preferential issues, securitization deals i, and
Qualified Institutional Placementsj (QIP).33 Securitization deals helped SKS in releasing the
money that remained blocked in the form of unrecovered loans which could be used for further
expansion of the loan book in the other states that were not affected by the crisis. SKS raised Rs.
3,540 million through a securitization deal in February 2012. Commenting on the deal, Dilli Raj
said, The Rs 354 crore (Rs.3.54 billion) transaction demonstrates that funding concerns raised
after the Andhra Pradesh MFI Act were behind the company. All that money would be used to
grow assets in areas outside Andhra Pradesh. 34 Apart from infusing the much needed funds after
the crisis, the securitization deal gave the investors confidence and led to a rally in its share price.
In July 2012, SKS Microfinance raised Rs.2.3 billion through QIP and Rs.335 million through the
private placement of shares. 35 This QIP was the major infusion of capital after its IPO in 2010. In
November 2012, it raised another Rs. 2,000 million through another securitization deal from a
public sector bank.36 Many analysts opined that the money raised through these securitization
deals and QIPs would facilitate further expansion in states which were not hit by the crisis.

DIVERSIFICATION INTO OTHER AREAS

After a hiatus of nearly seven quarters, SKS declared a net profit of Rs.11.5 million for the third
quarter ending December 31, 2012, of the Fiscal Year 2012-13.37 Many analysts agreed that the
worst might be over for the microfinance industry in India, but they cautioned that the MFIs still
had a long way to travel on their road to redemption. By the end of February 2013, SKS had
completed securitization deals totaling Rs.86.6 billion which generated a lot of liquidity for the
cash strapped firm.38 SKS was contemplating altering its fundamental business model to include
other businesses in its portfolio.
SKS started selling financial products of other companies like life insurance to its customers. Its
wider reach and large employee base helped it to tap the rural population which had hitherto
remained unreachable for insurers due to various reasons. SKS also planned to enter into other
i

Securitization is the practice of pooling various types of contractual debt like residential and commercial
mortgages, micro loans, and credit card debt obligations and selling them to investors in the form of
bonds, pass-through securities, or collateralized mortgage obligation (CMOs).

Qualified Institutional Placement is a capital raising tool (mostly used in India) where a listed company
raises funds by issuing equity shares, fully and partly convertible debentures, or other kinds of securities
which are convertible to equity shares to a qualified institutional buyer (QIB).
6

SKS Microfinance: On the Road to Redemption

forms to lending. While its micro loans were focused mostly on helping the rural poor to set up
their own businesses, it was contemplating the idea of lending to other small existing traders like
the owners of kirana storesk. These loans were intended to help them expand their businesses.
Gold loans and loans for the purchase of mobile phones were other areas that SKS was looking at
to fuel its future expansion.39 The steep rise in the prices of gold had led to many middle income
and poor Indian families investing heavily in gold. SKS started a pilot gold loan scheme in nearly
50 centers across the country. The pilot scheme would close by the end of FY 2012-2013 and give
an idea on its long-term viability.40 It hoped that diversification into other forms of lending would
result in minimizing the adverse effect of any future policy decisions related to the microfinance
sector. SKS was also contemplating setting up a subsidiary for running these noncore businesses as
Indian regulations did not permit the revenues of a microfinance company to exceed 15 percent of
the total.41 But some analysts were skeptical about these new expansion plans. They said that
deviating from its core business area would lead to a loss of focus for a company like SKS and
would also deprive poor people of micro loans. Commenting on the diversification to other areas,
The Economist noted, If (microfinance) firms start to gravitate towards these lines of business,
that could yet again leave the neediest behind.42

LOOKING AHEAD
Other than reframing their strategies, the Andhra Pradesh crisis made MFIs rethink about other
business operations related to disbursement and recovery of loans. SKS too implemented a number
of steps to protect the interests of its borrowers. It set up an external ombudsman to deal with all
the complaints of its borrowers and set up a toll-free helpline in 8 Indian languages to help its
borrowers.43 SKS also started a customer grievance cell to deal with the problems of customers. It
also instructed its recovery staff not to resort to any harsh recovery practices. SKS started a
practice of discussing all the recovery related issues with group members and resolving the issue
amicably. It started a new tactic of incentivizing its sales force for proper verification of the
borrowers background. Its sales force was required to properly check the background of
borrowers and come out with proof that the loan was for income generation purposes and not for
personal consumption.
SKS was also awaiting the passage of the Microfinance Institutions (Development and Regulation)
Bill (MIB) in the Indian parliament. The bill had been pending before parliament for nearly two
years. When passed, the bill would make the RBI the sole regulator of the microfinance sector in
the country. It would also override any other legislation passed by any other state governments.
The bill was based on the recommendations of the Malegam Committee constituted by the RBI to
address the crisis faced by the microfinance industry in India since 2010.44 But the bill had been
pending before parliament since 2011, as certain sections in the government had raised objections
regarding some of its provisions. SKS was hoping that the passage of the new bill would help it in
expanding its operations across the country without the fear of any future state level legislation
impeding its growth prospects. The new bill was also expected to help in reviving the flow of
funds from banks and other financial institutions. It remained to be seen whether a promise of an
industry interrupted by policy decision would be able to revive after appropriate policy action.

Kirana stores are small family-owned retail outlets in India which sell groceries.
7

SKS Microfinance: On the Road to Redemption

QUESTIONS
1. Explore the future strategies that SKS should follow in order to return to its high
growth path.
2. Discuss the pros and cons of SKS expanding into other unrelated areas of finance
like gold loans and loans to small traders.
3. Analyze the strategies that should be followed by companies when faced with
harsh government policies which stifle their growth prospects

Prepare a 5-Slide (Maximum) Presentation answering the above three

Questions.

Exhibit I

Consolidated Income Statement of SKS (Figures in Rs Millions)

FY 2007-08

FY 2008-09

FY 2009-10

FY 2010-11

FY 2011-12

Income
Income from operations

1,625

5,060

8,735

11,601

4,357

Other income

75

479

853

1,093

366

Total income

1,700

5,540

9,589

12,695

4,723

Financial expenses

564

1,944

2,884

3,478

2,611

Personnel expenses
Operating and other
expenses
Depreciation and
amortization

477
280

1,376
759

2,163
1,221

3,263
1,704

2,001
1,512

51

108

125

161

100

36

110

517

2,362

11,734

1,410

4,299

6,912

10,971

17,960

Profit before tax

289

1,240

2,677

1,724

(13,237)

Total tax expense

122

438

937

608

368

Profit after tax

166

802

1,739

1,116

(13,605)

Expenditure

Provisions and write-offs

Total expenditure

Key Highlights of the Balance Sheet of from FY 2007-08 to FY 2011-12

(Figures in Rs Thousands)
FY 2007-08
Equity
and
liabilities
Shareholders
funds
Share
application
money
pending
allotment
Reserves and
Surplus
Non-current
liabilities
Current
liabilities
Assets
Non-current
assets
Current
assets

FY 2008-09

FY 2009-10

FY 2010-11

FY 2011-12

443,316,520

570,566,520

645,272,190

17,805,214,742

4,301,701,762

2,569,412

19,293,235

41,792,895

2,973,120

45,128,151

1,679,472,06

6,058,634,113

8,893,253,598

7,898,449,915

20,971,310,278

25,795,733,538

6,835,096,225

3,280,637,141

394,371,918

1,150,988,056

18,621,020,729

9,177,741,550

78,930,402

124,201,266

188,517,612

2,226,486,966

3,467,498,582

10,733,106,790

30,156,880,755

40,134,582,995

41,037,817,850

13,337,710,022

Source: SKS Annual Reports 2008-2009, 2010-2011, and 2011-2012.

SKS Microfinance: On the Road to Redemption

Exhibit II

Major Awards, Achievements, and Acclamations for SKS

Year

Award/Achievements/Acclamation

1999
2000

Gets Affiliated to the Grameen Foundation (GF)l

Initiates the Smart Card Pilot Project, the first such at the village level. Wins the
CGAP Pro-Poor Innovation Award with a cash prize of USD 50000. GF gives a
matching money award, all of which is invested in technology development by SKS.

2000

Wins the Digital Partners SEL Award and a soft loan of USD 25000.

2002

Bags the first ever debt from Friends of Womens World Banking, India.

2004

Gets ICICI Bank partnership loan or Rs. 200 million.

2005
2006

Receives CGAP Financial Transparency Award.

SKS founder Vikram Akula was included in theTime Magazines list of 100 Most
Influential People.

2007

Gets Citibanks Excellence in Information Integrity Award.

2008
2008

Is listed among the Worlds Most Influential Emerging Companies.

Becomes the first MFI to get certified by ISO 9001-2000 for its internal audit
department.

2009
2010

Is accredited as the top ranked MFI in India and the second ranked in the world.
Signs an agreement with HDFC on technology license and service usage for
undertaking housing finance activities.
Crisil assigns an MFI grading of mfR1 recognizing the ability of a microfinance
institution to conduct its operations in a scalable and sustainable manner.

2010

Source: www.sksindia.com/

Exhibit III

Stock Price Movement of SKS from Its IPO to February 2013

Source: www.google.com/finance.
l

Grameen Foundation is a global not-for-profit organization which works to eradicate poverty while improving
the quality of life of the poor and of women by providing them access to financial solutions, essential
information, and business opportunities using microfinance and innovative technological solutions.

10

SKS Microfinance: On the Road to Redemption

Exhibit IV

SKS Operational Highlights

Operational
Highlights

FY 2007-08

FY 2008-09

FY 2009-10

FY 2010-11

FY 2011-12

No. of Branches

770

1,353

2,029

2,379

1,461

No. of Districts

219

307

354

378

329

6,818
1.9

12,814
4

21,154
6.8

22,733
7.3

16,194
5.3

16.80

44.85

76.18

78.31

27.37

10.51

24.56

43.21

41.11

16.69

No. of Employees
No. of Members (in
Millions)
Disbursements
(INR in Billion)
Gross Loan
Portfolio (Rs. in
Billion)

Source: SKS Annual Report, 2011-2012.

Exhibit V

Cash Flow Statement of SKS for the FY 2010-11, 2011-12 (figures in Rs Thousands)
Cash flow from operating activities
(Loss)/ profit before tax

(13,237,453,452)

1,708,964,889

Non-cash adjustment to reconcile (loss)/ profit before tax to net cash flows
Interest on shortfall in payment of advance income tax

14,681,565

15,353,133

100,197,104

161,495,861

Provision for employee benefits

(2,891,638)

(9,722,842)

Loss/ (profit) on sale of fixed assets

(1,042,300)

682,100

Employee stock compensation expense

96,925,414

70,368,441

(196,037,812)

168,527,595

(12,283,881)

357,457,452

11,686,774,593

789,125,768

Loss from assignment of loans

256,463,412

1,047,179,601

Other provisions and write offs

336,847,910

128,268,965

(957,819,085)

4,437,700,963

(917,687,384)

(2,504,474,125)

11,060,282

10,320,366

(1,906,858,668)

(840,887,142)

Depreciation and amortization

Contingent provision against standard assets

Provision for non-performing assets
Portfolio loans and other balances written off

Operating (loss)/ profit before working capital changes

Movements in working capital :
Increase/ (decrease) in other current liabilities
Decrease/ (increase) in trade receivables
Decrease/ (increase) in long-term loans and advances

Contd

11

SKS Microfinance: On the Road to Redemption

Contd

Decrease/ (increase) in short-term loans and advances

16,976,800,657

(6,433,578,014)

238,537,052

(159,180,244)

5,445,661

(32,037,098)

13,449,478,515

(5,522,135,294)

(42,236,100)

(721,319,188)

13,407,242,415

(6,243,454,481)

(26,865,488)

(231,655,238)

2,972,255

1,852,301

(35,560,993)

35,560,993

Margin money deposit (net)

(690,759,820)

272,744,390

Net cash flow (used in)/ from investing activities (B)

(679,092,060)

7,380,460

47,685,801

7,307,365,545

(366,862,160)

Decrease/ (increase) in other current assets

Decrease/ (increase) in other non-current assets
Cash generated from /(used in) operations
Direct taxes paid (net of refunds)
Net cash flow from/ (used in) operating activities (A)
Cash flows from investing activities
Purchase of fixed assets, including capital work in
progress and capital advances
Proceeds from sale of fixed assets
Purchase of current investments
Proceeds from sale of current investments

Cash flows from financing activities

Proceeds from issuance of equity share capital (including
share application money)
Share issue expenses
Long-term borrowings (net)

(9,043,699,679) (4,654,712,278)

Short-term borrowings (net)

(3,102,250,402)

66,962,390

(12,098,264,280)

2,352,753,497

629,886,075

(3,883,320,524)

Cash and cash equivalents at the beginning of the year

3,891,476,905

7,774,797,430

Cash and cash equivalents at the end of the year

4,521,362,980

3,891,476,906

Net cash flow (used in)/ from in financing activities (C)

Net increase/ (decrease) in cash and cash equivalents
(A + B + C)

Source: SKS Annual Report, 2011-2012.

-END-