Monday, September 10, 2012

“The few defaults are due to Migration & Natural Calamities”

M. R. Rao, CEO, SKS Microfinance Ltd.

Launched in 1998, SKS Microfinance is one of the fastest growing Micro Financial Institutions (MFIs) in the world, which has served more than 5 million women members in poor regions of India till date. Of course, the company has been in the news for the wrong reasons following the unceremonious exit of its ex-CEO Suresh Gurumani. Current CEO M. R. Rao talks about the company’s business model and challenges it faces:

B&E: Tell us about SKS’ entire delivery mechanism. What are your other major business growth drivers?
MR: SKS targets the poor and upper poor class. The upper poor class consists of families earning Rs.25,000-Rs.50,000 per annum like medium farmers, small entrepreneurs and families falling just above poverty line like landless laborers. This is the segment of the poor that can most benefit from microfinance. Overall, SKS’ target constitutes of rural (74%) and urban (26%). Through its NGO, Swayam Krishi Sangam, SKS works with the ultra poor or the destitute who need far more intense involvement and a kind of spoon feeding to nurture them and make them use their loans effectively. SKS provides the ultra poor with vocational training, social awareness and health awareness over an 18-month period and also provides these families with assets, which they are taught to manage.

Apart from income generating loans, SKS also offers insurance products jointly with Bajaj Allianz. We have covered nearly 2 million lives across our network with this product. SKS also provides life enhancing products like water purifiers, mobile phones and solar lights at a better prices than the existing market price. Also, SKS is providing housing loans and education loans, which are in the pilot phase. This February, SKS has tied-up with Metro Cash & Carry to supply inventory to SKS members who have Kirana stores.

B&E: How does SKS Micro Finance define its eligibility criteria?
MR: SKS follows the peer-lending model developed by the Grameen Bank of Bangladesh. There are two parts involved – formation & administration of the group. A group is a collection of five individuals who come together to gain access to credit. Groups are the building blocks of the peer-lending model, and strict credit discipline starts with strong groups. SKS uses five-member groups. Experience has shown that a five-member group is small enough to effectively enforce group peer pressure and collective responsibility on a unanimous basis. Groups must be self-chosen as only then will members be able to serve as guarantors to each other. Groups must have the following characteristics: Poor, close proximity of members, no close relations in order to avoid personal problems, mutual trust and the adult members should not be above the age of 55 years.


Source : IIPM Editorial, 2012.
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