A muddle in microfinance

A muddle in microfinance

Every sunrise sector needs a company that stands for all that is good about the business.Usually, this company is one that is listed on the stock exchanges and which has a widespread share ownership. The Indian software services industry, for instance, had Infosys Technologies as its bellwether (Tata Consultancy Services was older, but didn’t sell shares to the public till the 2000s; and Wipro, in the early 1990s, was largely a hardware firm). Investors, other stakeholders and the public form a view on the sector based on what is happening at and with the bellwether.

The Indian software industry, in hindsight, was (and is) fortunate to have Infosys as its representative.

Recent events would suggest that the nascent microfinance business in the country is unfortunate to have SKS as its.

This newspaper does not have a problem with the for-profit microfinance business. Indeed, its stated position regarding SKS, the pioneer of this model in India, is that because the microfinance firm is a listed entity, Mint will cover it the same way it does other such entities.

And from that perspective, the unseemly fight between SKS’ charismatic and media-savvy founder and chairman Vikram Akula and sacked chief executive officer Suresh Gurumani, a professional banker who took the microfinance company public doesn’t bode well for the business. The legal action being contemplated by Gurumani will, if it materializes, mean worse. It is increasingly becoming clear that Gurumani, who was asked to leave without cause, and Akula differed in terms of how SKS should be managed. A case could well mean more details on this front—gripping reading for the readers of this paper and others, but an unappetizing prospect for SKS.

The situation hasn’t been helped by criticism from people opposed (unfairly, in this paper’s opinion) to SKS’ for-profit model and media reports that focus (again unfairly, in this paper’s opinion) on Akula’s personal life. And the situation hasn’t, in turn, helped the microfinance business. Not at a time when the Andhra Pradesh government is considering harsher regulation, including interest rate caps, for microfinance firms. And not when the Union government, which is not keen on interest rate caps, is convinced that the business needs stringent regulation.

The tussle for control in SKS Microfinance: a corporate governance disaster? Tell us at views@livemint.com