MICROCAPITAL BRIEF: SKS Microfinance to Further Downsize Workforce, Cap Return on Assets at 3%

SKS Microfinance, a microfinance institution (MFI) in India, reportedly will continue to downsize its workforce as it has been since the enactment of the Regulation of Microlending Act in October 2010 in the state of Andhra Pradesh, which requires government approval of each microloan. SKS lost nearly one million borrowers from October 2010 to September 2011, and its net worth eroded by 34 percent as it had to write off many loans. Its return on assets (ROA) fell from 5.5 percent in 2009 to 4 percent in 2010.

SKS has already reduced its manpower from 28,000 in October 2010 to 19,000 in September 2011 and it will continue to make cuts as needed. Personnel expenses account for two-thirds of its operating costs.

In addition, it plans to expand its gold loan business into a separate subsidiary. The gold loan subsidiary is currently piloting in 50 centers across India.

SKS will also cap ROA at 3 percent this year in an effort to focus on attracting social investments and reinvesting in business expansion. SKS Chief Financial Officer, Dilli Raj was quoted as saying that the company will return to profitability by the quarter ending June 2012 “Future write-offs from SKS’s portfolio exposure to Andhra Pradesh, which is currently worth about 4.8 billion rupees (USD 96 million), can be offset by a tax shelter of 5 billion rupees (100 million) that the company has not yet taken advantage of.”

According to 2010 data from the US-based nonprofit data provider Microfinance Information Exchange (MIX), SKS Microfinance held 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 SKS Microfinance
SKS Microfinance is a microfinance institution (MFI) that was launched in 1998. It delivers microfinance products through a group-lending model to impoverished women in India as 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. As of 2010, SKS Microfinance held 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.

By Ariana Malushi, Research Associate

Sources and Additional Resources

Times of India: ” Troubled SKS to further downsize its manpower”
http://articles.timesofindia.indiatimes.com/2011-12-22/hyderabad/30546457_1_sks-microfinance-microfinance-cfo-dilli-raj-attrition

Livemint.com: “SKS to cap RoA at 3%, plans subsidiary for gold business” http://www.livemint.com/2011/12/07221910/SKS-to-cap-RoA-at-3-plans-su.html?atype=tp

Reuters: “SKS Microfinance CFO says sees turnaround by Q1 FY13” http://in.reuters.com/article/2012/01/19/india-microfinance-idINDEE80I0BX20120119

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-microfinance-fall-10-following-annaouncement-of-78m-loss-during-quarter-ending-september-2011/

MicroCapital.org 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’s-sks-microfinance-scaling-up-non-core-businesses-of-financing-grocery-stores-gold-lending/

MicroCapital.org Story, November 8, 2011 “MICROCAPITAL BRIEF: India’s SKS Microfinance to Raise $184m via Share Sale”    https://www.microcapital.org/microcapital-brief-india’s-sks-microfinance-to-raise-184m-via-share-sale/

MicroCapital Universe Profile, SKS https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance

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