Nightmare At SKS Microfinance

Andhra Pradesh state politics in India concerning the MFI sector are continuing to hurt the performance of the sector in the country. According to Credit Suisse, India’s leading MFI, SKS Microfinance is seeing loan recoveries in the state to be as low as 12% compared with the industry’s average recovery rate of 22%. SKS’s bad debts in the state have soared to 39% compared with 2.5% a year ago. The researcher expects that the company may have to write off Rs 1,100 crore (~$232.14 million) of bad loans over the next two years.

SKS Microfinance’s Financials
SKS Microfinance’s Q1 revenues fell 9% over the year to Rs 177 crore (~$37.4 million) and reported losses of Rs 219 crores (~$46.22 million). A year ago, they had reported earnings of Rs 66 crore (~$13.93 million) in the quarter.

Incremental loan disbursement in the quarter grew 14% over the year to Rs 900 crores (~$189.9 million). Gross loan portfolio at the end of the quarter of Rs 3,450 crores (~$72.81 million) included assigned loans of Rs 390 crore (~$82.30 million).

The number of branches operated by the MFI in the country stood at 2,093 compared with 2,379 at the end of last quarter. At the end of last quarter, they had a total count of 6.3 million members.

SKS’s Expanding Offerings
As part of their expanding offerings, SKS is evaluating the option of applying for a banking license. Through a banking license, SKS plans to be able to mitigate risks, gain access to funds and reduce the cost of funds.

SKS’s Woes
Besides the increasing bad debts from Andhra Pradesh, SKS is also facing trouble because of recently identified cases of fraud and embezzlement. Market reports estimate that there were 156 cases of embezzlement by employees were found in accounts last year, amounting to fraud of Rs 1.60 crore (~$3.38 million). In addition, their auditors have also found 205 cases of loans being disbursed to fictitious borrowers, translating to fraud of Rs 4.50 crore (~$9.50 million) in 2010.

Adding to the company’s trouble is the mounting pressure on their executive chairman, Vikram Akula, to step down. According to market reports, some of the board members of the company have proposed that Akula step down from the position as he is unable to dedicate time to the company because of family problems.

SKS’s troubles are being reflected in the stock price, which fell to an all-time low of Rs 230.00 (~$4.85) in August 2011. The stock is trading at Rs 265.70 (~$5.60) with a market capitalization of Rs 19.21 billion (~$0.405 billion).