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SKS MICRO FINANCE
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Synopsis
Micro finance and its attributes
Brief Introduction-SKS
Valuation- Branch & Subscriber
RBI Circular & Andhra Pradesh MFI Act
Financial statement Review
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What is Micro finance?
A means of extending credit, usually in the form of small loans with no
collateral, to non traditional borrowers such as the poor in rural orundeveloped areas.
Finance that is provided to unemployed or low-income people or groups.
The provision of small loans (microcredit) to poor people to help them
engage in productive activities or grow very small businesses. The term mayalso include a broader range of services, including credit, savings, andinsurance.
Microcredit is the extension of very small loans to those in poverty designedto encourage entrepreneurship.
Microfinance is provided for the people who do not qualify for the bankingsystem.
NO security (even if people own land they usually dont have the title to it)
NO credit history
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The origin of Grameen Bank can be traced back to 1976 - Professor Muhammad
Yunus
Head of the Rural Economics Program at the University of Chittagong, launched an
action research project to examine the possibility of designing a credit delivery
system and to provide banking services targeted at the rural poor.
The Grameen Bank Project (Grameen means "rural" or "village" in Bangla
language) came into operation
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Objectives:
Extend banking facilities to poor men and women;
Eliminate the exploitation of the poor by money lenders;
Create opportunities for self-employment for the vastmultitude of unemployed people in rural Bangladesh
Bring the needy, mostly the women from the pooresthouseholds, within the fold of an organizational format whichthey can understand and manage by themselves;
Reverse the age-old vicious circle of "low income, low saving& low investment", into virtuous circle of "low income,injection of credit, investment, more income, more savings,more investment, more income".
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Why do poor people need financialservices?
Life cycle Needs: weddings, funerals, childbirth,
education, homebuilding, widowhood, old age.
Personal Emergencies: sickness, injury, unemployment,
theft, harassment or death.
Disasters: fires, floods, cyclones and man-made events
like war.
Investment Opportunities: expanding a business,
buying land or equipment, improving housing, etc.
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low income
low savinglow
investment
low income
injectionof credit
investment
moreincome
moresavings
moreinvestment
moreincome
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SKS Micro FinanaceEmpowering the Poor to Become Economically Self-Reliant
Page 3Page 4Page 5Page 6Page 7Page 8Page 9Page 10Page 11Page 12Page 13Page 14Page 15Page 16Page 17
*SKS denotes -: Swayam Krishi Sangam (Self Cultivation Society)
*Mission
To empower the poorest of the poor to become self-reliantby providing financial services in a sustainable manner.
*Focus
Drought-prone Deccan region (South India) and poor women
*Vikram K. Akula, Founder and Ex- Chairman, SKS Microfinance,India,
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Inception of SKS (Video)
Vikram started his development career in 1990 as a community organizer of women s self-helpgroups 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 Fuo lbright 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 Till 2004, when he joined McKinsey & Company in
Chicago as a management consultant.
One Poor Woman questioned Akula Am I not poor too? Do I not deserve the chance to get
my family out of Poverty? this led him to return to SKS when it converted it to a Profit company
and led it from serving just thousands of poor women borrowers In one state in India to 7 millions
across the country by 2010.
http://www.sksindia.com/index.phphttp://www.sksindia.com/index.phphttp://www.sksindia.com/index.phphttp://www.sksindia.com/index.phphttp://www.sksindia.com/index.php7/31/2019 SKS Final =Ub
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Joint Liability Model
-Model Description
- Village Selection
- Projection Meeting
- Group Formation
- Compulsory Group
Training
-Centre Meeting
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Vikram -Receiver of Several Awards
- The Ernst & Young Entrepreneur of the Year in India(Business Transformation in 2010; Start-up in 2006)
- The World Economic Forums Young Global Leader
award (2008)
- Social Entrepreneur of the Year in India (2006)
- The Echoing Green Public Service Entrepreneur
Fellowship (1998-2002).
- In 2006, Vikram was named by TIME Magazine as
one of the worlds 100 most influential people and was
also featured on the front page of Wall Street Journal
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Andhra Pradesh is stated to have a unique leadership position in the Indianmicrofinance industry, as evidenced by the presence of the four largest MFIs in
India in the state accounts for over 40% of all loans by MFIs across India.
The Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2010
On January 1, 2011, the Government of AP introduced the AP MFI Act
For regulating money-lending transactions by MFIs.
For achieving greater transparency with respect to such transactions
To protect the interests of Self-Help Groups (SHG) in AP
Whereas these SHGs are being exploited by private Micro Finance Institutions (MFIs)
through usurious interest rates and coercive means of recovery resulting in their
impoverishment & in some cases leading to suicides, it is expedient to make provisions for
protecting the interests of the SHGs, by regulating the money lending transactions by the
money lending MFIs and to achieve greater transparency in such transactions in the State
of Andhra Pradesh
The AP MFI Act and the AP Microfinance crisis
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Allegations by the AP GovernmentPrivate sector MFIs charge usurious interest rates
MFI employ coercive collection practices
MFI clients being pushed to commit suicide
Impact of the AP MFI ActAn immediate impact on the recoveries of MFIs
Recovery rates that were as high as 99.0 % plummeted to as low as 10.0 %
No effective way by which the MFIs could enforce repayments
5 million poor women in 18 states across India will lose access to finance
Financial Inclusion agenda will suffer
Indian private & public sector banks will suffer substantial losses
Thousands of people employed in microfinance sector will lose jobs
The AP MFI Act and the AP Microfinance crisis
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Client Outreach:
Rural development is a key priority for the Government of India.
Of the 3.2 crores clients of MFIs, rural clients constitute 52 %
The AP MFI Act and the AP Microfinance crisis
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The main reasons for non-repayment of loans and alternative sources of fundingafter the exit of MFIs post the Andhra Pradesh crisis are set forth below:
The AP MFI Act and the AP Microfinance crisis
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The AP MFI Act and the AP Microfinance crisis
Top three reasons why borrowers preferred MFIs were :Timely loans
Convenient Installments
Low Interest Rates.
Below are the effective interest rates that borrowers agreed to pay to the moneylenders
(Source: SOS 2011 report)
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Situation after the AP microfinance crisisMFIs have tried to continue with their businesses in other states to the extent banks
allowed them to draw from the already sanctioned limits.
MFIs have since scaled down their operations and reduced both customers and
loans outstanding in a bid to contain risks and maintain repayments to banks.
Banks restricted their lending to MFIs and stopped fresh disbursements.
Rating agencies scaled down their ratings across the sector.
The AP MFI Act and the AP Microfinance crisis
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The Malegam Committee RecomendationsThe RBI is responsible for regulating non-banking financial companies (NBFCs), not
the state governments. As a step toward resolving the jurisdictional breach caused
by the AP governments purported regulation of NBFCs, the RBI set up the Malegam
Committee to study the issue and make recommendations.
Loan limits - A limit on loans of Rs 25,000 to borrowers with household income of
less than Rs 50,000.
A cap on interest rates and margins
Provisioning norms - The report recommends much higher provisioning norms
than are currently in place.
Increased capital requirement - An increase in the minimum capital requirement
from Rs. 2 crore ($450,000) to Rs.15 crore ($3.4M), represents a 7.5 fold increase for
an industry with historical repayment rates of 98% and higher..
The AP MFI Act and the AP Microfinance crisis
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Anticipating that pursuant to the enactment of the AP MFI Act, other stategovernments could start enacting their own legislations to regulate MFIs creating
plurality of regulation which may leave scope for regulatory arbitrage, the RBI
exercised its power to regulate NBFCs
The RBI, pursuant to its decision to accept the recommendations of the Malegam
Committee, brought NBFC-MFIs under a separate regulatory framework, throughNBFC-MFI directions.
Many aspects of the NBFC-MFI directions are similar to the conditions
introduced earlier on May 3, 2011, when the RBI decided to maintain the
eligibility of MFIs for Priority Sector Lending (PSL).
The RBI issued directions titled the Non-Banking Financial Company -MicroFinance Institutions (Reserve Bank) Directions, 2011 dated December 02, 2011
Again on August 03, 2012, RBI made certain modifications in the directions
issued earlier.
Reserve Bank of India Directions & Notifications for NBFC-MFIs
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Capital Requirements :
All registered NBFCs shall maintain Net Owned Funds (NOF) at Rs.3 crore byMarch 31, 2013 and at Rs.5 crore by March 31, 2014
In North Eastern Region, the minimum NOF is to be maintained at Rs.1 crore
by March 31, 2012 and at Rs.2 crore by March 31, 2014.
All new companies desiring NBFC-MFI registration will need a minimum NOF
of Rs.5 crore except those in the North Eastern Region of the country whichwill require NOF of Rs.2 crore
Qualifying Assets:
NBFC-MFIs are required to maintain not less than 85 per cent of their net
assets as Qualifying Assets (only the assets originated on or after January 1,2012)
The aggregate amount of loans given for income generation is not less than
70 per cent of the total loans extended. The remaining 30 per cent can be for
other purposes such as housing repairs, education, medical and other
emergencies.
Reserve Bank of India Directions & Notifications for NBFC-MFIs
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Multiple Lending :
A borrower can be the member of only one SHG or one JLG or borrow as an
individual. He can thus borrow from NBFC-MFIs as a member of a SHG or amember of a JLG or borrow in his individual capacity.
An SHG or JLG or individual cannot borrow from more than 2 MFIs..
Ensuring Compliance with Conditionalities :
Lending MFIs will have to ensure compliance with, among others,
conditionalities relating to annual household income levels (Rs. 60,000/- forrural and Rs. 1,20,000/- for urban and semi-urban households), total
indebtedness (not to exceed Rs. 50,000/-)
Pricing of Credit :
The interest rate cap on loans given by MFIs was fixed at 26 %
To allow for operational flexibility, NBFC-MFIs will ensure that the averageinterest rate on loans during a financial year does not exceed the average
borrowing cost during that financial year plus the margin, within the
prescribed cap.
It has also been decided that the cap on margins as defined by Malegam
Committee may not exceed 10 per cent for large MFIs (loans portfolios
exceeding Rs.100 crore) and 12 per cent for the others
Reserve Bank of India Directions & Notifications for NBFC-MFIs
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July 25 2012 - SKS Microfinance employees embezzle Rs 15.8 cr
Its employees have cheated the company to the tune of Rs 15.8 crore in the last
financial year. The services of employees involved have been terminated andthe company has written off over Rs 14 crore.
Cash embezzlement - Rs.2.5 Cr.
Loans given to non-existent borrowers Rs.13.3 Cr.
July 29 2012 - SKS Micro seeks shareholders' nod for moving to Mumbai
SKS Microfinance Ltd has sought shareholders approval for shifting the
registered office from Andhra Pradesh to Maharashtra. The Hyderabad-based
company has served a postal ballot notice to the shareholders in this regard,
according to a disclosure to the Bombay Stock Exchange. Though it only
mentions Maharashtra as the proposed location for new registered office,SKS had hinted earlier that it could be Mumbai.
In the News
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Aug 04 2012 - SKS Microfinance soars over 16 percent
Shares of SKS Microfinance on Monday soared over 16 per cent as the
companys net loss narrowed down to Rs.39 crore in the quarter ended June 30.The write-off of Rs.1,128 crore on the AP portfolio cleansed the balance sheet.
The Reserve Bank of India has relaxed rules for microfinance institutions with
loans in Andhra Pradesh to enable them adjust to the state's microfinance law,
which restricts the frequency for loan repayments. RBI's relaxations pertain tocapital requirement and also provides MFIs with more operational flexibility.
In the News
http://timesofindia.indiatimes.com/topic/Andhra-Pradeshhttp://timesofindia.indiatimes.com/topic/capitalhttp://timesofindia.indiatimes.com/topic/capitalhttp://timesofindia.indiatimes.com/topic/Andhra-Pradeshhttp://timesofindia.indiatimes.com/topic/Andhra-Pradeshhttp://timesofindia.indiatimes.com/topic/Andhra-Pradesh7/31/2019 SKS Final =Ub
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Will there be a contagion effect following the promulgation of the AndhraPradesh Micro Finance Institutions (Regulation of Money Lending) Ordinance,
2010 ?
Answer:
Company registered a 11 percent quarter-on-quarter non-Andhra Pradeshportfolio growth to Rs.1,320 crore in Q4-FY12, reversing the declining trend
over the previous five quarters.
High collection efficiencies in 17 non-Andhra Pradesh states with the
collection figure for the quarter ending March 2012 standing at 95 percent.
Note: If similar ordinance is adopted by other states MFIs will be adversely
affected.
The ISSUE :
Andhra Pradesh was Indias largest microfinance market accounting 30 percent
of borrower accounts and loan outstanding of microfinance institutions.
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As per the Microfinance Institutions ( Development & Regulation) bill,
2012 in Parliament which will make RBI of India the regulator of the
sector . The law on approval by parliament and on enactment will govern
financial institutions.
RBI - NBFC Guidelines 2012 creating a separate category of NBFC
MFI.
RBI clarification on eligibility requirements for priority sector loans toMFI as a separate category.
Recent Amendment's /Notifications
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Income Statement
Particulars
2011-12 2010-11
Increase/
DecreaseRs. in Crore
Per cent to
Revenue Rs. in Crore
Per cent to
Revenue
Income from operations 435.7 92.30% 1,175.50 92.60% -62.90%
Other income 36.6 7.70% 94.1 7.40% -61.10%
Gross revenue 472.3 100.00% 1,269.50 100.00% -62.80%
Employee benefit expenses 261.1 55.30% 326.3 25.70% -20.00%
Finance costs 200.1 42.40% 349.5 27.50% -42.70%
Other expenses 151.3 32.00% 170.4 13.40% -11.20%
Depreciation and amortization 10 2.10% 16.1 1.30% -38.00%
Provisions and write-offs 1,173.50 248.50% 236.2 18.60% 396.80%
Total expenditure 1,796.10 380.30% 1,098.60 86.50% 63.50%
Profit before tax -1,323.70 -280.30% 170.9 13.50% -874.60%
Tax expense 36.9 7.80% 59.3 4.70% -37.80%
Profit after tax -1,360.60 -288.10% 111.6 8.80% -1318.80%
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Operational Highlights
18.79
39.5
67.8 73.153.5
FY08 FY09 FY10 FY11 FY12
No. of Members (in Lakh)
No. of Members (in Lakh)
6818
12,814
21,154 22,733
16,194
FY08 FY09 FY10 FY11 FY12
No. of Employees
No. of Employees
219
307341
378
329
FY08 FY09 FY10 FY11 FY12
No. of district
No. of district
770
1,353
2,029
2,379
1,461
FY08 FY09 FY10 FY11 FY12
No. of Branches
No. of Branches
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Operational Highlight
2875
122170 151
FY08 FY09 FY10 FY11 FY12
Operating and other expenses
(Rs. in Crore)
Operating and other expenses (Rs. in
Crore)
17
80174 112
-1,361
FY08 FY09 FY10 FY11 FY12
Profit after tax (Rs. in Crore)
Profit after tax (Rs. in Crore)
170
554
959
1,270
472
FY08 FY09 FY10 FY11 FY12
Total revenue (Rs. in Crore)
Total revenue (Rs. in Crore)
34793,762
5,132 5,338
1,823
FY08 FY09 FY10 FY11 FY12
Incremental borrowings* (Rs. in
Crore)
Incremental borrowings* (Rs. in Crore)
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1051
2,456
4,3214,111
1,669
FY08 FY09 FY10 FY11 FY12
Gross loan portfolio (Rs. in Crore)*
Gross loan portfolio (Rs. in Crore)*
1680
4,485
7,618 7,831
2,737
FY08 FY09 FY10 FY11 FY12
Disbursements for the year (Rs. in
Crore)
Disbursements for the year (Rs. in Crore)
11.69%18.30% 21.50%
7.50%
-118.90%
FY08 FY09 FY10 FY11 FY12
Return on average equity
Return on average equity
2.33% 3.90%4.90%
2.30%
-46.70%
FY08 FY09 FY10 FY11 FY12
Return on average asset
Return on average asset
Financial Highlights
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Financial Highlights
4 13
52
236
117
FY08 FY09 FY10 FY11 FY12
Provision and write-offs (Rs. in
Crore)Provision and write-offs (Rs. in Crore)
57
194
288
348
200
FY08 FY09 FY10 FY11 FY12
Financial expenses (Rs. in Crore)
Financial expenses (Rs. in Crore)
24.73%
38.99%
28.32%
45.39%
35.39%
FY08 FY09 FY10 FY11 FY12
Capital adequacy ratio
Capital adequacy ratio
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Review of annual report 2011 -12
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