Social Entrepreneurship in India:

A glance through the works of

Dr. Vikram Akula and his “SKS”

Trinayan Bhuyan
trinayanbhuyan@yahoo.com
 Social Business: a new kind of business

– Creating business models revolving around low-

cost products and services to resolve social
problems

– Social business is for ‘more-than-profit’

combine revenue-generating business with a
social-value-generating structure

– Can be two kinds

• Creating services for poor
• Owned by poor
PROFIT MAKING VS SOCIAL OBJECTIVES: there are scope for conflict.
Still Profits IS MUST because: -
– Promotes R&D, innovation, new technologies
– Increases efficiency
– Enables penetration to new geographical areas and serve deeper layers of
low-income people
– Helps recover costs and pay back investors, thus encourages investments

PMBs (profit max. businesses) vs. SBs (social businesses) ; are SIMILAR in some
ways…
– Employ workers, create goods & services for consumers
– Must recover full costs
– Profits are important

YET objective is to create social benefit and not limited to personal gains ,
hence the best way is to deal with the HYBRID….
 Social Business –
Some Examples

– Banking and finance is the biggest

beneficiary of technology-enabled social
startups
• Muhammad Yunus, Grameen Bank
(Nobel Peace Prize 2006) ** not founded in India
• Vikram Akula, SKS Microfinance (Social Entrepreneur of the Year Award 2006)
• Kava (peer-to-peer micro-lending website) ** not founded in India

– Energy
• Solar Electrification - Harish Hande, SELCO (Social Entrepreneur of the Year Award
2007)

– Other examples
• Education (Same Language Subtitling, Janarth - education solutions for children of
migrant laborers)
• Many more…
 Microfinance - Role of SHGs
• Microfinance is providing financial services to
the poor such as loans, savings, money transfer
services and micro insurance.

• In India, Self Help Groups (SHGs) form the basic

constituent unit of the microfinance
– SHG is a group of a few individuals – usually poor women (group of 5 to 20)
– They pool their savings (as low as Rs. 10 or 20 cents monthly per member) into a fund from which
they can borrow as and when necessary
– Such a group is linked with a bank – where they maintain a group account.
– Over time the bank begins to lend to the group as a unit, without collateral, relying on self-
monitoring and peer pressure within the group for repayment of these loans.

• The group is eligible for ‘bank-loan’ after atleast 6 months of ‘inter-loan’ repayments
• Maximum loan amount is a multiple (usually 4:1) of the total funds in group account – starts
with lower multiples (1:1 to 2:1)
 Microfinance - Key Challenges
• High ‘Cost-to-Serve’
– Accounts are low in value but large in volume
– High transactions costs (as frequent transactions)
– Low levels of automation
– Intense supervision requirements to maintain high recovery rates (trade-off between supervision
cost min. and recovery max)
• Very small scale – figure shows SHGs linked to banks are in handful of States (mostly in South
India – AP) [Chakrabarti, Georgia Tech, 2004]
 Microfinance - Key Challenges
• Deficiency of Capital – Constrain on Outreach
– Until recently, MFIs were dependent on donor grants, but grants are limited in size and availability
and are becoming harder to access as the pool of global MFIs grows.
– Many of the MFIs are registered as not-for-profit entities that make it an unattractive choice for
investors
– Low profitability of MFIs because of reasons mentioned above is also a barrier to raise equity capital

• Regulatory/policy Issues
– If the NGO earns a substantial part of its income from lending activity, it violates the Income Tax Act
and could lose its charitable status.
– If an MFI opts to become an NBFC, it should be able to satisfy the entry-level capital requirements of
Rs. 20 million. (In India, there has been strong advocacy for bringing down the capital entry norms for
NBFCs in the business of microfinance)
– In the case of NBFCs, deposit mobilisation is not possible at least for the first 3 years, till a
satisfactory credit rating is obtained.
– Borrowing from foreign institutions is hard due to the credit rating requirements imposed by RBI.
 Challenges present Opportunities
• SKS, specializing in microfinance
is one of the largest and fastest-growing microfinance
organizations in the world (disbursements exceeding
$500 million to about 2.2 million women)
Inter-linked three principles:
1. for-profit methodology 2. best business
practices 3. latest technology
 SKS (Swayam Krishi
Sangam) Microfinance

Empowering the Poorest of the Poor to Become Self-Reliant

Founder and Executive Chairman : VIKRAM AKULA

 Vikram Akula; the person
• Vikram began working in rural India two decades ago. He started his development
career in 1990 as a community organizer of women’s self-help groups for the
Deccan Development Society, a non-profit working in rural Andhra Pradesh, India.
• He then joined the World Watch Institute in Washington DC as a researcher,
where he wrote articles on poverty and development.
• As a Fulbright Scholar in India in 1994-95, Vikram led on a government-funded
action-research project that provided micro-credit to poor farmers for food
security.
• After extensive research based on field work and graduate study, Vikram founded
SKS Microfinance as a non-profit in late 1997. He led the organization until 2004,
when he joined McKinsey & Company in Chicago as a management consultant.
• In 2005, he returned to SKS when it converted to a for-profit company and led it
from serving just thousands of poor women borrowers in one state in India to
millions across the country today.
• He holds a B.A. in Philosophy and English from Tufts, an M.A. in International
Relations from Yale, and a Ph.D. in Political Science from the University of
Chicago. He is the author of the book A Fistful of Rice; My Unexpected Quest
to End Poverty Through Profitability.

• Vikram has received several awards for his work with SKS, including the Ernst
& Young Entrepreneur of the Year in India (Business Transformation in 2010;
Start-up in 2006), the World Economic Forum’s Young Global Leader award
(2008), Social Entrepreneur of the Year in India (2006), and the Echoing
Green Public Service Entrepreneur Fellowship (1998-2002). In 2006, Vikram
was named by TIME Magazine as one of the world’s 100 most influential
people and was also featured on the front page of Wall Street Journal.
• NEVERTHELESS HIS GREATEST ACHIVEMENT IS FOUNDING OF SKS ITSELF
FOR WHICH HE IS WIDELY APPRECIATED WORLD OVER.
 Mission and Profile of SKS
Founded June 1998
Mission To Empower the Poorest of the Poor to Become Self-
Reliant by Sustainably Providing Financial Services
Focus Poorest of the Poor in Drought-Prone Deccan Region of India

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 Working of SKS
• SKS distributes small loans that begin at Rs. 2,000 to Rs. 12,000 (about
$44-$260) to poor women so they can start and expand simple businesses
and increase their incomes. Their micro-enterprises range from raising
cows and goats in order to sell their milk, to opening a village tea stall.

• SKS uses the group lending model where poor women guarantee each
other’s loans. Borrowers undergo financial literacy training and must pass a
test before they are allowed to take out loans. Weekly meetings with
borrowers follow a highly disciplined approach. Re-payment rates on our
collateral-free loans are more than 99% because of this systematic process.

• SKS also offers micro-insurance to the poor as well as financing for other
goods and services that can help them combat poverty.
 SKS Microfinance, an NGO-turned-for-profit company, applies global
business best practices to the field of microfinance.  It was launched in 1997
because of a fundamental flaw in microfinance—namely, its inability to scale
to large numbers. SKS identied the constraints to scaling as the three “Cs”—
lack of capital, capacity constraints, and the high costs of delivering miro-
loans. SKS has overcome this challenge on the basis of three innovative
principles:

(1) using a profit-oriented model to overcome capital constraints

(2) leveraging best practices for scaling from the business world to overcome
capacity constraint

(3) using technology to automate processes and lower costs.

.
Group-Based Grameen Methodology

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SKS MAPS Framework – Designed for Scale

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Context of Technology Innovation
1. Identification of Barriers to Growth - High Volume, Low Value
• High Transactions Costs
• High Risk

2. Identification of Key Element of Solution

• SKS MAPS - Fully-Integrated, Fully-Automated MIS

3. Funders
• CGAP (Pro-Poor Innovation Award Winner)

• Grameen Foundation USA

• Digital Partners (SEL Award Winner)

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 SKS Portfolio Tracker - User Friendly

• Highly Sophisticated User-Interface

• Yet Intuitive and Easy-to-Use

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 The Future: Smart Cards as Cash Substitute

• For the Customer - Flexible Services

• Credit linkages at local hospitals
• Linking into proposed rural ATM networks
• Lines of credit with local vendors

• For the MFI - Cashless Microfinance using Phone Booths

• For Other Uses - SKS WAVE, Digital Platform for e-Health….

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 PARTNERS
SKS’s profit-oriented model has attracted major equity investments from premier
venture capitalists, including Vinod Khosla (co-founder of Sun Microsystems), Sequoia,
(an early investor in companies such as Cisco, Yahoo and Google) and Ravi Reddy (co-
founder of Think Systems). This, in turn, has led to the ability to leverage debt from
banks. Indeed, as of November 2007, SKS had lent over 15 billion rupees ($400 million)
to over 1,300,000 poor women, benefiting approximately 6 million individuals
 Operational and Financial Information

Operational Information FY10 FY09 FY08 FY07

Total no. of Branches 2,029 1,353 770 276

Total no. of Districts 341 307 219 103
Total no. of Staff 21,154 12,814 6,818 2,381
Total No. of Members (in 6,780 3,953 1,879 603
'000)
Amount Disbursed for the 7,618 4,485 1,680 452
period (INR crores)

Portfolio outstanding (INR 4,321 2,456 1,051 276

crores)*

* includes assigned loan

portfolio

Financial Information FY10 FY09 FY08 FY07

Revenue (INR crores) 958 554 170 45

PAT (INR crores) 174 80 17 2
Assets (INR crores) 4,055 3,039 1,089 335
 Social entrepreneurship in
non “YUNUS” way

Explosive growth of SKS has however attracted as much criticism as

praise. Among its detractors is the Nobel Prize-winning founder of
Grameen Bank, Mohammad Yunus, who lambasted SKS Micro Finance for
seeking profits at the cost of its social objectives.

However, Akula is unfazed. “Professor Yunus’ view is that microfinance

should be a social business—no profit, no loss. We have a different view.
My view is that if you are trying to raise $50 billion in the Indian market,
even if you have the charisma that Yunus has, you still can’t raise that kind
of capital from social investors,” he says.
THANK YOU