At the Crossroads
Some MFIs such as BASIX feel high growth rates do not qualify as poverty alleviation. It is for this reason that it has chosen to go beyond micro credit and engage in other aspects of its customers’ needs. Livelihood creation has meant BASIX is much smaller in size and is more focussed on meeting the broader needs of the poor.
Even Gurumani sounds a cautious note. “I have seen in my tenure as a banker that reckless growth often leads to pain. To ensure that SKS did not have to go through this pain, we slowed things down a little bit and concentrated more on getting our systems, processes and technology back end finely tuned. This will enable us to push SKS into a higher orbit in the years to come.” This year, SKS will see its growth rate halve to a 100 plus percent.
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. Padmaja Reddy, founder and promoter of Spandana Sphoorty Financial, the second largest MFI in India, expresses concern over SKS’ push for going public. “They are growing in silos. And this will cost the consumer and other industry players because if things don’t go well or if senior management leaves or if they are not successful in the IPO and can’t keep up growth or profitability, all of us get impacted. I suppose there are pressures from their investors to go for an IPO. Either that or senior management wants to cash out,” says Reddy.
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Image: Vikas Khot
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THE STAKEHOLDER: Rural women have helped SKS maintain a 99.5 percent collection rate | |
Google of Microfinance
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. His favourite analogy is comparing the possibilities of SKS’ distribution network to that of Google’s: The way to the bottom of the pyramid is through the MFI.
“Companies have started tapping the rural upmarket — no one has really managed to access the rural low market. If we get this right, this is Retail 2.0,” Akula says. So SKS is examining the possibilities of using its vast distribution network to sell everything from micro insurance to mobile phones. It has even tied up with German retailer Metro Cash and Carry to extend credit to small provision stores.
Guramani, on the other hand, prefers to stick to the knitting. The SKS model relies on standardising and mechanising processes, borrowing from the operational practices of the likes of McDonald’s and Starbucks. Gurumani wants to focus on retail financial services. He’s pushed hard for distributing a health insurance product, which guaranteed 24 hours of hospitalisation for a family of four.
The pilot was hugely successful, but when the product was actually rolled out, it wasn’t working. “We rolled it out too fast. The loan officers hadn’t been trained to properly communicate the preconditions to the customers. So we’ve currently pressed the pause button on the project,” admits Akula. But that came after considerable fire-fighting with the new CEO, who felt they could fix the problems as they went along.
Last year, a study by consultancy Monitor Group exploring how MFI’s could leverage their distribution channels for non financial products, found that 85 percent of its survey sample of SKS borrowers wanted credit for aspirational goods such as TVs and gold coins. Less than 10 percent wanted loans for socially beneficial goods like solar lanterns or water purifiers.
Yet Akula doesn’t quite agree that SKS ought to focus on aspirational goods. “From a business perspective we’ll do aspirational goods when we have exhausted a majority of my customer needs. I’ve made an argument that returns on social responsive goods will be higher than those on aspirational goods, and my investors are on board.”
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. Says an insider, “Vikram absolutely refuses to [sell gold]. The board has been pushing for it, but he is very clear he doesn’t want it. SKS hasn’t gone completely to the dark side.”
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.
“The focus is becoming more and more toward corporate investors and they are trying to maximise the distribution channel. For instance, a hair dye company wanted to know how consumers would react to their hair dye. So SKS, through four-five of its branches gave out a sample to its customers. SKS then sent that survey back to the company — they sold it to them, sometime in June this year,” says an industry source.
Tarun Khanna, professor at Harvard Business School and an independent director on the SKS board, is clear what the company’s priorities should be. “You would be shooting yourself in the foot if you tried to feed something to the consumer they did not need,’’ says Khanna. He 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. “To my mind, the fundamental question should be we’re in the business of income generating loans — if what we sell helps in that role and it is also earning margins for us then it is OK. The other things you discontinue.’’
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