Vikram Akula, India's microfinance pioneer, faces flak

NEW DELHI Thu Nov 24, 2011 6:14pm IST

Vikram Akula, chairperson of SKS Microfinance Ltd, speaks during a panel discussing microfinance at the Clinton Global Initiative in New York September 21, 2010.  REUTERS/Lucas Jackson/Files

Vikram Akula, chairperson of SKS Microfinance Ltd, speaks during a panel discussing microfinance at the Clinton Global Initiative in New York September 21, 2010.

Credit: Reuters/Lucas Jackson/Files

Related Topics

NEW DELHI (Reuters) - When Vikram Akula came to speak at the World Economic Forum's India Summit in New Delhi last year, it was clear that the once-thriving banker to the poor was beginning to lose his sheen.

Dressed in his trademark traditional cotton tunic, trousers and open-toed slippers, the Yale-educated microfinance pioneer faced uncomfortable questions from the audience on aggressive loan recovery practices and high interest rates, and was later escorted away from reporters.

Akula, 42, named among the 100 most influential people in the world by Time magazine in 2006, on Wednesday resigned as chairman of SKS Microfinance, the lender of tiny loans to the poor he founded in 1997.

It marked a big fall for a man whose idea of making profit from small loans won the support of high-profile investors such as George Soros and Goldman Sachs. His company has been dubbed by some as the "Starbucks of Microfinance".

Backers say commercial microfinance makes lending attractive to poor borrowers who would otherwise be at the mercy of unregulated moneylenders who are known to charge interest rates as high as 100 percent.

"Doing well by doing good is not only acceptable, it's absolutely ethical. In fact, I believe that offering microfinance as a highly commercial, for-profit venture is the more ethical choice, by far," Akula writes in his book "A Fistful of Rice; My Unexpected Quest to End Poverty Through Profitability".

The microfinanace sector was touted as the saviour for millions of poor from village moneylenders, but it has come under close scrutiny of the authorities after defaults and high-handed debt collections.

Some farmer suicides in Andhra Pradesh, the hub of India's microfinance sector, blamed on mounting debts have also put high interest rates the companies charge on loans into the spotlight.

SKS's troubles deepened when Akula abruptly fired chief executive Suresh Gurumani a year ago, when the sector's move to a commercial model from its social mission was causing unease.

What followed was a public relations disaster that saw the company losing popular support, political pressure building up, and investors dumping the stock.

The market value of SKS, India's only listed microfinance firm, has plunged to $163 million from a peak of $1.2 billion. Its shares now trade at around 115 rupees compared with a high of 1,491.50 rupees shortly after it went public in August last year.

CHALLENGES AHEAD

It remains unclear what Akula, who had once left the company but came back a few years later, will do next. There were reports that a rift with the management team prompted Akula to resign this time.

"When the battle happened between Gurumani, Akula had the full support of the board. Now, he does not have the support of the board or the management team," said a source who has done business with SKS.

Akula is not alone in this predicament.

After criticizing the Bangladeshi government for corruption, Muhammad Yunus, who pioneered nonprofit lending to the poor, was dumped earlier this year as managing director of Grameen Bank, an institution he founded 30 years ago and with which he shared the Nobel peace prize.

SKS's business model also faces big challenges ahead.

The rise of for-profit microfinance has made billions of dollars in credit available to millions of poor people in India and elsewhere, but it has also spurred controversy.

India's microfinance firms are keen to see the passage of a bill in parliament, which will make the Reserve Bank the sole regulator of the sector, and remain hopeful this will bring funds flowing back into the business.

However, it is expected to put a lid on the interest rates that companies can charge and will squeeze profit margins of firms such as SKS.

(Additional reporting by Arjun Kashyap in BANGALORE; Editing by Ranjit Gangadharan and Yoko Nishikawa)

FILED UNDER:
  • Most Popular
  • Most Shared

DEFENCE

REUTERS SHOWCASE

Power Theft

Power Theft

India to invest $4 billion to tackle power theft  Full Article 

Debt Funds

Debt Funds

India monitors foreign flows into debt funds, may tighten rules  Full Article 

Bulgari Back in India

Bulgari Back in India

CEO: we shouldn’t have left India so we’re back  Full Article 

 Hindu "Modi-fication"

Hindu "Modi-fication"

Fears grow about Hindu "Modi-fication" of education  Full Article 

Weak Credit

Weak Credit

Hard to hit tax revenue target, credit weak - Jaitley  Full Article 

China Rate Cut

China Rate Cut

China surprises with interest rate cut to spur growth  Full Article 

Gold Imports

Gold Imports

RBI cautious on response to gold import surge  Full Article 

Economic Corridor

Economic Corridor

China commits $45.6 billion for economic corridor with Pakistan  Full Article 

Overseas Funds

Overseas Funds

RBI says overseas borrowed funds can be parked with banks in India  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage