Olson's Observations

Reading time: 2 – 4 minutes

Forbes India just ran a short interview with Vikram Akula where he talks about how he brings the commercial and social side of microfinance together to help microfinance scale. Akula saw that the three Cs, as he calls them, were hindering the scalability of microfinance and he created SKS Microfinance to address them. Akula’s three Cs are: capital, capacity and cost. SKS has done an incredible job at addressing all three and marrying the commercial and social sides of microfinance together. The result: SKS is on pace to become larger than the Grameen Bank very soon (making SKS the largest MFI in the world with over 8mm customers) and it could be the first MFI to go public in India.

Here is an excerpt from the interview that focuses on how Vikram looks at the social and commercial aspects of SKS:

How do you maintain that social goal, that value addition for your customer when you’re growing at 200 percent? How do you carry that organisational culture across the country? And how do you do that when you also have to show financial profitability for your investors?

We don’t see conflict between the two. Fundamentally our organisation is about creating social value for our customers. I don’t even look at the profit lines. If you ask me the ratios ROE, ROA, I don’t know those things. It doesn’t matter to me what happens — what matters to me is that there’s social value. But I am confident that if we create social value, it will create financial value to our investors and this is the reason why. So first off, how do we create social value? In everything we do, we’re looking at the customers first. Does this work for the member, whether it’s a product, whether it’s a procedure, whether it’s a process?

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The value for the investors is not the interest on the Rs 2,000 loan — that’s nothing. The value for the investors is when tomorrow she moves from 2 to 10 to 20 to 30 [thousand rupees] and stays with us — that’s when you create financial value. When she moves from one product to four products to five products. The value to the financial investor comes there. In order to create that later value to the investor, I need to have a customer who is extremely loyal to me. How do I make her loyal? By doing what’s right for her.

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If we don’t treat the customer right today, you undermine long term shareholder value. Every single investor understands that because we are in the fortunate position of being able to pick. There are some investors that don’t understand this, we just haven’t selected them.

Please read the interview if you have a chance. It is worth the time.