SKS, Citi ink Rs 180cr fund alliance

SKS Microfinance and Citibank have entered into a Rs 180-crore financing programme, which involves Citibank India purchasing loans that are originated by SKS.

As per the agreement, each individual loan originated by SKS will be purchased by Citibank, which shares credit risk in the transaction. Citibank gets the interest, while SKS will get a service charge on the loans it has generated. The origination and servicing of loans rest with SKS.

"This is the single largest financing to any microfinance institution in India today," SKS founder and chief executive officer, Vikram Akula, said adding that through this partnership SKS would be able to overcome capital adequacy constraints.

The programme is envisaged to deliver income-generating loans of Rs 5,000 to Rs 20,000 to a population of over 2 lakh unbanked customers spread across 7,000 villages in 11 states by 2007-08.

It encompasses 49 rural branches of SKS in Andhra Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Jharkhand, Uttar Pradesh, Bihar, Rajasthan, Chhattisgarh and West Bengal.

Akula, however, said that Citibank financing would not lead to any reduction in the current interest rate of 24 per cent on SKS loans. "This is because the Reserve Bank of India has hiked the interest rates," he told mediapersons here on Tuesday.

According to Citibank's global director of microfinance, Robert A Annibale, the partnership combines SKS customer acquisition and management model with Citi's extensive experience in financial structuring for microfinance institutions. It provides risk participation and funding diversification that will support SKS' significant growth plans.

Citibank India's business manager, Alok Prasad, said the bank would keep looking towards further funding requirements of SKS, which has 6.5 lakh clients. Citibank also has arrangements with other microfinance institutions in India, he said replying to a question.