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

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