SKS Microfinance Limited (SKS), an Indian microfinance institution (MFI), reportedly has obtained a loan of INR 1 billion (USD 20.1 million) from the government-backed Small Industries Development Bank of India (SIDBI), a loan wholesaler to MFIs in India. The SIDBI loan has a three-year term and an interest rate of 13.5 percent, which is 100-150 basis points above the interest rate SIDBI normally charges MFIs.
SKS, whose business had been concentrated in the state of Andhra Pradesh, has been struggling since the Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act of 2010 prohibited MFIs from collecting weekly loan installment payments from borrowers and required MFIs to obtain government approval prior to issuing each microloan [1]. The downturn in Andhra Pradesh is estimated to have decreased the size of the Indian microlending sector from INR 300 billion (USD 6.05 billion) two years ago to INR 150 billion (USD 3.02 billion) [1].
Although SKS has also suffered a significant decline in business outside of Andhra Pradesh, SKS intends to focus on growth outside Andhra Pradesh. Last year, the number of active SKS borrowers in 18 states outside Andhra Pradesh decreased by 47 percent to 4,837,000. SKS’ total disbursements declined 80 percent to INR 3.22 billion (USD 65 million) from INR 15.9 billion (USD 320 million) during the year. During the third quarter of last year, SKS merged 123 of its branches in Andhra Pradesh. In addition to increasing its gold loans business, SKS plans to begin offering an endowment and term insurance product soon [2].
By Courtney Snelling, Research Associate
About SKS Microfinance Limited: SKS Microfinance is a microfinance institution (MFI) that was launched in 1998. It delivers microfinance products through a group-lending model to impoverished women inIndiaas a for-profit, non-banking finance company. SKS converted into a public limited company in May 2009 and launched an initial public offering on July 28, 2010. Its equity investors include Quantum Hedge Fund, Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus. SKS currently trades on the Bombay Stock Exchange. According to 2010 data from the US-based nonprofit data provider Microfinance Information Exchange (MIX), SKS Microfinance holds total assets of USD 1.2 billion, a gross loan portfolio of USD 1.2 billion, approximately 6.6 million borrowers, return on assets (ROA) of 6.3 percent and return on equity (ROE) of 22.4 percent.
About Small Industries Development Bank of India (SIDBI): The Small Industries Development Bank of India (SIDBI) was established by the Indian Parliament in 1990. SIDBI offers products and services in areas including direct finance, international finance, government subsidy and fixed deposits. Its clients include institutions, investors and entrepreneurs. SIDBI is an active participant in the Indian microfinance sector, where it provides credit and capacity building grants to large- and medium-scale microfinance institutions (MFIs). As of September 30, 2010, SIDBI reported total assets of INR 480 billion (USD 9.75 billion).
About Reserve Bank ofIndia: Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.
Sources and Additional Resources:
[1] Livemint.com, February 2, 2012, “Sidbi gives Rs.100 crore loan to SKS”, http://www.livemint.com/2012/02/02002436/Sidbi-gives-Rs-100-crore-loan.html
[2] TheHinduBusinessLine.com, January 26, 2012, “SKS Micro’s business outside AP suffers”, http://www.thehindubusinessline.com/industry-and-economy/banking/article2834692.ece?ref=wl_industry-and-economy
VC Circle, “India: SKS Q3 Loss At Rs 428 Cr, Norway’s Sovereign Wealth Fund Buys 1% Stake,” January 19, 2012. http://www.vccircle.com/500/news/sks-q3-loss-at-rs-428cr-norway%E2%80%99s-sovereign-wealth-fund-buys-1-stake
MicroCapital.org Story, January 23, 2012, “MICROCAPITAL BRIEF: SKS Microfinance to Further Downsize Workforce Cap Return on Assets at 3 percent”, https://www.microcapital.org/microcapital-brief-sks-microfinance-to-furth…
MicroCapital.org Story, February 21, 2012, “MICROCAPITAL BRIEF: SKS Suffers $85m Loss as Norway’s Government Pension Fund – Global Buys 1% Stake”, https://www.microcapital.org/microcapital-brief-sks-suffers-85m-loss-as-n…
MicroCapital.org Story, December 20, 2011, “MICROCAPITAL BRIEF: Stymied by Local Regulation, Microfinance Institutions (MFIs) based in India’s Andhra Pradesh Expand Into Northern States”, https://www.microcapital.org/microcapital-brief-stymied-by-local-regulati…
MicroCapital.org Story, December 12, 2011, “MICROCAPITAL BRIEF: Vikram Akula Resigns from Board of India’s SKS Microfinance” https://www.microcapital.org/microcapital-brief-vikram-akula-resigns-from-board-of-india’s-sks-microfinance
MicroCapital.org Story, November 12, 2011, “MICROCAPITAL BRIEF: Shares of India’s SKS Microfinance Fall 10% Following Announcement of $78m Loss During Quarter Ending September 2011” https://www.microcapital.org/microcapital-brief-shares-of-indias-sks-micr…
MicroCapital Story, August 29, 2011, “MICROCAPITAL BRIEF: India’s SKS Microfinance Scaling Up Non-Core Businesses of Financing Grocery Stores, Gold Lending”, https://www.microcapital.org/microcapital-brief-india%e2%80%99s-sks-microfinance-scaling-up-non-core-businesses-of-financing-grocery-stores-gold-lending
MicroCapital Universe Profile: SKS Microfinance Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS…
MicroCapital Universe Profile: Small Industries Development Bank of India (SIDBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Sma…
MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Res…
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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