Mumbai: Vikram Akula, founder and chairman of SKS Microfinance Ltd, blamed Suresh Gurumani’s inability to handle the changing dynamics of the microfinance industry in India for the chief executive officer and managing director’s ouster.
“Post our IPO (initial pubic offer), the dynamics of the microfinance sector changed. The board felt that M.R. Rao with his four years of hands-on experience and I, having spent 20 years working in this sector, would be the best team to lead SKS into its second phase of growth,” Akula told media on Tuesday at a conference which was also attended by two SKS directors, Sumir Chadha, managing director of Sequoia Capital India and Paresh Patel, chief executive officer of Sandstone Capital Advisors Pvt. Ltd. Both the private equity firms are investors in SKS.
Gurumani told The Wall Street Journal last Wednesday that he was keen on putting in place controls and “more risk management structures” but some members of the board worried that these measures would be too costly.
SKS shares got listed on 16 August. On 4 October, it sacked Gurumani and replaced him with Rao, who was serving as the SKS’ chief operating officer.
Akula said the board could not perceive the pace of the change. On 16 July, SKS’ board had approved a proposal to raise Gurumani’s remuneration, and by September the issue of his removal was discussed at the board.
“While the senior management may have been aware of the changing environment in the industry, the board was not intimated of the same at the time when the board took the decision to increase the package,” Akula explained.
According to him, there were “inter-personal conflicts between Gurumani and other members of the management, including some of his direct reports”.
There were no instances of financial irregularities, corporate malfeasance, or personal misconduct involving Gurumani, he clarified.
Akula, who was inducted as the executive chairman of the company from being a non-executive head on 7 September, also said there were no problems with Gurumani’s performance in the past.
Though Gurumani’s might have been the most high-profile exit from SKS, sacking employees due to “non-performance” is not uncommon for India’s largest microfinance institution.
Akula said that in the last year, SKS had terminated the appointment of 72 people. “Others have been terminated in the past, but the number is a small fraction of our 23,000 employees,” Akula said.
The public float that raised Rs 1,654 crore, according to Akula, had brought into the limelight certain issues that were difficult for its “clients at the grass roots to understand”. Why a microfinance institution engaged in creating “social capital” needs to hit the capital market, was a question that begged explanation, he said.
“The IPO highlighted profitability and commercial aspects of microfinance. There were some misunderstandings surrounding it,” Akula said. SKS needed a team that could help its borrowers, most of whom are in rural India, understand concepts such as cost structures in microfinance and why a public issue was necessary.
With the “second phase of growth” at SKS likely to consist of secured lending that will see products such as housing loans to the poor and loans against gold being launched shortly, SKS’ investors directors echoed Akula’s thoughts of Rao and him being the best people to lead the show.
“We have high confidence in Vikram and M.R. (Rao). They have worked well in the past as a team and have a deep understanding of microfinance,” Chadha said.
“Rao has been running operations on a day-to-day basis for the past four years and is very close to borrowers. It is an amazing opportunity for the company to launch new products that would empower the poor,” Patel added.
The absence of any immediate explanation from the company for firing Gurumani attracted a lot of speculation on the reasons for his exit. Explaining SKS’ silence at that time Akula said that the lender’s philosophy was to offer its employees a “dignified exit”.
“We thought it appropriate not to give a specific reason at that time. Then rumours started doing the rounds, and we thought that the speculations were more damaging than the reason,” Akula said.
The SKS board also tried to work out a severance package for Gurumani that could persuade him to leave voluntarily, but since negotiations failed, SKS had no option but to terminate Gurumani’s appointment, Akula said.