SKS Microfinance has decided to change its name to Bharat Financial Inclusion; in the years that followed the crisis, the company has come out of stress, and improved its profitability
Mumbai: SKS Microfinance on Thursday decided to change its name to Bharat Financial Inclusion, snapping its last link to the 2010 microfinance crisis that originated in Andhra Pradesh.
In the years that followed the crisis, the company has managed to not only come out of the stress, but also to improve its profitability at a steady pace.
SKS on Wednesday said fiscal fourth-quarter profit, excluding those of its units, doubled to ₹ 84.4 crore from a year earlier. Revenue rose 68% to ₹ 330 crore from ₹ 197.6 crore in the year-ago period. The company’s gross loan portfolio rose 24% to ₹ 7,677 crore from the preceding December quarter.
In November 2015, SKS also became the first microfinance company to charge an interest rate below 20% to its customers. The rate currently stands at 19.75%. The lower rate is because SKS’s marginal cost of borrowing has dropped in the past few quarters.
Established in 1998 by Vikram Akula as a non-government organization (NGO) called Swayam Krishi Sangham, the company was registered as a non-banking finance company (NBFC) in 2005. In August 2010, the company had a highly successful initial public offering (IPO) where the issue was oversubscribed by nearly 14 times.
Even today, SKS is the only microfinance company to be listed, with the exception of Equitas Holdings Ltd which has received an in-principle approval from the Reserve Bank of India (RBI) to convert to a small finance bank.
In September 2010, just before when the microfinance crisis erupted, SKS’s exposure to Andhra Pradesh was over at over 27% of its total loan book, its highest exposure in any state. In October that year, 30 women who were microfinance borrowers in Andhra Pradesh committed suicide within a period of 45 days. Among these 30 women, 17 were then reported to be borrowers of SKS Microfinance.
It was alleged that these cases of suicide had come up after unfair recovery practices were used by some microfinance companies. The suicides led to a furor at the state government level, which enacted a law greatly limiting the ability of microfinance companies to lend and recover their loans in the state. SKS was one of the worst hit due to the crisis and its aftermath.
In the years that followed, SKS provided fully for the outstanding exposure in Andhra Pradesh and stopped fresh disbursals there. Today, a chunk of SKS’s assets are in Odisha, Karnataka, Maharashtra, Bihar and West Bengal.
In November 2011, Vikram Akula, the high-profile founder of SKS stepped down and severed ties with the company he had steered for years.
In December 2011, the RBI introduced strict lending norms for microfinance companies, capping their maximum lending rate to 26% and margins that they could earn on these loans. The regulator had also limited the amount that could be given out as loans to a single borrower. Later in 2015, RBI eased some of these norms, making lending easier.
The introduction of regulations and oversight by the RBI has helped revive the sector. The improved performance of the sector has also helped draw private equity interest and allowed the sector to grow. While the revival in microfinance is an industry-wide phenomenon, SKS has continued to maintain its position as a bellwether.