Vikram Akula Stepped-down: End of an Era

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Vikram Akula Stepped-down: End of an Era

On 23rd November’2011 Indian corporate history witnessed two major handing over and taking over. Tata group find out the successor Cirus P Mistry and secondly, Vikram Akula steps down from the position of founder and chairman of only listed Microfinance Company of the country. The poster boy of Microfinance Vikram Akula resigned from his current position Founder and Chairman of SKS Microfinance and his resignation was also granted by the board. Addressing the media Dilli Raj, CFO of SKS Microfinance told that Mr. Akula has resigned from the position voluntarily and his resignation was accepted by the board with immediate effect. The sources informed that he will continue to serve the company as an advisor till March’2012, Mr. Dilli Raj also informed that Vikram Akula has signed Non Compete and other agreements to maintain the confidentiality of the company. (The circumstances don’t tell as voluntary.)
Let’s have a quick look on Vikram Akula and SKS Microfinance:
Vikram Akula holds a Master Degree in International Relations from University of Yale and a PhD in Political Science from University of Chicago. He started his career as a community organizer of SGHs in Andhra Pradesh. He founded SKS Microfinance as a Not for Profit organization to uphold the economic condition of poor. He worked with the organization till 2004 in the same year he joined McKinsey & Company in Chicago as a management consultant. He rejoined SKS Microfinance in 2005 and converted the organization to a profit making company. In 2010, SKS Microfinance emerged as the largest Microfinance Company and the only listed Microfinance Company in the country. The company launched the IPO (Initial Public Offer) at Rs. 985 a share with a discount of Rs. 50/- for the retail investors. SKS Microfinance got a huge response from the market. The company raised a fund of Rs. 1654cr from the IPO; it was oversubscribed by 13.69 times. The major fund houses i.e. Reliance Capital, ICICI Pru and some big FIIs, including Goldman Sachs. The Catamaran Management Services, a fund house run by NR Narayana Murthy, also invested in SKS Microfinance. Vikram Akula was named by TIME magazine as one of the world’s 100 most influential people. But finally couldn’t influence the board members of own company.

The reason for decline:
1) After the listing SKS Microfinance started facing problems. Fund raising through listing was criticized by Nobel laureate Mahammad Yunus. Professor Yunus has seen it as a doubtful possibility and suggested that the profit should go back to the poor. Vikram Akula was of the view that going public is the only way to raise fund to serve the 3 billion poor worldwide. He started very aggressively. Rapid growth has diverted social obligation to profit maximization.
2) Suresh Gurumani was terminated in October 2010 from the position of CEO of SKS Microfinance four years before the end of his term. M R Rao was appointed as CEO; the company didn’t disclose the reason of Gurumani’s termination. It was guessed that Gurumani was removed by Vikram Akula for his personal clash with Suresh Gurumani.
3) Andhra Pradesh Microfinance Institution Ordinance 2010 was issued by state government in October 2010 to check coercive collection policy after the suicide cases were reported. Repayment collected decreased to as low as 10.7%. The company now has to think to write off total loan portfolio of Rs. 8.22 billion.
4) Andhra Pradesh is proved as the trouble child for Microfinance. In 2005-06 district administration has closed at least 50 branches of Microfinance Company. Market penetration for Microfinance is highest comparing to other states. In Andhra Pradesh, the average debt outstanding per house hold is Rs. 65000/- as compared to a national average of Rs. 7700/- of outstanding microfinance debt per poor house hold. Beside these bare truths SKS Microfinance has the highest exposure to Andhra Pradesh.
Possibility of Re-structuring of SKS Microfinance:
Now this is the big question, whether SKS Microfinance will continue to be in the microfinance business or it will be diversified to other avenues. Founder and Chairman Vikram Akula voluntarily resigned (?) at such a point of time, when the share is traded at 122.4 (all time low 105 and all time high Rs. 1,491.50). The closed at 5% up after the announcement of Vikram Akula’s resignation. Another most important fact is that the board has approved to raise Rs. 900crs through QIP (Qualified Institutional Payment. It is also being heard that SKS Microfinance may enter to Micro Insurance, Micro Saving, Remittances etc. in the rural market. The newly appointed non-executive chairman Mr. P H Ravikumar has a proven track record in agri-banking, during his tenure as Head Agri Business ICICI Bank emerged as the second largest lender to Agri-business sector in India. But the present legal framework of SKS Microfinance will not permit to enter in such business. Hence, the possibility of re-structure of SKS Microfinance can’t be rolled out!
Is this a lesson for other MFI?
The proposed Microfinance (Development & Regulation) Bill will show the future roadmap of MFI industry. Beside the legal and regulatory setback some Microfinance companies are still doing fantastic job. Bandhan Microfinance has already begged the title of largest MFI in the country, legging behind SKS Microfinance. Ujjivan, a Banglore based MFI is working in 20 states since 2006 but not have a single branch in Andhra Pradesh. Ujjivan Microfinance Plus programme is a result of social responsibility. If central government would enacted the bill, SKS Microfinance might be saved!

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