SKS is India's largest Micro Finance Institution and the fifth largest MFI in the world (the top three are in Bangladesh). SKS is now growing at 200% per annum (which means it is tripling every year.) At this rate, SKS could become the largest MFI in the world by 2010. Currently SKS has 2.6 million borrowers. Grameen Bank Bangladesh currently has 7.5 million borrowers - nearly three times that of SKS's 2.7 million. Grameen Bank is 35 years in microcredit and SKS is ten years. SKS has 10,500 employees.
SKS is led by its 38 year old Founder, Chairman and CEO Vickram Akula. Vickram was born in India, grew up and was educated - including his doctorate in from the University of Chicago with his dissertation on microfinance - in the United States and has returned to India and leads this incredible organization. Vickram was in the United States - so I could not meet him - but I have watched some DVD's that I was given of him being interviewed on television and watched some of his video on the internet. To get a deeper impression and understanding of this extraordinary man - please click on this streaming video link.
SKS's microcredit methodology is a very standard Grameen Bank Bangladesh replication.
There are three constraints that Vickram describes that SKS's is overcoming which is allowing it to dramatically scale up in ways that other MFI's have not be able to:
1. Lack of Capital. A couple of years ago SKS changed from a not for profit to a for profit organization. Becoming a for profit institution allowed SKS to attract a virtually unlimited amount of capital - which Vickram feels is key to moving to the gigantic scale that is necessary if a country with 1.1 million people, 300 million of which are in poverty are going to truly make a significant impact on poverty. Currently India microcredit loans are $5 billion a year and the demand is $55 billion. Rather than SKS having its growth rate slow as it has become very large - this change in organization structure has actually accelerated the growth from 150% or so to 200%.
2. Lack of Capacity. Rather than using traditional microfinance scaling models - SKS is using MacDonald's and Starbuck's as their model of how to scale up. SKS standardized its products and processes and adopted factory-style training models that had helped corporate giants scale so rapidly and thereby boosted SKS's own workforce capabilities and growth.
3. High Cost of doing Micro Finance. To dramatically reduce operating costs, SKS moved away from the paper or Excel systems that exist in most microfinance institutions and introduced an industry-leading automated MIS - a suite of simple, user friendly applications that a computer-illiterate loan officer with a twelfth grade education can easily learn.
This for profit model requires interest rates somewhat higher than normal microfinance. SKS charges 28% interest on declining balance and here is where those percentages go: Cost of funds from commercial banks = 12.5%, Salary and bonuses of loan officers = 8.5%, overhead and administrative costs = 3%, Loan loss provision = 2%, Profit = 2%. Many think that this interest is higher than the poor can absorb - but the fact the phenomenal growth of SKS would seem to contradict that.
What this suggests is that the poor can absorb 28% because they can make significant profits on with their loans and they cannot make profits without access to capital. SKS believes that to have the amount of capital necessary to truly major a dramatic impact on the poor - there must be a profit incentive to invest.
There is much controversy in the Micro Finance industry relative to this issue.
SKS's building was packed with employees almost sitting on each others laps. They will be moving into a new and much larger facility momentarily.
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