Microfinance is clearly not doing great and diversification is required. So is this really a shift in the way SKS functions or a strategic shift in how they promote themselves? Akula has slapped a legal notice on SKS demanding a refund of around Rs 4 crore that he paid to exercise , options on the grounds that the shares were never allotted to him by the company.
Firstpost Conversations 9 Months S. Home Business News. Business SKS: A fresh start or branding gimmick? Business Akula vs SKS: There's Rs 4 crore in play now Akula has slapped a legal notice on SKS demanding a refund of around Rs 4 crore that he paid to exercise , options on the grounds that the shares were never allotted to him by the company. Assuming they do make profits, these profits are, generally, not enough to fund daily activities on a regular basis.
Therefore, the need for external finance still exists. As mentioned above, startups find it difficult to obtain finance from external sources. The reasons why it is difficult to do so are below:. Generally, investors prefer to invest in businesses with lower risks.
The nature of startups makes them a high-risk investment for investors. Although these high risks come with high rewards in some cases, in other cases, it may result in losses to the investors.
This makes investing in startups nonattractive for investors especially ones that are risk-averse. When investing, investors also rely on the information available to them to determine whether the expected rate of return of the investment is worthwhile.
For large businesses, this information can easily be obtained from the market and the financial statements of the business. For startups, the market might not have enough information to provide about which can prevent investors from making well-informed decisions regarding the investment. As previously mentioned, another reason why startups find it difficult to obtain external finance is because of bad business models. When investors look to invest in a business, they look for a business that can generate wealth in the long run.
If the business model of the startup is fundamentally flawed, it will not generate any finance. Experienced investors can easily identify businesses with flawed business models and filter them in their initial screening of investments. This also includes angel investors and venture capitalists. Another reason why obtaining external finance is difficult for new businesses is increased competition. As the number of new businesses grows in the market, investors get more options to invest in the business of their choice.
Due to the great number of businesses competing for external finance, startups find it difficult to compete especially without resources. If even one member is delinquent, no new loans are issued. Group members apply pressure — and support — that has kept repayment rates near per cent. The stock surged more than 10 per cent its first day.
The company handed out 21, watches to employees in celebration. In October , a mob of people surrounded SKS's Hyderabad headquarters, protesting the suicide of a borrower's husband. It was one of dozens of deaths the government of Andhra Pradesh blamed on aggressive tactics by microfinance companies.
Police jailed microfinance employees, including dozens from SKS. Among the charges was abetment to suicide, essentially driving people to kill themselves, a crime under Indian law. Authorities investigated 76 cases in which employees from SKS and other microfinance companies were blamed for driving borrowers to take their own lives.
The state passed a law designed to clamp down on abuses with new restrictions on loan disbursement and collection and onerous registration requirements on the companies. Microlending in India's largest microcredit market was effectively shut down. Microfinance officials fought the new law and denied the charges, accusing the state government of trying to gain traction with voters and punish companies for capturing valuable market share from state-run lending groups.
Established microlenders such as SKS said loan sharks operating under the guise of microfinance were behind the excesses. SKS and other companies asked a court to stop the arrest of their employees.
The court issued a stay on new arrests. Today, no one is in jail. In a November letter to India's finance minister, Akula defended his company and included supportive articles from The Wall Street Journal and the Financial Times. At the same time, the industry group Microfinance Institutions Network hired Glocal to investigate 44 deaths among debtors of microfinance companies, including SKS.
Venkateswarlu, the Glocal director, presented the findings to executives at three lenders. In January , he delivered startling news to Akula and Rao: SKS employees had clear involvement in the suicides of four borrowers, meaning that their actions appeared strongly linked to the subsequent deaths, according to their investigation.
It related the financial history of borrowers, the loans obtained, the nature of pressure or harassment for repayment and the microfinance company involved. Venkateswarlu verified that it was the material he presented to Akula and Rao. A Jan. Ravikumar, who became interim chairman of the SKS board last November, said neither management nor the board authorized an independent inquiry into borrower deaths. The company also said SKS employees have been acquitted in two borrower suicide cases in Andhra Pradesh and that only one criminal case remains outstanding.
Khanna sent teams to speak with families of the dead, village leaders, neighbours and loan agents, videotaping the interviews. Their report said SKS employees bore direct or indirect responsibility for at least seven suicides, including two that overlapped with the Glocal findings. The interview videos were shown to the AP by Uma Maheshwari, who said she was present during one set of recordings and visited several of the families personally.
She left SKS in July. In one video, the daughter of borrower Dhake Lakshmi Rajyam cries, gasping as she talks to an investigator in Tadepalligudem, Andhra Pradesh. Employees of microfinance companies, including SKS, urged other borrowers to seize the family's chairs, utensils and wardrobe and pawn them to make loan payments, her family told investigators. Unable to bear the insults and pressure of the crowd of borrowers who sat outside her home for hours to shame her, Rajyam drank pesticide on Sept.
The investigator's conclusions lay the blame on SKS employees, saying they failed to comply with company policies "and even basic moral rights. Vautrey said he sent the case studies to three top managers, including Rao. Emails obtained by AP indicate that summary reports were emailed to the managers. We have no right to kill anybody for our own business. Let's close down our business if we can't do it right. It joined U.
Akula, who had been chief executive in the company's early days, stepped down in December but stayed on as chairman. The company brought in new top executives from the worlds of finance and insurance. SKS also began transferring more loans off its books, selling highly rated pools of loans to banks, which then assumed most of the associated risk of borrower default. That freed SKS to push out more and bigger loans.
In December , SKS launched a massive sales drive. The "Incentives Galore" program ran through February — just one month before the company filed its IPO prospectus. Agents won prizes worth up to 10 times their average monthly salary for signing huge numbers of new borrowers. Vautrey said he co-ordinated the shipment of 8, televisions, refrigerators, gold coins, mixers, washing machines and DVDs as rewards for more than 3, districts nationwide.
One loan officer signed up groups in a month. Under training protocols, the ideal number of groups formed per month is 12, the maximum is 36, according to field agents and reports written by Akula. That's OK. Just concentrate on growth. The result: Management had a great set of numbers to show investors as it shopped the IPO.
In a month, SKS could add , borrowers and branches, and train more than 1, new loan officers. SKS had 6. India was pimpled with SKS branches, which bloomed in nearly , villages. But basic principles of lending were overlooked, according to interviews with current and former employees, as well as correspondence and internal PowerPoint presentations by Akula.
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