SKS Microfinance, hit by large-scale defaults by borrowers following the Andhra Pradesh government ordinance on regulating micro finance institutions (MFIs), is running the risk of losing its corporate partners. Retail, insurance, housing finance and FMCG companies that had made a beeline to SKS Microfinance, are re-looking at their existing partnerships with the controversy-ridden company, which is the only listed MFI in the country.
SKS enjoys business partnerships with Nokia, HDFC, Airtel, Future Group, Bajaj Allianz, Metro Cash and Carry, Hindustan Lever and many more.
Sources in the know said that a few companies had signed agreements with SKS to use its network for increasing their rural penetration. While some had signed for pilot projects, some agreements were expected to be scaled up from the pilot stage. However, these companies have become cautious and have decided not to scale up in the current scenario. They would wait till they get clarity on the present situation.
?Our contract with SKS exists, however, due to current circumstances surrounding the MFI industry, all activities with them have been suspended. We are in the process of getting clarity on the situation, and on that basis we will decide on the way forward, Metro Cash & Carry India spokesperson told FE.
The AP government ordinance retroactively waived loans in cases where the borrower had already paid a sum of twice the principal amount and also stipulated that MFIs should register with the with the district authorities.
Rajan Malhotra, president (strategy), Future Group, said SKS was financing people in rural areas to buy stocks in Big Bazaar. ?The project never went beyond the pilot stage and we will give it a second look..? Same is the case with Nokia, which signed an agreement with SKS for funding purchases of mobile phones two years back in the rural markets. Nokia is now said to be going slow with SKS.
As experts point out, due to multiple lending systems, borrowers were wooed by different companies through SKS, which acted like a middleman for selling customised products to the rural poor. Since it had already gained confidence of the masses, companies started using its network for mass selling of their products. SKS has a customer base of over 60 lakh across the country.
?Microfinance is increasingly seen as being more than micro-credit. The member network and reach of MFIs are viewed as potential distribution channels to the poor. Various financial products and services such insurance, housing loans, savings deposits, money transfer services and pension products can be distributed through MFIs,” an industry expert opined.
However, SKS officials say the nature of relations with the companies is still intact.
?It takes about 3-4 years to get the whole process successful in this business and the allegations of strain on relationships are not true,?? MR Rao, CEO, SKS, said. ?The focus is currently on improving the situation in Andhra Pradesh, which is beginning to happen,?? he said. After the initial teething problems, further expansion would be in areas such as home loans, health insurance and finance for grocery stores.
