Wednesday, November 23, 2011

Vikram Akula resigns from SKS Micro Finance

Vikram Akula, the star face of Micro finance movement in India. has quit the board of SKS Micro Finance, a company that he founded. Akula's company changed thousands of lives for the better, freeing them from the monstrous local money lenders by providing them seed money to start or support their micro enterprises. However, with one strike of regressive policy by the state government of AP, where SKS had majority of its 'tiny loans' business, brought down the company to its knees.

When SKS was listed last year, there were many detractors who said that an MFI should not be run with a profit motive. Would be interesting to find out, what have these guys done to provide financial inclusion to the underprivileged. To be sure, SKS was making loads of money, but it was pumping it back into the system to provide more loans to the poor. Any money that shareholders would have made would not have been from the pockets of the poor (No decent sized listed company in India has high dividend yields).

If government, wanted to decrease the interest rate charged further, then the right way would have been to encourage creation of hundreds' of more SKS'. Increased competition would have brought down interest rates by forcing these companies to innovate and reduce their costs or perish.

Perhaps the trigger was malpractices by some unscrupulous players and unfair collection processes deployed by some lenders.The solutions was to identify culprits and put them behind bars for violating the law of the land. But with its poor regulation the government has thrown the baby out with the bath water. 

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