Sunday, October 17, 2010


     1. Micro financing started as a social cause enterprise is turning out to be blood-sucking business of the poorest of the poor and hapless sections of the society.

    2. There is no concern for the poor. The management is very much concerned about their chair, salary, benefits, ESOPs and wealth creation for themselves. The recent rumblings in SKS, which removed its managing director in an unprofessional manner, speak volumes about its corporate governance.

   3. Seventeen borrowers of SKS micro finance committed suicide in Sept 2010, in Andhra Pradesh.

   4. MFIs have come into existence as a financial intermediary for the poor; they have actually led to further impoverishment by adopting unethical practices, resorting to multiple lending without due diligence, usurious interest rates and coercive methods of recovery, as per the survey by A P government.

5. The RBI governor has suggested the state governments were the best agencies to regulate the coercive interest rates. This will happen soon.

6. According to the new regulation, the MFIs in A P must register themselves with district rural development authorities, indicate their areas of operation, employees, number of members and credit status. It also asked MFIs to display the interest rates, among other things. Dubious methods followed earlier wont work any more.
7. The proposed ordinance is likely to insist on MFIs being registered with district rural development agencies, apart from imposing a three-year imprisonment and/or Rs 1, 00,000 fines on erring MFIs.

8. The A P government is working out a policy to put a ceiling on interest rates charged by MFIs.

9. Unsustainable business model: The business model will not sustain in the end.

10. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.

11. Look at the salary of top executives:

Suresh Gurumani (now sacked) - Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.

Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a. These people are trying to eradicate poverty. LOOK AT THEIR MIND SET.

12. Mohd. Yunus says (The father of micro finance) - “I get very worried when investment funds come to micro finance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,” And the promoters in India says the business is exiting (exploitation of the poor).

13. The IPO of SKS micro has already made the promoters and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty and are committing suicide.

 14. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment further. This will make the business un- attractive.

15. Financial inclusion initiatives taken by the public sector banks will marginalize the micro finance business.

16. The average cost of acquisition of shares by promoters of SKS promoters is less than Rs50/-

17. RBI has constituted a sub committee to look into the functioning of MFI sector. Basing on the recommendations of the committee further stringent measures is expected.
   18.  Most of the favorable research report on MFIs is paid research report. DO NOT BELIEVE THEM BLINDLY.

    19. The A P government is examining loan swap of MFIs with other banks, thus giving no room for scale up of operations by MFIs.
 20. Look at this irony – the wealthiest and the richest industrialists/business men in the country have access to the cheapest credit, around 8% p.a. from Banks and Financial institutions. Where as the poor, the down trodden and the and other unfortunate sections of the society pays the highest interest, anywhere between 30%-40%p.a. when they borrow from the Micro Financial Institutions (MFI). This cannot go on for very long.
   21. The multiple lending (the same borrower taking loans from several MFIs), is very rampant, and this bubble will burst one day. Servicing multiple loans every week is not easy, particularly when they are disbursed under group guarantee, creating peer pressure not to default.

     22. The poor are vulnerable to emergencies like flood, drought, illness and marriage.  So the claim of near 100% recovery by MFIs are either farce or the figures are fabricated.
     23. Private equity and the global financial crisis have brought in senior managers from the financial world at what is considered exorbitant salaries to the world of micro finance. This is temporary phenomena.
      24. Thus, there is a danger of micro finance not only being unable to remove poverty but end up as debt enlarging institutions.
      25.  MFIs clarification that their rate of interest is lower than the rate charged by the local moneylenders holds no water. The truth is, in the name of helping poor, the poor is being exploited by these MFIs.


  1. Hi Prasanna,

    Whats your opinion on SKS Microfinance? I am pretty sure you have not invested in this company but just wanted to get your thoughts on the share price of SKS. With so much of negativity sounding MFIs, I THINK sks will settle somewhere between Rs. 650-800.


  2. Do not buy SKS. More stringent regulatory measures expected. Business is unethical. PE investors share are locked in, hence they are not selling. Once they start offloading it may come to Rs 300/-