WINSTON-SALEM, N.C. — Vikram Akula is changing the world for as little as $20 at a time. That’s what the founder and chief executive officer of SKS Microfinance of India told a standing-room only crowd attending the first lecture of the 2007-08 Babcock Leadership Series at Wake Forest University’s Babcock Graduate School of Management on Thursday, Sept. 6.
Demonstrating why he was chosen as one of Time magazine’s 100 most influential people in 2006, Akula described how his company empowers the poor and spurs economic development in rural India by providing them with small business loans rather than a handout. He told the story of one of SKS’ first borrowers, a woman who lived in a remote village in India and earned, along with her husband, about $2 a day. Their 12-year-old son had been forced into bonded labor in order for the family to eat. The woman borrowed $20 from SKS to buy vegetables to sell. After paying off her initial loan, she went on to borrow more money to lease fruit trees and later purchase fishing nets for her husband and his friends. Today she sells vegetables, fruit and fish, and her son is no longer an indentured servant.
“This is what we do,” Akula said. “We provide women with resources to become economically self-reliant. We have proven that microfinance works to get people out of poverty.”
|With her first loan of Rs. 4,000 ($95), Bhagyamma Vadla bought a buffalo that produced two liters of milk per day. She increased her weekly income by about Rs. 100 ($2.50). Read more|
Since Akula started SKS in 1998, the company has provided about $275 million in loans and life insurance to more than 900,000 women living in India’s slums and remote villages while maintaining a 99 percent repayment rate. He attributed the nearly perfect repayment rate by these self-motivated entrepreneurs to the fact that the loans, which are not propped up by actual collateral, are made to groups of five women, who provide social collateral instead. They help each other out if one of them has difficulty repaying her loan, and the added peer pressure helps boost the repayment rate because the group is the loan guarantor for each member.
When asked why SKS only makes loans to women, Akula said that group lending requires cooperation and men tend to fight more than women. Also, women are much more likely to invest in the household. “Guys first spend on personal consumption,” he said.
SKS has a growth rate of 170 percent – one of the fastest in the industry – and it’s adding 50 new branches and 85,000 new customers each month. The company has attracted major equity investments from premier venture capitalists and caught the attention of VISA International, which gave SKS cell phone-based card readers to conduct banking transactions.
As a result, SKS has created a network and the infrastructure for a distribution system that was nonexistent a decade ago. “We can use this distribution channel to be a first-alert system to an epidemic, for example,” he said.
Akula made it clear that while SKS is improving the lives of its clients and others, it is a business, not a charitable endeavor. The microfinance company charges 28 percent interest on its loans, which is a bargain compared to other money lenders who charge up to 95 percent, he said.
“When I first told my mother, she said, ‘You are a loan shark,’” he said. “But it’s still the lowest option to the poor. They are willing to pay because the return on the investment is so great. If you buy a goat, it’s a 100 percent return on your investment.”
And while the success of microfinance is obvious, Akula’s main concern is that only 15 percent of the market that could use his microfinance model has access to it. “We need to do much more if we are truly going to use this as a tool to eradicate poverty,” he said.
The three main constraints to microfinance are lack of access to capital for loans; the capacity to develop a system to scale to large numbers; and the high transaction costs as a result of a large number of small loans. While SKS currently only makes loans in India, Akula said he has plans to expand his microfinance operation to Peru and China.
During the question and answer session that followed Akula’s talk, Asel D. Kasenova of Bishkek, Kyrgyzstan, a first-year, full-time Babcock student, told Akula that she wants to start a microfinance company in her homeland.
|Students on the India international study tour visited an SKS finance meeting. Here they stand with the children of the borrowers.|
And several students who witnessed firsthand the impact that SKS is having during a Babcock-sponsored May trip to India, told the audience that included a number of people from the community that it was a life-changing experience. Ted Budd, a student in the Fast-Track Executive MBA program, said he was struck by the dignity and empowerment that the micro loans gave the women.
During his one-day visit to Babcock, which was arranged by Dean Ajay Patel and Patrick McMullen, associate professor of management, Akula met with both undergraduate and graduate students, faculty and Wake Forest senior administrators. A reception in his honor was held prior to the lecture.
The Babcock Leadership Series, which is organized by Wake Forest MBA students, focuses on current issues affecting business.
Related Articles and Information
- SKS Microfinance Website (background, methodology, client stories)
- Babcock Blog – Students on the India International Study Trip attended a borrowers meeting near Bangalore.
- Babcock’s Nicaragua Project – An effort by students to develop sustainable commerce in Nicaragua
- Learn how Kiva.org allows anyone to become a micro-lender.
- Microfinance at Wikipedia
- United Nations Capital Development Fund (UNCDF)
- Is microcredit enough?