Akula Vikram K.
Organization: SKS Microfinance
Year Founded: 1997
Country: India
Website: www.sksindia.com
Geographic Area of Impact: India.
Model: Social Business
Focus: Financial Inclusion,Microfinance.
Social Entrepreneur of the Year, India, 2006 Schwab Fellow of the World Economic Forum Video Video Interview The Innovation SKS Microfinance, an NGO-turned-for-profit company, applies global business best practices to the field of microfinance. It was launched in 1997 to address a fundamental flaw in microfinance—namely, its inability to scale to large numbers. SKS identified these scaling constraints as the three “Cs”—lack of capital, capacity constraints, and the high costs of delivering micro-loans. SKS has overcome this challenge by applying three innovative principles: (1) using a profit-oriented model to overcome capital constraints (2) leveraging best practices for scaling from the business world to overcome capacity constraint (3) using technology to automate processes and lower costs. SKS’ profit-oriented model has led to sustained organization growth rates of 200%, and attracted major equity investments from premier venture capitalists, including Vinod Khosla and Sequoia Capital. This, in turn, has led to the ability to leverage debt from banks. Indeed, as of November 2007, SKS had lent over 15 billion rupees ($400 million) to over 1,300,000 poor women, benefiting approximately 6 million individuals. Known as the ‘Starbucks of Microfinance’, SKS also standardizes and automates microfinance processes. From training field agents to streamlining processes of entering data, SKS has created a standardized operational practice that can be widely scaled. For these innovative best practices, SKS was given the Grameen Foundation USA Excellence Award. SKS also automates microfinance through back office and field technology. Rather than rely on manually-filled collection sheets and manually entering data in ledgers, SKS created its own automated Management Information System (MIS) that is incredibly user-friendly so field staff with just a high school education can manage the system independently. In this fashion, a loan officer can handle up to 1,000 customers with a portfolio of 3 million rupees—a standard unheard of in microfinance. SKS’s work in automation has won the CGAP Pro-Poor Innovation Award, the Digital Partners SEL Award and the award for Excellence in Information Integrity. Background The commercial banking sector has traditionally avoided lending to the poor, deeming them risky and un-profitable due to high transaction costs of giving small loans. This has led many of the 800 million poor to either turn to exploitative moneylenders charging 36%-72% interest rates or to suffer without capital. The Grameen Bank model of group lending has largely overcome the risk problem by demonstrating that group guarantors can ensure high repayment. However, the transaction costs have long remained a challenge to growth. While the Indian microfinance industry has thus far provided approximately 200 billion rupees in capital already, it is estimated that the poor still need 10 times this amount. To date, most Indian microfinance institutions (MFIs) have not been able to significantly scale their operations and reach a large population group across different states. While providing loans at more competitive rates than moneylenders, microfinance institutions must still charge a hefty interest rate compared to commercial market rates due to high transaction costs of a high-volume/ low-value model. Specifically, these transaction costs are due to 1) a lack of standards that creates high variance in process and procedure, making it difficult to ensure quality and scale 2) manual processing that lead to intensive labor costs and increases the potential for error and fraud. Strategy SKS’ microfinance process begins by first introducing the services to a village and surveying a community to determine the number of women who fit SKS’ criteria for Below the Poverty Line. While tracking assets is one obvious method of measuring wealth, another useful test is the relative development of housing structures. Once SKS enters a community, it has the women form 5-member groups which feed into a larger group of 50 women (10 groups) that meet weekly. Prior to the start of activities, each group must go through a standardized, yet unique, training over the course of four to six consecutive days. Members practice basic business skills, like how to sign their name – but also must learn the more complex principles behind the procedures to ensure that they understand them. SKS then offers two loan cycles every six months. These loans run up to a total of Rs. 10,000 (US $250) with the amount payable in 50 weekly payments. With each year of successful repayment, the credit limit is increased by Rs. 4,000. After a track record is established by the borrower, SKS Microfinance graduates them out of the group lending system to an individual loan from Rs. 20,000 and above on a shorter monthly repayment period. To mitigate hardship, SKS Microfinance also provides emergency loans at no interest and also offers loan insurance at 1% of the loan amount for the member and her husband. In 2007, it introduced a health insurance product and is currently piloting other micro-insurance schemes. These practices have led to a 99% on-time repayment rate. To manage its expansive growth, SKS operates a lean hub-and-spoke back office architecture. The MIS system is shared via encoded Internet and accessible from field offices. Agents can connect via dialup modem to pass on the information in a ready-to-use low memory form that can be uploaded in less than 3 minutes. To meet human resource needs, SKS has created a factory style training that increases the speed of training by ten times thereby enabling accelerated field deployment. The ease of use of the back office system and the standardized procedures allow SKS to employ staff recruited from among poor communities and who often have only a high school education. The Entrepreneur Vikram Akula was born in Hyderabad and moved to the US when he was only 3 years old. He witnessed India’s poverty on numerous family visits to India and made a promise to himself to do something to eradicate poverty. After college, he returned to India and worked as a community organizer. During this time, he realized the most important initiative for the poor was economic development and that microfinance made a tremendous impact on poverty eradication. But he felt that the microfinance sector was not scaling rapidly enough, so he launched SKS to overcome problems of scaling. Vikram is a former management consultant with McKinsey & Company and has over a decade of work and research experience in microfinance. He holds a B.A. from Tufts, an M.A. from Yale, has a Ph.D. from the University of Chicago, and was a Fulbright Scholar. His Ph.D. dissertation focused on the impact of microfinance. In 2006, Vikram was named by TIME Magazine as one of the world’s 100 most influential people and has been featured in media ranging from the front page of the Wall Street Journal to CNN.
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