SKS Microfinance (Bharat Financial Inclusion Ltd.)

SKS Microfinance, now known as Bharat Financial Inclusion Ltd. (BFIL), represents a significant chapter in the history of microfinance in India. Founded by Vikram Akula in 1997, it rapidly grew to become one of the largest microfinance institutions (MFIs) in the country, aiming to provide financial services to low-income women entrepreneurs. Initially operating as a non-governmental organization (NGO), it transitioned into a non-banking financial company (NBFC) to attract commercial investment and scale up its operations.

The core mission of SKS was to alleviate poverty by providing small loans to women, allowing them to start or expand their own businesses. This model, based on the Grameen Bank principles pioneered by Muhammad Yunus, involved forming self-help groups (SHGs) and offering loans with relatively high interest rates. The high rates were justified as necessary to cover operational costs, manage risk, and ensure the sustainability of the microfinance operations in remote areas.

SKS achieved substantial growth in the early 2000s, attracting significant investment from venture capitalists and private equity firms. In 2010, it became the first MFI in India to launch an initial public offering (IPO), marking a milestone in the development of the microfinance sector. This IPO generated considerable interest but also raised concerns about the company’s profit-driven approach and its potential impact on borrowers.

However, SKS’s rapid expansion was followed by a crisis. In 2010, the Andhra Pradesh government introduced strict regulations on microfinance institutions following reports of coercive lending practices, over-indebtedness, and farmer suicides linked to microfinance loans. These regulations severely impacted SKS’s operations in its largest market, leading to significant financial losses and a decline in its stock price. The crisis highlighted the ethical dilemmas inherent in the pursuit of profit in microfinance and the potential for vulnerable borrowers to be exploited.

In the aftermath of the Andhra Pradesh crisis, SKS underwent significant restructuring. It focused on diversifying its geographical reach, improving its lending practices, and strengthening its risk management. The company also emphasized its commitment to social responsibility and financial inclusion.

In 2019, SKS Microfinance merged with IndusInd Bank, becoming a wholly-owned subsidiary known as Bharat Financial Inclusion Ltd. This merger provided BFIL with access to cheaper funding and a wider range of financial services to offer its customers. IndusInd Bank, in turn, gained access to BFIL’s extensive network and expertise in serving low-income communities.

Today, BFIL continues to operate as a microfinance institution, providing loans and other financial services to women in rural and semi-urban areas. While its history is marked by both success and controversy, SKS’s journey as BFIL remains a prominent example of the challenges and opportunities in the pursuit of financial inclusion in India. The story serves as a cautionary tale about the importance of balancing financial sustainability with social responsibility in the microfinance sector.