Woes of the Micro-finance Man

Nothing seems to be going right for SKS Microfinance. It wasn’t too long ago when SKS was called the best thing that happened to India and Vikram Akula a messiah. But now the image of the company and its founder-CEO are in tatters. From being considered as the best device to abolish poverty, Micro-Finance Institutions are know seen to cause farmer suicides. Akulia, who did his PhD on microfinance from Chicago, was in the Time Magazine’s list of 100 most influential people in 2006. Now with a messy child custody litigation and the talk of facing arrest, troubles seem to be chasing him.

Lets just see what else is troubling him. Its not just his wife, but Narayana Murthy “the mentor” seems to have also deserted him. His decision to take SKS public had earlier angered the undisputed father of microfinance- Nobel Laureate Mohammed Yunus. The latest issue is regarding the mysterious and unceremonious removal of the new CEO of SKS. In between all this his ex-wife has come out and said that he misappropriated money and forced her to commit illegal acts.

Few months ago, following a new ordinance regulating MFI brought in Andhra Pradesh, the AP Police had said that it would book Vikram Akula if they find any evidence of SKS using any coercive methods of loan recovery. It was the Andhra Pradesh High Court which came to Akula’s help by directing that no arrests were to be presently made under the new ordinance. Following a complaint of harassment by a woman borrower, a few recovery agents from SKS and another MFI were earlier arrested by the police.

Some weeks ago, SKS Microfinance terminated the appointment of its CEO- Suresh Gurumani, without giving any specific reason. SEBI has asked the SKS board to justify the reason behind dismissing the CEO. Since Gurumani was sacked, SKS shares plunged about 29 per cent. The bigger worry is why SKS has not come out and explained to the various stakeholders why the CEO was removed.

Infosys mentor Narayana Murthy recently said that SKS management must be open, honest and fair in all matters dealing with every stakeholder. Murthy’s venture capital fund- Cataraman had invested Rs. 28 crore for 1.3 per cent stake in SKS. Among rumors that Murthy has plans to exit from the investment, he said that Cataraman’s shares in SKS Microfinance would be locked in for a period of 2 years. Murthy however clarified that Cataraman had only decided to support SKS by the belief that transparent micro finance business would help the poor.

The biggest threat for Akula now comes from his ex-wife with whom he is fighting a child custody battle in US courts. She alleged that, as the head of the SKS Foundation, she was required to do illegal and unethical things by her husband. She made a serious allegation when she said that grants acquired by the SKS foundation for education programmes, sometimes made up for the deficit in the SKS Microfinance programme.

The genesis of the major debates surrounding MFIs, SKS in paritcular, was with SKS's decision to issue shares to the public. On July 28, 2010, among a lot of debate and distrust, SKS Microfinance made its IPO (Initial Public Offering) on the Bombay Stock Exchange. Akula and his supporters claimed that larger funds could enable SKS to reach out to a larger number of poor people. However, others questions whether SKS will be able to fullfill its social mission using the traditional profit-maximizing model of business.

People awaited to see how a successful MFI would change once it was under the control of the market forces. The main concern which Grameen bank founder Mohammed Yunus had with the IPO was the that it would be difficult for SKS to balance shareholders' interests with that of the people it was originally supposed to serve- the poor. Younis felt that by going public, MFIs would also start behaving like other private lenders- a loan shark.

Akula’s trying times may not be all his fault. CEO Gurumani, appointed soon after SKF’s IPO, was seen as a person who wanted to follow the retail banking model rather than an MFI model. So the inner squabble could well have been on principles. His ex-wife’s claims, surely has to be taken with at least with a pinch of salt as the divorce and child battle had really turned ugly. But here is the thing- SKS, and hence the future of MFIs in India, is in deep trouble. People had doubts over whether going public would really mess things up. It seems that SKS has managed to escalate these doubts.