Interview with Vikram Akula, SKS Microfinance

There is an interview with Vikram Akula in Business Standard, dated 22nd February 2008. I cannot however locate the online URL to provide a link here. I will mention just the key points here.

On his model being a replica of Grameen Bank: Yes, it is, except for the difference that SKS works on for-profit and expects to make a profit. Yunus' Grameen model talks of no-profit, no-loss.

On the interest rate being high: SKS charges on an average 26% diminishing interest. This breaks into 11% their own borrowing cost, 9% staff costs, 3% amenities and office costs, 2% loan-loss provision, between 1-2% profit.Wherever they have reached size, they have reduced the interest rates - for example in Andhra Pradesh and Karnataka to 24%. Their eventual goal is to reduce this to 21% if further efficiencies are achieved.

FMCG: In addition to offering loans, they are negotiating with FMCG product companies to offer FMCG goods at cheaper prices to their existing loan customers. Current customer base of SKS is around 1.7 million people. Targeted by March 2008 - 2 million, and by March 2009 - 4 million.

Investment in Gold: SKS is offering fixed price gold coins, which can be paid for by a weekly investment of Rs. 10-15. Once the investment is complete, the investor gets a certificate for the weight of gold, at market price, which can be traded any time for the current market price of gold.

Education: SKS is teaming up with education provider and infrastructure provider to set up schools. SKS will finance the families. Infrastructure provider will set up school buildings. Education provider will provide the teaching. The cost of the education is expected to be Rs. 250 per child per month (which will be borrowed from SKS and paid to the providers). They expect to start with 20-30 schools in May 2008, and extend this to over 300 schools.

SKS Microfinance gets third round of investment

US based Silicon Valley Bank and Columbia Pacific have together invested Rs. 147 crore (around US$ 36.75 million) in SKS Microfinance in December 2007. In the earlier round of investment made in October 2007, a clutch of investors, including Sequoia Capital, Unitus Equity Fund and Vinod Khosla had invested Rs. 50 crore (US$ 12.5 million).

The Economic Times article

Micro - housing loans

This is not a new concept, but only now coming to India. National Housing Bank (NHB) and Chennai based Repco Foundation for Micro Credit (owned by Repco Bank, owned by Government of India), are disbursing micro home loans in five districts of Tamil Nadu. The loans range form Rs 25,000 to Rs 2 lakh. This is not for buying land, but only construction loans for those people who already own the land. Obviously, over the coming days, the model will change to include buying land as well.

News from Economic Times

Changes to Grameen Bank's structure

Thanks to the Military backed Government currently running Bangladesh, Grameen Bank has achieved certain relaxation in the norms governing its functioning. It has to be noted that it was during the time of General Ershad, the military dictator, that Grameen Bank came into being. The current changes are:

• Grameen Bank allowed to operate branches in urban areas. Earlier they could open branches only in the rural areas.
• Government stake cut down from 25% to 15%. Note that when the Bank started, Government had a stake of 60%.
• Number of Government nominated directors brought down to 2 from 3.
• Chairman of the bank will be appointed by the board instead of Government nomination which existed until now.

This move will strengthen Muhammad Yunus to be at the helm of the bank for quite a while to come. When Yunus decided to run for elections, the political parties got quite antsy. Of course, all legislations can be amended again by newly elected Government, but there could be a lot of resistance form People if such moves are seen as inimical to them.

Microplace - Online microfinance

An Ebay owned company Microplace has launched a site through which online folks can invest any sum over US$100, earn some interest, and hope thew money invested goes to help poor people around the world in the form of microfinance. [Source]

This venture is different from Kiva.org, in that Kiva provides a direct people-to-people microfinance exchange, and you cannot earn any interest.

Now is not the time to discuss which is better. More the merrier.

Grameen Bank goes to USA

Mohammad Yunus has set up Grameen America, based at Queens, New York.

The Grameen office, where the door is always open in the Bangladeshi tradition, is a modest room down a flight of stairs under a doctor's office. Every day, Newaz walks along Jackson Avenue, going into one storefront after another, asking shop owners if they know groups of women who might want to borrow money.

Yunus has already started his operation in Mumbai, India.

Birla Sun Life to offer micro-insurance

Birla Sun Life has launched two life insurance policies for the rural Indians, named Bima Suraksha Super and Bima Dhan Sanchay.

Bima Suraksha Super is a pure risk policy. A sample calculation shows that for a 30 year old male, for a 10 year policy, for an insurance amount of Rs. 10,000 (US$ 250), annual premium will be Rs. 91.24. The premium can be paid monthly, quarterly, semi-annually or annually. If the premium is paid monthly, it will be roughly Rs. 8 (around 20 cents).

Micro-credit institutions can bundle this product along with their loans, and thereby also cover the defaults on their loan, in case the borrower dies before repayment of the loan.

There is no medical test required, and supposedly minimal paper work. Self attestation on the age is sufficient, and will not require any age proof.

For more details, go here.

The second policy is Bima Dhan Sanchay. Unlike the previous policy, this is an endowment like policy. Upon the maturity period, the policy will pay back the total premia paid (but nothing more). However, the premium is quite low, for a similar risk cover from, say, Life Insurance Corporation of India.

For a 30 year old male, for a 10 year policy, sum insured Rs. 10,000, the yearly premium is Rs. 228.63. Monthly premium would come to around Rs. 20 (50 cents). In the event that the insured person survives over the 10 year period, he will get back Rs. 2263 (the premium amount paid in total). Of course, one could get more returns by investing the money in a bank deposit! But then, this also provides risk cover.

For more details, go here.

On the surface, these two schemes offer a decent risk cover at the lowest possible premium. With more players entering the market, even better products may be offered.