SKS Microfinance “The SKS Acceleration Model” empowering the poor to become economically self-reliant Vikram Akula Founder and CEO November 2007

SURVEY A VILLAGE RECRUIT MEMBERS PROVIDE TRAINING DELIVER SERVICES AT DOORSTEP SKS HAS USED THE GRAMEEN BANK MODEL TO PROVIDE OVER 1.3 MILLION MEMBERS CLOSE TO $400 MILLION WITH A 99% REPAYMENT RATE

Agriculture Animal Husbandry Trade Services Production BORROWERS UNDERTAKE A RANGE OF ACTIVITIES, EARNING RETURNS FROM 14% TO 245%

THERE IS A HUGE UNMET DEMAND FOR MICROFINANCE IN INDIA Source: EDA rural report “Maturing of Indian Microfinance”, World Bank. Assumptions Existing market: Rs. 20,000 crores Basis: NABARD; EDA Rural Report, “Maturing of Indian Microfinance” Poor households: 150 million Basis: World Bank poverty statistics, India Avg. credit demand / HH: Rs. 20,000 Basis: EDA Rural Systems Adjustment for service difficulties: 20% Basis: adjustment made to reflect inaccessible poor in rural areas (~7%) and half of underserved urban poor (0.5 x 26% = 13%) covered in part by moneylenders and informal sources, but largely untapped Current micro- credit by MFIs Total micro-credit demand, India Rs. 240,000 ($55 Billion) Rs. 20,000 ($5 Billion) Projected micro-credit demand, crores

5 MOST MFIs ARE NOT ABLE TO SCALE 73% of MFIs Serve <2,500 Clients (2321 Institutions) 16% of MFIs serve 2,500 – 10,000 Clients (515 Institutions) 9% of MFIs serve 10,000 – 100,000 Clients (276 Institutions) 2% of MFIs serve >100,000 Clients (49 Institutions) Source: Microcredit Summit Close to 90% of MFIs serve less than 10,000 clients

6 THERE ARE 3 CONSTRAINTS TO SCALING MF... Capital Capacity Costs (2) Scalable processes from the business world (3) Deploying technology to automate and lower transaction costs (1) A profit-oriented model to access commercial capital AND THE SKS SOLUTION

7 3 CONSTRAINTS TO SCALING MF... Capital Capacity Costs AND THE SKS SOLUTION (2) Scalable processes from the business world (3) Deploying technology to automate and lower transaction costs (1) A profit-oriented model to access commercial capital

8 Vinod Khosla THE PROFIT-ORIENTED APPROACH HAS ATTRACTED $20 MILLION IN EQUITY…. LEVERAGED TO DISBURSE CLOSE TO $400 MILLION IN LOANS Above Market ROE Equity Investors First MFI loan in India Lenders ROE First MFI loan in world KISMET CAPITAL Ravi & Prathiba Reddy Foundation

9 3 CONSTRAINTS TO SCALING MF... Capital Capacity Costs AND THE SKS SOLUTION (2) Scalable processes from the business world (3) Deploying technology to automate and lower transaction costs (1) A profit-oriented model to access commercial capital

SKS DRAWS FROM SCALEABLE BUSINESS MODELS SKS trains over 150 new loan officers per month SKS adds 50 branches and 100,000 customers a month Shared back office Field office SKS factory-style recruitment & training draws SKS decentralized operational model draws on 170% CAGR

11 3 CONSTRAINTS TO SCALING MF... Capital Capacity Costs AND THE SKS SOLUTION (2) Scalable processes from the business world (3) Deploying technology to automate and lower transaction costs (1) A profit-oriented model to access commercial capital

SKS DEPLOYS CUTTING-EDGE TECHNOLOGY TO LOWER COSTS Industry Leading MIS: Real-time Data Transfer: B3B3 B4B4 Database Internet B1B1 B2B2 B 5 D3D3 D1D1 D2D2 D4D4 D 5 Head Office Server All SKS branches transfer portfolio data through the internet within hours of meetings, enabling management to quickly respond to potential problems SCALEABLEUSER FRIENDLYACCOUNTINGREPORTING

SKS HAS SCALED TO 14 STATES WITH OVER 1.3 MILLION MEMBERS SINCE million members 2.6 million life insurance policies 75,000 health insurance policies $168M outstanding $393M disbursed 99% On-time Repayment Rate 6,100 staff 20,000 villages in 557 branches SKS is one of the fastest growing MFIs in the world, with a CAGR of 170% Branch office

SKS’s GOAL IS TO SCALE TO 5 MILLION BY 2010

Products Financial Services Non- Financial Fund Based Fee Based Enterprise Consumption Housing Education Remittances Insurance Investment Savings Perishables (food) Non-Perishables (FMCG) Electronics Consumer Packaged Goods (FMCG) Health (e.g. immunizations) Commercial Non- commercial Disaster Management SKS HAS ALSO CREATED A DISTRIBUTION CHANNEL TO THE BOP

Upper Poor (70 million households) Have some assets Very Poor (70 million households) Have no assets but can work Ultra Poor (10 million households) extreme poverty SKS HAS LAUNCHED A PROGRAM TO TARGET TO ULTRA POOR THROUGH ITS AFFILIATE—SKS NGO

A sustainable entrepreneurial activity An asset, training + health & social inputs gets to begin An ultra poor member ULTRA POOR PROGRAM PROVIDES ECONOMIC, SOCIAL AND HEALTH INPUTS Potential graduation into microfinance Ravi & Prathiba Reddy Foundation with initial support from

SKS Microfinance EMPOWERING THE POOR TO BECOME ECONOMICALLY SELF-RELIANT

Working Draft - Last Modified 8/14/ :56:05 PM Printed 19 SKS – CREATING MICROFINANCE OF THE FUTURE