SKS Microfinance (Now Bharat Financial Inclusion Limited) – A Historical Overview

SKS Microfinance, later renamed Bharat Financial Inclusion Limited (BFIL), holds a significant place in the history of Indian microfinance. Its trajectory, from a promising social enterprise to a controversial publicly listed company, and ultimately its acquisition by IndusInd Bank, offers valuable lessons for the sector.

Founded by Vikram Akula in 1997 as Swayam Krishi Sangam (SKS), the organization aimed to alleviate poverty by providing small loans to underprivileged women in rural India. Akula, inspired by the Grameen Bank model, envisioned a scalable and sustainable microfinance institution. SKS initially operated as a not-for-profit and later transitioned to a for-profit Non-Banking Financial Company (NBFC).

SKS experienced rapid growth in the early 2000s, fueled by foreign investments and a growing demand for microloans. Its innovative use of technology and standardized processes allowed it to expand its operations quickly across multiple states. By 2010, SKS was the largest microfinance institution in India, serving millions of borrowers. The company’s initial public offering (IPO) in August 2010 was a landmark event, generating considerable excitement and marking a new era for Indian microfinance. The IPO was significantly oversubscribed, highlighting investor confidence in the company’s growth potential.

However, the IPO also brought increased scrutiny and a shift in focus towards maximizing profits. Allegations of coercive recovery practices, high interest rates, and multiple lending began to surface. The Andhra Pradesh microfinance crisis in late 2010, triggered by regulatory changes and reports of over-indebtedness leading to suicides, severely impacted SKS. The state government imposed strict regulations on microfinance institutions, effectively halting operations in Andhra Pradesh, which was a significant market for SKS.

The crisis led to a dramatic fall in SKS’s stock price and significant losses. The company faced accusations of prioritizing profits over its social mission. Vikram Akula stepped down as CEO in 2011. Despite the challenges, SKS managed to survive the crisis by restructuring its operations, reducing its reliance on Andhra Pradesh, and focusing on other states.

In the years that followed, SKS focused on improving its lending practices, strengthening its risk management, and diversifying its product offerings. It also rebranded as Bharat Financial Inclusion Limited (BFIL) in 2016, signaling a fresh start. Despite the efforts to rebuild its reputation, the damage from the Andhra Pradesh crisis lingered.

Ultimately, BFIL was acquired by IndusInd Bank in 2019 in a deal worth approximately $2.4 billion. The acquisition marked the end of BFIL as an independent entity and integrated its microfinance operations into IndusInd Bank’s broader financial services portfolio. This acquisition highlighted the challenges faced by standalone microfinance institutions in a rapidly evolving financial landscape.

The story of SKS Microfinance serves as a cautionary tale about the complexities of balancing social impact with financial sustainability. While it initially demonstrated the potential of microfinance to empower the poor, its pursuit of rapid growth and profits ultimately led to a crisis that tarnished its reputation and impacted the lives of many borrowers. The company’s journey underscores the importance of ethical lending practices, responsible growth, and a strong commitment to the social mission of microfinance.