A $50-billion biz for microfinance, a ray of hope for millions
Microfinance has a huge potential in India, with 10 crore poor people. It has a potential of 50 billion worth of credit and the social perspective is that poor people need those $50 billion to get out their poverty.
By Manika Gupta, TNN |
Eradicating 10% of India’s poverty is what Vikram Akula has set as his goal. If his company could help Siddama of Raipally village in Andhra Pradesh escape the below-the-poverty-line tag, it could hold good for millions of other Indians as well.
Akula is a social entrepreneur. And there is no contradiction in terms. Thinking socially but acting entrepreneurially is what Vikram Akula is all about. He is ‘all business’, the difference being in the motive—his business is primarily to maximise social benefits, not just profit. He is a cutting-edge pioneer who applies the best business practices to microfinance, no wonder his company is known as the ‘Starbucks of Microfinance’.
As social entrepreneurship is increasingly gaining ground around the world, with leading business schools in the USA such as Harvard, Stanford and Columbia integrating courses on social entrepreneurship into their curricula, he is a truly global person.
SKS, the company he runs is the fastest-growing microfinance institution in the world, having benefited 1.5 million individuals through income generating loans. And if this growth trajectory is maintained, it could be bigger than Grameen Bank in the near future.
Talk about Nobel Prize winner Yunus and Akula says, “He is my guru.” SKS lends through women, who Akula says, are far more responsible in ensuring that money is put to good use. It goes mostly into businesses such as livestock, services and trade.
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Akula who received the Social Entrepreneur Award at the World Economic Forum meet in New Delhi at the beginning of this week for applying global business practices to the field spoke about his work and models to Manika Gupta of ET Online in an interview.How did you think of practising microfinance in India?
My microfinance interest came from my visits to India during childhood when I visited my ancestral home in Andhra Pradesh and saw jarring images of poverty. This one instance was very decisive. I was attending a wedding reception one night, I saw poor children carrying away empty leaf-plate leftovers of diners. I decided then that I needed to come back and make a difference to eradicate poverty.
Business and social perspective of microfinance in India?
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Microfinance has a huge potential in India, with 10 crore poor people. It has a potential of $50 billion worth of credit and the social perspective is that poor people need those $50 billion to get out their poverty.What is SKS Microfinance stand for?
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There are three pillars of SKS. The first is profitability. We have posted a compounded annual growth of 165%. If we maintain this pace, we can try and attempt to eradicate poverty in India in 25-30 years. At least in our lifetime. SKS may look at aiding one crore clients, and will do our part in uplifting 10% of the poor in India. We started as an NGO, but today it is a non-banking financial institution. Good business practices are the second pillar. These help reduce the transactional costs and scales rapidly through the SKS acceleration model. This model applies the Starbucks model. First it creates standardised business processes. Lastly, we have created automated microfinance through user-friendly back office and field technology.
This has reduced the manual procedures thereby minimising intensive labour costs and error and fraud. Furthermore, anyone with high school education can manage the system. SKS has adopted strategies used by companies such as Coca-Cola and McDonalds to scale up rapidly across the country.
What is the business model of your microfinance company?
It is simple. Borrow from commercial banks and lend it to poor and the interest covers all costs. SKS’ is a unique business model in that it has profit as the primary motive for doing business and it charges a high interest rate of 25%.
Many big banks such as ICICI are also eyeing microfinance. For instance ICICI is planning to get into it in a big way. A lot of banks have shown interest, but I prefer long-term investors. But there is a reason for this. SKS borrows money at an average 10%. Operational cost is 10%—the company has 14,000 employees; and about 2-3% is set aside for bad loans.
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Many big banks in India are also eyeing microfinance. Does that hurt your plans in anyway?
ICICI is planning to get into it in a big way. But that does not bother me, let market forces work, but my experience is that big players are usually not able to work at the grassroots level.
Do you have plans to spread to other states of India also?
Yes, right now we are present in 11 states in India. But if we have to achieve the target of one crore clients, we will have to move to the other states. By achieving that we will be able to eradicate 10% of India’s poverty.
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Which are the good microfinance institutions in India?
In India there are some good institutions like Basix and Ela Bhats Sewa.
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What do you say about being recognised amongst outstanding social entrepreneurs of the year?
I think it is a great affirmation of the microfinance movement and entrepreneurial spirit of the poor women.
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