Bharat Financial Inclusion LimitedBFIL is a banking & finance company, licensed by the Reserve Bank of India. It was founded in 1997 by Vikram Akula, who served as its executive chair until November 2011. The company's mission is to provide financial services to the poor under the premise that providing financial services to poor borrowers helps to alleviate poverty. In 2013, the company operated across 17 Indian states.
History
In an early interview at Wharton in 2008, Akula recounted having worked with an NGO in India as a loan officer on the field in 1997. The potential for impact that these loans had given him the idea of setting up SKS as a more scaled up version for micro finance. He formed it as a charity in 1998 in Hyderabad, India as a part of his PhD studies to explore the then non existent micro finance industry in India. Though claimed to be based on the Grameen bank model, SKS granted high interest loans of Rs. 10,000 to R. 2 lakh to men and women in Andhra Pradesh belonging to poor families. However, unlike Grameen bank, SKS used an aggressive commission based system to encourage loans, thus forming a network of loan marketers who were not direct employees of SKS, but worked on a commission basis in smaller villages of Andhra Pradesh. SKS used a network of loan sharks to pursue matters with defaulters. Meanwhile, Akula got married and his wife Malini Byanna, a lawyer by profession was appointed director of some of the organisations of SKS. By this time, SKS had four major arms - SKS Foundation, SKS Education, SKS Microfinance and SKS Technologies. The foundation was subsequently able to receive grants from Indian and foreign institutions, mainly for their education related charity.
1997 to 2005
BFIL was started as a non-profit NGO named Swaya Krishi Sangam in 1997 by Vikram Akula. In 2003, Akula created SKS Mutual Benefit Trusts to change SKS Society into a for-profit entity named as SKS Microfinance. The trusts raised INR 20 million through donations as it was the minimum capital required to form an NBFC entity. With its invested capital, the trusts held 99.5% stake in SKS Microfinance. SKS Microfinance secured a Non-Banking Financial Company licence in 2005 by the Reserve Bank of India. In 2004, Sitaram Rao was appointed as the company CEO after Akula. Akula retook the position in 2005.
2005 to 2010
In 2007, SKS Microfinance raised $11.5 million through equity investments led by Sequoia Capital. In 2008, it further raised $74.5 million through equity investments led by Sandstone Capital. On 28 July 2010, SKS Microfinance debuted on the Bombay Stock Exchange with an IPO that was oversubscribed 14 times. Muhammad Yunus expressed concern that going public would put the demands of shareholders ahead of the poor. He added further, "If they do it, I cannot stop them but I would encourage genuine Microcredit programs." SKS founder Vikram Akula resigned from the board on 23 November 2011. In 2015, P. H. Ravi Kumar became the non-executive chairman. The company's shares meanwhile lost 96% of their value from a high of Rs. 1491.50 in 2010.
2012 to 2018
In a 2012 cover story, The Hindu reported that a marked shift took place in the values and incentives of SKS in 2008, after largescale investment began to flow in from venture capitalists and prospectors including Boston based Sandstone capital and Sequoia capital. In September 2010, reports surfaced in the media of nearly 200 suicides by defaulters of a number of micro finance institutions, including SKS finance. This led to an enquiry by the Andhra Pradesh government. In 2014, the investors in the SKS Microfinance, Mauritius Unitus Corporation, Sequoia Capital India Growth Investments and SKS Mutual Benefit Trust as well as its founder Vikam Akula relinquished their roles as promoters. In 2016, SKS Microfinance was renamed to Bharat Financial Inclusion Ltd. In 2017, the company launched a loan approval system based on Adhaar to reduce the time and cost involved in the loan approval process. In the same year, it also launched its Kirana store service which allowed its customers to do financial transactions by visiting its designated stores. Later in 2017, the company entered into discussions of a possible merger with IndusInd Bank. The merger received approvals from Reserve Bank of India, National Stock Exchange of India and Bombay Stock Exchange later in 2018.
MFI Crisis in India in 2011
In 2011, the micro finance industry in India suffered a crisis due to the growing news of suicides by borrowers, and SKS to faced the brunt. In 2012, an independent investigation commissioned by the company linked SKS employees to at least seven suicides of creditors in Andhra Pradesh. A second investigation said SKS may have been involved in two other suicide cases. In 2012, SKS Microfinance cut 1200 jobs and closed 78 branches in Andhra Pradesh. Interviews with family members of the deceased, by BBC suggested that the reason for these suicides appeared to be large sub-prime loans taken by the villagers, with the active encouragement of SKS loan agents.
Products
SKS Microfinance offers life assurance and a variety of financial loans – income generation loans; mid-term loans; long-term Loans; loans for purchase of products like cook-stoves, solar lights, water purifiers, mobile phones, bicycles and sewing machines; and loans secured on gold jewellery. The company lists some of the social benefits of its financial product and service offerings as "providing self-employed women financial assistance to support their business with enterprises, such as raising livestock, running local retail shops called kirana stores, providing tailoring and other assorted trade and services." Loans were subsequently also offered to men, and for various reasons including marriage expenses and to purchase seeds.
Operations
SKs Microfinance follows the Joint Liability Group model. The methodology involves lending to individual women, using five– member groups as the ultimate guarantor for each member. Through group lending, situations of adverse selection and moral hazard due to asymmetric information are better managed. "Social collateral" replaces asset collateral. Such a system works because India is still a highly community-centric society. The concept of honour and respect within society is deeply rooted in Indian culture and willful default invites condescending glances, humiliation and even ostracism. In Nov 2015, SKS Microfinance Ltd has cut interest rates by one percentage point to 19.75% on the loans it offers to low-income women borrowers, making it the sole Indian microlender to offer loans at a rate below 20%.The move came after Reserve Bank of India decided to double the borrower limit for microfinance loans for less than 24 months. Lower interest rates can attract more borrowers in an increasingly competitive market. Microfinance companies, which had started lending at around 28-34% in 2010, are now able to charge lower interest rates because of newer avenues to raise funds at lower cost and their ability to operate more efficiently than before."SKS is the first company to charge sub-20% interest rates on the core income generating loans," the company claimed in a statement on Friday. This is the fourth time SKS has reduced interest rates since October 2014.
