The tumultuous journey of India’s first listed microlender
about 12-year-old journey of Bharat Financial Inclusion Ltd, formerly known as SKS Microfinance, has been tumultuous.
It suffered its biggest blow after the then undivided Andhra Pradesh promulgated a state law to severely restrict microfinance activity because of a spate of suicides by borrowers in late 2010, allegedly driven by coercive loan recovery practices. Subsequently, management differences saw the exit of its founder Vikram Akula and the central bank denied the microlender’s claim to run a small finance bank (SFB).
Bharat Financial overcame the stress and has since improved its profitability. But it now faces a potential takeover by the private sector lender Indusind Bank, which some experts say is the only way for the survival of the microlender. The changing regulatory space has shrunk the microfinance industry to only three large companies, including Bharat Financial. Bharat Financial started its journey as a non-profit in 1998. Founded as Swayam Krishi Sangam by Vikram Akula, it later morphed into a nonbanking financial company (NBFC) in 2005.
The microlender along with its peers saw unprecedented growth because of the reluctance of banks to serve the financial needs of poor customers who were not part of the formal banking system.
Five years later, it became the only microfi- nance lender to be listed on stock exchanges. In August 2010, Akula steered the initial public offering, which was subscribed almost 14 times. The success of SKS led to talks that other companies in the sector may also tap capital markets.
The party was, however, short-lived, not only for the company but also for the microfinance industry.
The suicides in Andhra Pradesh led to the state government putting severe restrictions on microlenders in a state that then accounted for a fourth of the industry’s business.
Andhra Pradesh enacted a law greatly limiting the ability of microfinance companies to lend and recover their loans in the state. Operations of most MFIS came to a near halt. SKS was one of the worst hit due to the crisis.
In September 2010, just before the microfinance crisis unfolded, SKS’S exposure to Andhra Pradesh was at over 27% of its total loan book, its highest in any state. In October that year, 30 poor women borrowers in Andhra Pradesh committed suicide within a period of 45 days. Among these 30 women, 17 were then reported to be borrowers of SKS Microfinance.
In the years that followed, SKS Microfinance provided fully for the outstanding exposure in Andhra Pradesh, wrote off exposure of Rs1,360 crore in the state, and stopped fresh disbursals there.
“It (AP crisis) had a long-lasting adverse impact but BFIL (Bharat Financial) was an