SKS Microfinance (SKSMF) is the largest microfinance company in India with loan portfolio of ~US$1bn, 2,000+ branches spread across 19 states and 6.8mn members. Its strengths include pan-India presence, scalable operating model, diversified product revenues and access to various sources of capital. Lending primarily to poor women, the business model involves village centered group lending, thereby ensuring a check on asset quality. The hugedemand-supply credit gap and inability of banks to penetrate into unbanked areas have driven the growth of microfinance industry. While valuations appear expensive, the scalable business model, market leadership position and high earnings growth provide comfort. Recommend

Rural centric business model
The success of SKSMF has evolved around five key elements: a) village selection, b) focus towards women, c) member training, d) group lending and e) village level lending and collection. With lending primarily to poor women, the company has expanded its reach to 2,029 branches spread across 19 states and over 6.8mn members. The pan-India presence has further helped mitigate the risk towards local economic slowdowns and disruption. Through systems and solutions in place, it has developed a scalable 3C’s model – Capital, capacity and cost reduction, which in turn has helped reach rural masses in large.

Diversified sources of revenue and capital
In addition to core business towards providing traditional loan products, the company has started offering productivity loans directly linked to business. This involves strategic alliances with Nokia, Airtel, Bajaj Allianz, HDFC, METRO and FAL. Despite being NBFC-ND, the company has benefited from benign interest rate regime and enhanced sovereign ratings. Historically, it has raised funds via alternate channels including – equity and debt issuance, loans with various maturities raised from domestic and international banks, and the securitization of components of loan portfolio.

Limited concerns over asset quality
The village centered, group lending model has ensured SKSMF an adequate check on asset quality. Innovative product structuring, focus on income generating loans and primary focus at women have enabled the company to maintain its GNPA and NNPA at low 0.33% and 0.16% respectively. In case of default by an existing member, the group is required to typically make the payment on behalf of a defaulting member. Any negligence towards payment bars the group from further borrowing.

To read the full report: SKS MICROFINANCE