SKS Microfinance is caught between the need for profitable growth and its social imperative to serve the poor. Its choices in the coming months will show which way it goes
SKS, like the sector it represents, is at a crossroads today. The company is working to become the world’s largest microfinance institution (MFI) next year by overtaking Muhammad Yunus’ Grameen Bank. SKS is also on the verge of becoming the first-ever MFI in India to go public. Not only is the management divided on how to grow, but is also facing charges of losing sight of its customers in favour of profitability and investor targets. Yunus, widely regarded as the father of microfinance, shivers at the thought of mixing private profits and microlending. “That’s what loan sharks have been doing over centuries.”
For Akula, the answer lies beyond the Yunus school of thought. “Grameen Bank reaches 7 million clients … it took Professor Yunus 35 years to do that … Can you imagine how many generations it will take to reach 150 million poor households? ... We have to scale more rapidly, and only commercial capital will meet our huge funding requirements. The only way to get that is to be ... extremely profitable,” he says. As the forerunner, if SKS fails to find the right balance between creating social value for its customers and economic value for its investors, it may have a ripple effect throughout the industry.
Both Akula and Gurumani are looking to expand SKS’ customer base. Yet they don’t seem to agree on how it should be done. Akula sees potential to innovate and expand across products and services for the poor. So SKS is examining the possibility of using its vast distribution network to sell everything from micro insurance to mobile phones. Gurumani wants to focus on retail financial services. He’s pushed hard for distributing a health insurance product. At SKS, for over a year now there has been a debate about whether or not to sell gold to customers. The predicament remains unresolved, but some see Akula as the last bulwark against the final assault of the bean counters.
This retail push has raised murmurs that SKS is not looking enough at creating socially beneficial products and is trying to push for a consumption wave.
Tarun Khanna, professor at Harvard Business School and an independent director on the SKS board, says many companies use MFIs to get access to a wider customer base. SKS has to be careful about not doing something that violates the trust of the poor customer.
- This article was earlier published in Forbes India magazine dated September 25, 2009.
(This story appears in the 04 June, 2010 issue of Forbes India. To visit our Archives, click here.)