“A project report on SKS Microfinance”

Submitted to:- Submitted by:-

Dr. Anubha Gupta Isha jain

 Acknowledgement
A work is never a work of an individual. I owe a sense of gratitude to the intelligence and
cooperation of those people who had been so easy to let me understand what I needed from time
to time for completion of this exclusive project.

I acknowledge my gratitude to Dr. Anubha Gupta for his extended guidance, encouragement,
support and reviews without whom this project would not have been a success.

Last but not the least, I would like to forward my gratitude to my friends & other faculty
members who always endured me and stood with me and without whom I could not have
completed the project.

Isha Jain
 contents

1. What is Microfinance?
2. Microfinance in India
3. SKS Microfinance
4. Journey
5. Philosophy
6. Approach
7. Methodology
8. Technology
9. Products
10. New Initiatives
11. Marketers
12. Financial Info.
13. Partners
14. Investors
15. Indian Microfinance Goes Public: The SKS Initial Public
Offering
16. CRISIL Analysis on key parameters
 What is Microfinance?
“Microfinance” is often defined as financial services for poor and low-income clients. In
practice, the term is often used more narrowly to refer to loans and other services from providers
that identify themselves as “microfinance institutions” (MFIs). These institutions commonly tend
to use new methods developed over the last 30 years to deliver very small loans to unsalaried
borrowers, taking little or no collateral. These methods include group lending and liability, pre-
loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready
access to future loans if present loans are repaid fully and promptly.

More broadly, microfinance refers to a movement that envisions a world in which low-income
households have permanent access to a range of high quality financial services to finance their
income-producing activities, build assets, stabilize consumption, and protect against risks. These
services are not limited to credit, but include savings, insurance, and money transfers.

Microfinance clients:
Typical microfinance clients are poor and low-income people that do not have access to other
formal financial institutions. Microfinance clients are usually self-employed, household-based
entrepreneurs. Their diverse “microenterprises” include small retail shops, street vending,
artisanal manufacture, and service provision. In rural areas, micro entrepreneurs often have small
income-generating activities such as food processing and trade; some but far from all are
farmers.

Hard data on the poverty status of clients is limited, but tends to suggest that most microfinance
clients fall near the poverty line, both above and below. Households in the poorest 10% of the
population, including the destitute, are not traditional microcredit clients because they lack stable
cash flows to repay loans. Most clients below the poverty line are in the upper half of the poor. It
is clear, however, that some MFIs can serve clients at the higher end of the bottom half. Women
often comprise the majority of clients.

Over the past decade, a few MFIs have started developing a range of products to meet the needs
of other clients, including pensioners and salaried workers. Although little is known about the
universe of potential clients, the number of households without effective access to financial
services is enormous.
 Microfinance in India
Microfinance sector has covered a long journey from micro savings to micro credit and then to
micro enterprises and now entered the field of micro insurance, micro remittance, micro pension
and micro livelihood. This gradual and evolutionary growth process has given a great boost to
the rural poor in India to reach reasonable economic, social and cultural empowerment, leading
to better life of participating households. Financial institutions in the country have been playing a
leading role in the microfinance programme for nearly two decades now. They have joined hands
proactively with informal delivery channels to give microfinance sector the necessary
momentum. During the current year too, microfinance has registered an impressive
expansion at the grass root level.
The year 2008-09 is the third year that the data on progress in microfinance sector have been
presented on the basis of returns furnished directly to NABARD by Commercial Banks (CBs),
Regional Rural Banks (RRBs) and Cooperative Banks operating in the country. The data
includes the information related to savings of Self Help Groups (SHGs) with banks as on 31
March 2009, loans disbursed by banks to SHGs during the year 2008-09 and outstanding loans of
SHGs with the banking system and the details of Non-Performing Assets (NPAs) and recovery
percentage in respect of bank loans provided to SHGs as on 31 March 2009.
The data received from banks have been compiled on region-wise, State-wise and agency-wise
basis in this booklet. The booklet also has the details related to SHGs under Swarnjayanti Gram
Swarojgar Yojna (SGSY) and exclusive women groups. In addition, the information related to
bulk lending under Bank - Micro Finance Institutions (MFIs) – SHGs has also been compiled.
The banks operating, presently, in the formal financial system comprises of Public Sector
Commercial Banks (27), Private Sector Commercial Banks (28), Regional Rural Banks (86),
State Cooperative Banks (31) and District Central Cooperative Banks (371). It is observed that
most of the banks participating in the process of microfinance have reported their progress under
the programme. NABARD has been instrumental in facilitating various activities under
microfinance sector, involving all possible partners in the arena. It has been encouraging the
voluntary agencies, bankers, socially spirited individuals, other formal and informal entities and
also government functionaries to promote and nurture SHGs. The focus in this direction has been
on training and capacity building of partners, promotional grant assistance to Self Help
Promoting Institutions (SHPIs), Revolving Fund Assistance (RFA) to MFIs, equity/ capital
support to MFIs to supplement their financial resources and provision of 100% refinance
against bank loans provided by various banks for microfinance activities.
 SKS Microfinance

History

Founded in late 1997, the mission of Swayam Krishi Sangam is to develop the self reliance
of poor women through their empowerment. Vikram Akula, son of Indian
immigrants, was driven by the desire to help the underprivileged. Working with
nongovernmental organizations (NGOs), he realized that it was impossible for such
grant-dependent bodies to reach out to a large number of people. At about the same time,
he met Professor Mohammed Yunus of Grameen Bank and journeyed to Bangladesh to
study the microfinance program of the bank in action. Subsequently, SKS was set up
along the lines of Grameen Bank, as a microfinance institution working to support the
poor.
Before offering services, SKS organizes participatory rural appraisals with villagers to
identify women with household incomes of less than Rs 20,000 (US$400) per year. Only
such women are eligible for membership. The field staff, composed of local women, low
caste tribals, and other disadvantaged classes, are trained in such aspects of lending as
financial status assessment, client sensitivity, and monitoring through participatory
research and computerized records.
Villagers are introduced to the mission, products, and procedures of the SKS loan
institution through a meeting. Sangams (women’s societies) are formed, which consist of
five members each. Loans are given to these groups, in which each member is
collectively responsible for repayment of the amount. General loans and seasonal loans
for season-dependent activity, such as agriculture, are provided at an interest rate of 20
percent. Emergency loans in times of unforeseen events, such as funerals, are given at no
interest. Consumption loans also are provided at no interest from group funds. SKS
operates a non-interest-bearing individual savings account, from which villagers can
withdraw funds as needed. This account provides security for the villagers’ money,
enabling them to pay their loans on time.
A key feature of SKS is the computerized “Smart Card” launched in the year 2000. Each
member in the village is given this card, which is inserted in the handheld computer
(HHC) carried by the staffer. The HHC and the Smart Card are updated automatically. At
the end of the day, the information from the HHC is transferred to the branch office
computer, thereby updating all accounts. This considerably reduces the time consumed in
processing loan transactions, enabling the staff to carry out additional meetings in limited
time.
SKS is one of the four recipients of the first Consultative Group to Assist the Poorest
(CGAP) award in the Pro-Poor Innovation Challenge, an award program for microfinance
institutions, focused on innovative poverty alleviation programs. The award of
US$50,000 has effectively contributed to the financial sustainability of the program, and
has led to the development and enhancement of the Smart Card management information
software.
Journey
 Philosophy

Mission

“Our purpose is to eradicate poverty. We do that by providing financial services to the poor and
by using our channel to provide goods and services that the poor need.”

Vission
“Our vision is 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.”

Core Values

Right Focus - Customer First

Our products, processes and people are all focused on creating the highest value for the
customer. This includes being respectful to customers, understanding the needs of customers and
being transparent with customers.

Right Means – Ethics Always

We will follow ethical practices in all our relationships at all times, including following the law
both in letter and spirit. This includes not offering bribes, not paying or taking commissions, or
any other short-cuts.
Right Way – Consistent Quality

We will have standardised processes as this will enable us to reach out to the most customers
cost effectively. We will foster innovation but in a way that ensures consistent quality.

Slogan
“Udhte Jaayen, Badhte Jaayen”
SKS LOGO

Between 1998 and 2009, SKS Microfinance had a logo that was distinctive and easy to identify.
It included a visual of a group of five women, which is core to our business. The visual was
enclosed within two concentric circles in blue with Swayam Krishi Sangam (the full form of
SKS) written in Telugu.
In 2009, four years after it had transformed into an NBFC and had built a sound track record for
scaling microfinance using a for-profit model, the Company decided to redefine its brand
imagery to reflect its new personality. With its presence in multiple states across India and
products and services that went far beyond the basic income-generating loan, there was a need to
reflect the new character of the company through this image.
The new SKS logo retains the group of five women which continues to be the core of our
business. The colour palette used reflects the vibrant spirit of the company, which has in recent
years set new benchmarks for growth and scalability. The cheerful indigo blue reflects the
positive impact that an SKS financial product has on its members. It also aptly represents speed,
which is the one quality strongly associated with the company. The somber grey signifies the
seriousness of our intent and our commitment to fulfill the needs of our customers and our
stakeholders in order to create an organisation that excels even as it serves.

“SKS became the sector leader in fiscal year 2008 and embarked on financial innovation in
fiscal year 2009. We introduced mainstream financial instruments like rated bonds, commercial
papers, listed debt and pool securitisation to the microfinance world. Our vision is to become a
global leader, not just in terms of outreach or any other operational or financial metrics, but to be
'best in class' in governance, risk management, compliance and accounting quality across the
financial sector as a whole.”
 Approach
SKS believes that access to basic financial services can significantly augment economic
opportunities for poor families and in turn help improve their lives. SKS is committed to creating
a distribution network across underserved sections of society in order to provide easy access to
the full portfolio of microfinance products and services. It also looks at using this network to add
value to the lives of its members by providing quality goods and services that our members need
at less than market rates.

Methodology
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.
From village selection to loan disbursal, SKS follows a clear process in its operations. Details of
our operational methodology are captured below :

Village selection
Before starting operations, our staff conduct village surveys to evaluate local conditions like
population, poverty level, road accessibility, political stability and means of livelihood.

Projection meeting
After a village is selected, SKS staff introduces the community to its mission, methodology and
services.
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.

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.
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 Recognition Test” conducted by a
different staff member than the one who trained them. If they pass, they are officially accepted as
SKS members.

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 3 to 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
 Technology
SKS Microfinance firmly believes that Technology is one of its biggest differentiator in the
industry. For SKS, Technology is an investment that is adding value to what and how we offer
financial solutions to our customers. 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 to
nearly 6.78 Million customers and are providing the technology foundation to achieve the next
phase of growth.
SKS has designed and deployed a web-based Business Intelligence portal using state-of-art
technology and a highly flexible and scalable platform to support the business growth and
operations.
SKS Microfinance has also built an integrated and encrypted MPLS communication network
encompassing a world class Data Centre delivering mission critical services and enhancing
collaboration across the organisation, thus ensuring superior service quality to its customers.
SKS has entered into strategic partnerships with various technology leaders and innovators like
Microsoft, Wipro, Reliance, HCL and Sify to establish an agile and scalable technology
architecture that is capable of handling the challenges specific to the microfinance sector.

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 pre-
printed 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.
 Products
SKS Microfinance Ltd offers a range of products and services, which have been developed based
on the financial needs of working of poor women. We classify our offerings into proprietary and
distributor products.

Proprietary Products:

Product Features Benefits

Income Loans range from Rs. 2,000 to Rs.
Generation 12,000 for the first loan;
Loans (IGL) - subsequent loan amounts
Aarambh determined by past credit history
and increased each in set
increments up to a maximum of
Rs. 30,000
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

Term of the loan is 50 weeks with

principal and interest payments
due on a weekly basis

12.5% - 15.0% flat interest

rate/26.7% - 31.4% annual
effective interest rate, including
upfront interest of 1%

Mid-Term Loan amounts range from Rs.
Loan (MTL) - 2,000 to Rs. 15,000 in each
Vriddhi annual cycle.
Available any time after the
completion of 20 weeks & before
40 weeks of an IGL cycle
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

Term of the loan is 50 weeks with

principal and interest payments
due on a weekly basis

12.5% - 15.0% flat interest

rate/26.7%-31.4% annual
effective interest rate, including
upfront interest of 1%
Emergency Interest free emergency loans
Loans and range from Rs. 500 to Rs. 2,000
Advances -
Raksha Term of the loan is 20 weeks with
a bullet repayment
Interest free funeral advances of
Rs. 1,000 adjusted out of the
claim settlement of loan cover
insurance
Life Insurance Interest free loans of Rs. 500
Loans
Term of 25 weeks with principal
repaid weekly
Mobile Loans Financing of mobile phones and
telephone services
Maximum loan amount of Rs.
2,000
12.5% - 15% flat interest
rate/30.6% - 36.2% annual
effective interest rate
Term of 25 weeks with principal
and interest repaid weekly
Sangam Store Working capital loans ranging
Loans from Rs. 5,000 to Rs. 25,000
Interest free
Term of the loan is 14 days
Loans range from Rs. 50,000 to
Housing
Rs. 150,000
Loans
Members must have completed at
least 3 IGL cycles to qualify or
one ILP to be completed
Designed to meet the unforeseen
emergency requirements of members
Disbursed within 24 hours of request
Funeral advance paid to a member’s
family upon the death of the member or
her spouse
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
Provides financing for mobile phones and
telephone services to our members
Provides a working capital loan to fund the
needs of our members who own and
operate kirana stores
The program allows these members to
purchase their inventory of consumer
goods and groceries from a national
wholesaler at wholesale prices
Provides financial access to women for
construction of new houses or
improvement & extension of existing
houses
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
Distributor Products:

Product Features Benefits

Loan Cover 1% of loan amount Member and her spouse are offered life insurance
Insurance collected to cover member;
2% of loan amount Covered in case of natural or accidental death of
collected to cover member member or her spouse
and her spouse
Return the principal repaid to SKS by member till the
date of death of member or spouse and write-off the
outstanding loan

Life Weekly payment of Rs. 20 Upon death, we disburse to the beneficiary the full
Insurance for the term of five years sum assured of Rs. 5,000 plus the account value,
which is equal to the aggregate of the premiums paid
See features of life plus interest accrued, if any, less any charges for the
insurance loan 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.

Per RBI circular DNBS. 204/CGM (ASR)-2009 dated January 2, 2009, SKS’s Board of
Directors has discussed and formally adopted an interest model based on cost of funds,
operational costs, and risks involved for each product.
 New Initiatives

Sangam Stores

The Sangam Stores project is aimed at providing working capital finance to SKS members who
own small ‘kirana’ stores. With credit supplied by SKS, shopkeepers can buy consumer goods
and groceries through a dedicated third-party vendor. This relationship gives access to quality
products at competitive prices that are delivered straight to their shops. Our members save time
and transport costs normally spent on buying goods from local markets. SKS is partnering with
Metro, the German wholesaler, which supplies member kiranas from a special inventory of 250
SKUs. Under this project, SKS generates and aggregates demand from kirana store owners, in
addition to supplying credit to them. This pilot is the first step towards creating a vibrant
distribution network across sections of society currently not serviced by manufacturers.

Housing

Many SKS members have asked for larger loans to make improvements on their homes or build
new ones. SKS has launched a housing loan pilot for members who have been with SKS for a
minimum of three years. Members can repair their houses, such as changing a thatched or
asbestos roof to RCC, or make improvements such as building a latrine or adding an extra room.
The loan has a repayment period of three to five years as per the repayment capacity of the
members. SKS is currently carrying out a pilot programme in rural markets with support from
HDFC and hopes to roll out housing loans more widely in the next financial year.
Water Purifier

SKS has partnered with Hindustan Unilever to provide Pureit water filter devices to our
members. SKS provides the loan to make the water filter affordable and HUL provides the
distribution, installation, and servicing that ensures our members have access to clean water.
SKS is currently assessing the learning from our pilot branches and will determine a rollout plan
to reach our members pan-India in the coming months.

Solar Lamps

Most of our members live in areas that have erratic power supply forcing business and normal
lifestyle to come to a halt with sunset. Solar-powered lighting gives our members the opportunity
to be independent from unreliable, low-voltage electricity grids or to light their homes if theirs
are currently un-electrified. After completing a successful pilot SKS is currently evaluating the
learnings from the project.
 How They Do
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 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.
 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.

Ultra Poor Programme

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 India’s 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.
Deworming
In order to promote better health among school-going children, SKS Microfinance and its NGO
Swayam Krishi Sangam are partnering with Deworm the World (DtW), an organisation that
specialises in large-scale, cost-effective deworming strategies.
 Marketers

Rural Marketing And Advertising

India’s diverse market is challenging to penetrate; the poor especially constitute a large market
with untapped potential. The poor have specific needs and are very value-conscious. Companies
trying to woo this market have tried conventional routes but have difficulty reaching poor Indians
living in remote rural areas, semi-urban towns and even in urban areas. Yet much of India’s
population of 1.1 billion are poor and any company that wants to tap India’s true potential needs
to speak the language of these consumers.
Rural markets have unique dynamics and vary according to regions, source of income and
lifestyles. In order to reach these sections of society it is critical to use media formats tailored to
them. SKS, through its wide network, is best positioned to understand the needs of these sections
and help companies reach out to them.
The following are a few initiatives that SKS has developed to provide value and create unique
opportunities for both our members and corporate partners.

Passbook Advertising
The passbook is an important document in our members' household. Since these passbooks are in
regional languages, an advertiser is able to send out region-specific messaging. Our initial
advertisers include Airtel, Nokia, Vodafone, Santoor, ICICI Lombard and Bajaj Allianz.
The passbook is an important document in our members' household. Since these passbooks are in
regional languages, an advertiser is able to send out region-specific messaging. Our initial
advertisers include Airtel, Nokia, Vodafone, Santoor, ICICI Lombard and Bajaj Allianz.

Sampling Exercises
Our weekly centre meetings are a unique platform for marketers to raise awareness about their
products and services. During these meetings we are in a position to distribute product samples,
gather important consumer feedback and conduct brief promotions. SKS carefully scrutinizes the
companies it ties up with and vets the product it wants to promote. We aim to only use our
network to promote products that improve the lives of the poor.
 Financial Info

Debt Capital
A strong Capital base, Impeccable Asset Quality and Experienced Management enables SKS to
raise debt capital to fund its ambitious growth plans. Historically, the MFI sector has relied on
priority sector funding from commercial banks. In addition to such funding, we are also able to
fund the growth of our operations and loan portfolio through issuances of equity and private and
publicly traded debt securities, loans with various maturities raised from domestic and
international banks, and the securitization of components of our loan portfolio. We have also
diversified our lenders among public sector domestic banks, private sector domestic banks,
private sector foreign banks, and institutional investors. We have banking relationship with over
45 banks today.
SKS has also demonstrated thought leadership in raising debt by introducing mainstream
financial instruments into microfinance. These instruments are useful in not just increasing the
options for raising debt but also give SKS the edge in smart management of its finances. Apart
from fund raising from regular debt instruments, SKS has raised debt through some of the
following avenues:

 Rated bond
 Assignment with public sector and private bank
 Five-year term loan
 Cash credit limit
 Rated pool securitisation
 Commercial papers
 Listed debt security placed with FII
 Subordinated debt for a term of 8 years
We believe that we are one of the first MFIs in India to complete a rated bond issuance, issue
commercial paper, assign a rated pool, sell a “weaker section” portfolio, list debt instruments on
the BSE, get a long term subordinated debt (Tier II) for a term of 8 years and complete an
assignment of receivables with a public sector bank.

Financials
India’s central bank, the Reserve Bank of India, specifies that non-deposit-taking NBFCs have to
have a Capital adequacy Ratio of 12%. SKS maintains a healthy Capital adequacy Ratio of
24.8%.
Ever since it transformed into a for-profit NBFC in 2005, SKS has established a reputation for
raising equity and debt to keep pace with its ambitious growth plans. It has set new standards for
the sector repeatedly on the amount of equity and debt raised. It has also been instrumental in
introducing mainstream financial instruments into microfinance sector.
While funding its growth, SKS has given top priority to maintaining the highest standards in
financial transparency. It recently converted from a Private limited Company in order to comply
with even more stringent accounting standards. It has won the CGAP award for Financial
transparency thrice – in 2004, 2005 and again in 2006. Apart from financial audit conducted by
external agencies, SKS also has a strong internal audit team of over 350 members who monitor
operations on an on-going basis.
Operation & Financial Performance

Operational Information FY10 FY09 FY08 FY07

Total no. of Branches 2,029 1,353 770 276

Total no. of Districts 341 307 219 103

Total no. of Staff 21,154 12,814 6,818 2,381

Total No. of Members (in '000) 6,780 3,953 1,879 603

Amount Disbursed for the period (INR crores) 7,618 4,485 1,680 452

Portfolio outstanding (INR crores)* 4,321 2,456 1,051 276

* includes assigned loan portfolio

Financial Information FY10 FY09 FY08 FY07

Revenue (INR crores) 958 554 170 45

PAT (INR crores) 174 80 17 2

Assets (INR crores) 4,055 3,039 1,089 335

Networth (INR crores) 950 664 212 71

SKS & Financial Inclusion

Over the last decade, SKS has established its operations across 341 districts in 19 States out of
which 315 have been identified by NREGA as the poorest. SKS services reach out to millions of
poor – including Backward-Scheduled Castes. Approximately 57.3% of our members belong to
the “weaker section” of Indian society.
Amongst our employee base, many of them belong to Backward Castes and Scheduled Castes.
Many of our employees are children of our members
 Partners
SKS Microfinance is honoured to work with a world class group of partners and supporters.
When it started out as a small NGO, SKS received early support from close friends and family of
the founder. As the organisation grew, so did its list of partners, starting with leading foundations
and donor organisations, like Women's World Banking (www.swwb.org), CGAP
(www.cgap.org), Grameen Foundation USA (www.gfusa.org) and American India Foundation
(www.aifoundation.org). Now as a Non-Banking Financial Company (NBFC), some of the
largest banks and investors work with SKS. HSBC (www.hsbc.com) made its first microfinance
loan to SKS and Citibank made its first microfinance loan in India to SKS. SKS is also an active
participant in global microfinance associations, such as MIX Market (www.mixmarket.org) and
Microfinance Network (www.mfnetwork.org). A complete list of all partners are listed below:
Banker’s Profile
 Investors

Equity Capital
SKS is conscious of the fact that the funds required for alleviating poverty are available only
with commercial funders. It accesses these funds to fulfill its social mission of empowering the
poor.
In its efforts to attract commercial funding into the microfinance sector, SKS has been in the
forefront. It has raised equity from a wide range of investors – from Government-backed
development funds from SIDBI to Angel Investors, Venture Capitalists, Private equity and
recently from mainstream financial institutions.
Significantly, Mutual Benefit Trusts representing the interests of the members have a significant
share along with employees in SKS. By doing this, SKS ensures that its growth helps its
members’ interests and also contributes to the well being of its employees.
Sequoia Capital, Vinod Khosla, SIDBI, Bajaj Allianz, Yatish Trading, Kismet Capital,
Sandstone Capital, Silicon Valley Bank and Unitus are among the existing equity partners of
SKS Microfinance. SKS Borrowers represented by Mutual Benefit Trusts are also one of the
largest shareholder groups in the Company.
 Investors Profile

SKS Microfinance works on three inter-linked principles to scale microfinance. This includes
using a for-profit methodology to access capital, drawing on best practices from the business
world to speed growth, and deploying technology to overcome high delivery costs. SKS blends
this rigorous business approach with a strong social mission that includes ensuring its members
continue to hold a significant stake in the company and ensure that the interests of the members
are in the forefront of decision-making.
Ever since SKS transformed into an NBFC it has led the investment cycle of the sector itself.
While individual donors supported SKS in its initial years. SKS has since attracted investors
from the development sector , angel investors, venture capitalists, private equity and investors
from mainstream financial institutions. So firm is the belief in the SKS business model that our
initial investors continue to be with us and some have even participated in subsequent rounds of
equity raise.

Indian Equity

Small Industries Development Bank of India (SIDBI) was

established in April 1990, to empower the Micro, Small and Medium Enterprises (MSME)
sector with a view to contributing to the process of economic growth, employment generation
and balanced regional development. IDBI is the largest share holder of SIDBI, the State Bank of
India and Life Insurance Corporation of India follow as the next two large share holders in that
order. Since its inception, SIDBI has been assisting the entire spectrum of SSI Sector including
the tiny, village and cottage industries through suitable schemes tailored to meet the requirement
of setting up of new projects, expansion, diversification, modernisation and rehabilitation of
existing units.

Bajaj Allianz Life Insurance is a union between Allianz SE, one of

the largest Insurance Companies and Bajaj Finserv. Allianz SE is a leading insurance
conglomerate globally and one of the largest asset managers in the world, managing assets
worth over a Trillion USD. Allianz SE has over 115 years of financial experience and is present
in over 70 countries around the world. At Bajaj Allianz Life Insurance, customer delight is the
guiding principle. Their business philosophy is to ensure excellent insurance and investment
solutions by offering customised products, supported by the best technology.

Yatish Trading is Group Company of J V Gokal Group, which was

found in 1952 and having current net worth of INR 3000 Crores (USD 638 million). Their
business interest spans across tea, textiles, software and range of financial services. Their
priority is always towards credibility and good business practices, thinking long term, investing
in and partnering with the right people. Its group companies and associates consist of Chamundi
Silks Ltd, Menaka Cotton Ltd, Brics Securities Ltd, Odyssey Capital Pvt Ltd, Wealth Advisors
Pvt Ltd and Fortell Solutions Pvt Ltd. It has its operations across India, Hong Kong, Colombo,
United Kingdom, Dubai, Moscow, Kazakhstan and also Distribution Tie Ups in 25 Countries.

Foreign Equity

Vinod Khosla
Vinod Khosla is an Indian- American venture capitalist and was a co-founder of Sun
Microsystems and Daisy System, where he pioneered open systems and commercial RISC
processors. Mr. Vinod serves on the boards of Agami, eASIC, Indian School of Business,
Infinera, Kovio, Metricstream, Spatial Photonics, Xsigo and Zettacore. He holds a Bachelors of
Technology in Electrical Engineering from the Indian Institute of Technology in New Delhi, a
Masters in Biomedical Engineering from Carnegie Mellon University and an MBA from the
Stanford Graduate School of Business.

Sequoia Capital India was found by Don Valentine in 1972. Their

main operation is in US, with offices across India, Israel and China. Their partners have worked
with innovators of companies such as Apple Computer, Oracle, Yahoo, Google and You Tube to
name a few. It has had the privilege of being the first venture capital investor and business
partner in companies that make up 10% of the NASDAQ's value. Sequoia Capital India
manages three funds totaling USD 750million focused on investments in India, across sectors
which include Royal Orchid Hotels, Bharti Telesoft, Café Coffee Day, Shaadi.com and ICICI
OneSource.

Kismet Capital is a mezzanine and private equity investor in asset-

based businesses located in emerging Asian markets. With a focus on opportunities in India and
ASEAN countries, Kismet has invested in numerous industries including real estate, hospitality,
energy, financial services and contract manufacturing. Kismet was found in 2004 and has
operations in New York, Mumbai and Bangkok.
 Sandstone Capital has been a long-term investor in public and private
companies in India and the subcontinents found in 2005. They employ a disciplined research-
driven investment process to invest in deep value opportunities, reasonably-valued growth
stocks and special situations. Sandstone believes that, with investors and management teams,
there is a need to forge lasting relationships, built upon the values of integrity, trust and mutual
respect. Sandstone is one of the largest Indian dedicated funds with a worldwide investor base
that includes university endowments, public and private foundations, family offices, individual
investors and other institutions.

The Unitus Equity Fund (UEF) is managed by Elevar, a global

growth investor focused on the underserved four billion at the base of the pyramid in developing
countries. Elevar intends to bridge the gap between these communities and global capital,
helping to create a virtuous cycle of opportunity based on open access for all. UEF is a USD
23.6 million equity fund which invests in high growth microfinance institutions. Conceptualised
and launched by Unitus in 2006, the Fund has been an active participant in the development of a
commercial equity market serving the microfinance industry, with an investment portfolio of six
microfinance institutions across India and Latin America. Elevar manages UEF on behalf of
Unitus along with successor fund, Elevar Equity II. www.elevarequity.com

Silicon Valley Bank has been dedicated to providing global financial

services to some of the most innovative and entrepreneurial companies in the technology, life
science, venture capital and premium wine industries. Silicon Valley Bank offers a full range of
sophisticated banking and investment services, but what sets us apart from other banks is our
innovative approach and deep commitment to helping entrepreneurial companies of all sizes,
and at all stages, grow their businesses around the world.
Indian Microfinance Goes Public: The SKS Initial
Public Offering
SKS is among a handful of MFIs globally to have gone public following the path breaking IPO
by Banco Compartamos in Mexico in 2007 (see Rosenberg 2007). SKS is also the first to list its
shares in the competitive and fast-growing Indian microfinance market. Over the past four years
Indian MFIs have grown from 10.5 million to 26.7 million clients (Access Development
Services 2007, 2008, 2009, and forthcoming), and for the past three years SKS has stood at the
top of this market in terms of size and access to capital. Globally, SKS has been among the
fastest growing MFIs in the world, with a compound annual portfolio growth rate of 165 percent
since 2004.
The IPO is important not only because SKS is an influential player in a big market but also
because it marks an important transition—for the first time individual investors in India can buy
shares of an MFI. The IPO and its implications are also being watched carefully by investors,
managers, and policy makers around the world, fueling conversations about the rewards and
risks of tapping into mainstream capital markets.
To execute the transaction, SKS management selected Citigroup Global Capital Markets, Kotak
Mahindra Capital, and Credit Suisse Securities (India), an investment banking consortium that
combined local Indian market knowledge with links to global institutional investors. On 28 July
2010 SKS floated a 23.3 percent stake on the Bombay and National Stock Exchanges for
US$350 million. The deal consisted of 10.3 percent new issuance amounting to US$155 million
in fresh capital for SKS. An additional sale offer by existing shareholders of 13.0 percent of post-
issue stock generated US$195 million back to the selling shareholders. These selling
shareholders (the promoter group) each sold about one-quarter of their shares in the IPO, and to
comply with regulations, locked in about 60 percent of their remaining holdings for three
years. The promoter group consists of affiliates from three private investor groups—Sequoia,
Kismet, and Unitus—as well as the MBTs.
 CRISIL Analysis on key parameters
 SKSMPL witnessed a robust CAGR of 205% in its member base, 217% in its
disbursements and 237% in its total loan outstanding between 2005-06 and 2007-08. This
growth in disbursements and loan outstanding was primarily supported by geographic
expansion, regular capital infusion and access to wholesale resources from several
lending institutions.
 SKSMPL has a good asset quality with 99.14% of the portfolio being current as on
September 30, 2008 improving marginally from 98.96% as on march 31, 2008.
 The company has demonstrated diversification in its resource file. SKSMPL has
additionally been optimizing its resource requirement through the direct-assignment
route. This support the financial flexibility of the company, which is not dependent upon
any one source to raise funds.
 Regular capital infusions by institutional investors and moderate internal accretions have
helped the company to keep its gearing level at 7.37 times as on September 30, 2008
despite rapid growth in its balance sheet size.
 CRISIL expects SKSMPL’s profitability to improve the medium term as increase in fee –
based income is expected to temper the impact of increasing borrowing costs and
operating costs ( as the MFI increases its presence in new states).