Investigations Link SKS Microfinance to Borrower Suicides

Investigations Link SKS Microfinance to Borrower Suicides

Although internal and external investigations link SKS Microfinance employees to the death of over-indebted borrowers in the Indian state of Andhra Pradesh in 2010, the company has denied any involvement, the Associated Press reports.

Davuluri Venkateswarlu, director of Glocal Research in Hyderabad, an industry umbrella group that looked at the role of several microfinance companies in the more than two hundred suspected suicides, told the AP he informed SKS executives that there was "clear involvement of SKS personnel" in some of them.

According to the AP, the deaths came after SKS launched a massive sales drive leading up to its initial public offering in August 2010. To increase the number of new borrowers in the pre-IPO period, the company offered its agents prizes valued at more than ten times their average monthly salaries. The AP found that one loan officer signed up 273 groups in one month, more than twenty times the ideal number suggested by the company's training protocols. In so doing, the basic principles of microlending were overlooked, said current and former employees. "You have a (borrower group), and a loan officer goes out and trains them, educates them, then they give the loan. That's the SKS I'd seen in 1999," said Ankur Sarin, director of the SKS trusts, which works to protect the interests of borrowers and is the fourth-largest shareholder in the company. "That was the whole model on which microfinance is supposed to work. In the quest for growth, a lot of these things got neglected."

Indeed, as the relationships between borrowers and agents withered, loan payments became difficult to collect. Eventually, some agents began working together or using other borrowers to demand that those in default pay up.

Last spring, nearly a year after several microfinance employees were jailed for allegedly abetting the suicides — and after the state passed a law with new restrictions on microfinance lending — then-SKS chair Vikram Akula put together a $10 million proposal to train financial counselors to make sure clients weren't borrowing more than they could afford to pay back. According to the AP, Akula also prepared a fifty-five page presentation for his board that showed how the pre-IPO push for growth led to a systemic breakdown in the company's practices. Other board members, however, deny that the presentation and report were ever presented, and the minutes of that meeting make no mention of such items. Akula resigned in November.

Despite evidence obtained by the AP, including internal documents and interviews with current and former employees, SKS continues to deny any wrongdoing. "Any issues raised to the board at various times were fully investigated by external parties," said current board member Pramod Bhasin, "and found to be unsubstantiated or without evidence, or actions were taken on them where appropriate."