The untold story of the creation, near-destruction and the resurgence (under a new management) of the world’s second listed microlender, SKS Microfinance Ltd, may not see the light of the day. Micro-Meltdown, written by SKS founder Vikram Akula, once the poster boy of Indian microfinance, is a gripping tale of what it takes to build a world-class financial institution and how to destroy it. However, it is only his side of the story.
The content of the book allegedly violates the confidentiality and separation agreement signed by Akula at the time of quitting SKS. This agreement does not allow Akula to say what happened at board meetings leading to his ouster. Its publication both in the US and India is, therefore, on hold and legal teams of both sides have been discussing the way forward.
Rechristened Bharat Financial Inclusion Ltd (BFIL), SKS is now being merged with IndusInd Bank Ltd.
While we wait for a sanitized version, the original book, which I have read, is the ultimate insider account—narrating the boardroom battles in graphic details and unmasking the tribe of private equity investors, who, according to Akula, cared only about the returns on investments, and nothing else.
Akula tried to dissect what went wrong in the microfinance industry in general and, SKS in particular, which lead to the suicide of 54 borrowers in Andhra Pradesh. It also talks about the draconian state law of 2010, which choked the industry, killing a few microfinance institutions (MFIs). The share price of SKS crashed, but the money raised through the initial public offering (IPO) saved it from liquidation, which many other MFIs faced.
What exactly went wrong? Well, according to Akula, villain No. 1 was the MFIs, floated by former bankers, who did not know the DNA of borrowers. Their sole objective was to cut costs by compromising on training, the cornerstone of success. These bankers made a beeline to enter the sector, following private equity firm Sequoia Capital’s landmark $11.5 million investment in SKS in 2007.
Villain No. 2 was a motley group of moneylenders, bureaucrats, the mainstream bank-led self-help group or SHG lending model which thrived on bribe, and politicians.
Who was the third villain? Akula is in two minds in accepting the blame. “Why didn’t I step in to stop the deviation of the company from its core values?" Akula has asked himself. “Was I a culprit too?" The answer: “Sometimes I feel like I was. Sometimes I feel like I wasn’t. What I do know is that things went horribly, horribly wrong."
Three dominant themes run through the book:
#Akula built SKS—an epitome of everything that could go right, lending money to the so-called bottom of the pyramid, changing the lives of millions and, at the same time, making money for the company.
#For its downfall, everybody else is responsible—most of the investors, most independent directors of the board and the top management, particularly SKS’s managing director and chief executive M.R. Rao and chief financial officer Dilli Raj.
#Finally, SKS was on the verge of collapsing because it was not following the ethos that Akula stood for.
How Rao and Raj ganged up to throw Akula out is sensational. According to Akula, they forced him to sacrifice the company’s chief executive Suresh Gurumani after SKS’s blockbuster IPO. Once their mission was accomplished, the duo’s next target was Akula. He also described in detail how Rao isolated Akula from everyone else and forced him to give up the company he had built with his blood, sweat, passion and unique understanding.
His phones were allegedly tapped and every move was tracked. The book reads like a thriller.
It could have been a great lesson for those Indian promoters who run the risk of becoming irrelevant after their enterprises become successful and who see their companies deviating from the core values. That said, this is solely Akula’s version. Somebody needs to write another book on SKS, incorporating the versions of Rao and Raj, and some of the other board members and private equity investors, who have all been painted with the same brush.
The book should have also chronicled Akula’s abortive attempt to come back to SKS as a director and answer questions such as why he left the company at critical junctures (to return later); how it was rebuilt and how it regained its value; how the SKS Trust Advisors Pvt. Ltd, the largest shareholder in SKS, worked and who were the ultimate beneficiaries; why Catamaran Ventures was given a stake in the company at a price lower than what investors who had come in earlier had paid; who owned Tejas Ventures, an investor in SKS; and many more such questions which still remain unanswered.
Tamal Bandyopadhyay, consulting editor at Mint, is adviser to Bandhan Bank. His Twitter handle is @tamalbandyo.
Comments are welcome at email@example.com.