SKS Microfinance, the only listed microfinance institution (MFI) in the country, has decided to cap its return on assets from micro lending business at three per cent, a move aimed at regaining the lost confidence of regulators and borrowers in the sector.
Before the crisis broke out in the microfinance sector in October 2010 after the Andhra Pradesh government curbed micro-lending in the state, SKS enjoyed an average return of assets of more than six per cent. However, since the government banned the weekly collection of dues, SKS saw a sharp decline in return on assets. In July-September, the firm's return on assets was -47 per cent, owing to a net loss of Rs 385 crore.
The government's clampdown on the MFI sector followed allegations of MFIs in the state charging exorbitant rates of interest to poor borrowers and adopting coercive methods to recover loans. Before October 2010, Andhra Pradesh accounted for about a third of SKS' future receivables. However, now, the MFI expects "zero" future receivables from the state, since recoveries have dwindled. SKS has written off outstanding loans in the state, bringing them down to Rs 822 crore from Rs 1,500 crore.
SKS has also said no state would contribute more than 10 per cent to its total portfolio in the future. Currently, other than Andhra Pradesh, more than 10 per cent of its loan portfolio is accounted for by only two other states — West Bengal and Karnataka. The micro lender has also decided to set up a step-down subsidiary for its non-microfinance business, a segment it expects to generate revenue of Rs 45 crore in 2012-13. The MFI has also embarked on an image building exercise and plans to invest Rs 15 crore in the next three years to align its customers' grievance redressals and client-protection practices with globally recognised benchmarks. It has also decided to appoint a social sector veteran as ombudsman by the end of this month to ensure client-protection. These new initiatives were announced a week after its founder, Vikram Akula, stepped down as the executive chairman of the company.
Over a period of time, the non-MFI business is expected to account for 10 per cent of the company's portfolio and contribute 20 per cent to its revenue and 30 per cent to its profits, said chief financial officer, S Dilli Raj. He added the new initiatives would aid the company in returning to profitability.