Named one of Time Magazine’s most influential people in 2006 and founder of one of the largest and most successful microfinance networks in the world, Vikram Akula genuinely understands the needs to those at the bottom of the pyramid. Moreover and much more importantly than merely understanding those needs, his company, SKS Microfinance, is working diligently to serve those needs and thereby lift millions of poor families out of poverty.
Today, at the Microfinance 2.0 Conference, Vikram outlined what he believes are the current wins in the microfinance industry, current opportunities or areas of improvement and finally he discussed what he believes the future of microfinance looks like.
Let’s start with the wins; the awesome work microfinance has accomplished thus far. For one, it has helped to lift over 150 million individuals out of poverty. In doing so, it has dramatically improved the local economies of developing countries and has provided dignity and self respect to the poor.
Next and arguably more importantly, we’d like to highlight the opportunities, the key areas of improvement for this industry. To date, of the 3 billion poor in the world, microfinance institutions (MFIs) have only addressed 150 million (according to Vikram, in India demand for MFI capital was 55 billion but only 12 billion was distributed). This evident gap begs the question of why. Why have we not been able to enlist the power of microfinance to reach more poor families? And beyond that, what can we do to remove those whys, and shatter those barriers. Vikram attributes this question to three primary reasons:
1.) Lack of access to capital
2.) Lack of capacity to build scalable models
3.) Prohibitive costs of widespread operation
To combat these opportunities, Vikram proposed three ideas he believes are imperative. Respectively, they are:
1.) Profit model to access commercial capital
2.) Learn from scalable business models that have been successful ( think Starbucks, McDonalds, Coke)
3.) Use technology to automate manual processes to dramatically lower transaction cost
First, to combat the issue of the perpetual lack of capital plaguing the microfinance industry, Vikram spoke of the need to attract commercial capital to the industry and make it appealing and profitable for conventional venture investors to pitch in. How can we attract large scale venture investors such as Sequoia and Draper Fisher Jurvetson to invest in the bottom of the pyramid and ensure it is profitable for them?
Second, to combat the issue of scalability, Vikram proposed that MFIs learn from global firms who have successfully scaled their business models to tangibly reach those in remote villages or at least become recognizable to them. As an example: how we can apply the business model of Coke (greatly simplified) to the microfinance industry? How can we standardize MFI processes so they are easily replicable almost anywhere in the world? We know that people around the world, affluent, middle class or poor are familiar with the Coke brand and probably have access to the actual product. Specially, we know that even the poorest of the poor can mentally reference a Coke product. What can microfinance strategists learn from business strategists at Coke?
Third, to address the issue of manual processes currently used by many MFIs simple automation must be introduced. Instead to use simple databases to do so automatically. Instead of using pen and paper to record millions of loan entries, a simple database can be created to automate the entire process.
Implementing some of these opportunities, SKS Microfinance is making strides (understatement!) to help propel the power of microfinance to touch millions of lives. To date they have loaned approximately $1.6 billion to over 4.5 million poor with a repayment rate of 99%. What’s more, Vikram and his team have been successful at attracting large scale venture investors, including Sequoia Capital, to invest tens of millions in microfinance. In fact, subsequent to the demise of Lehman Brothers Inc, SKS was able to secure 75 in private equity. This, to some extent, proves that yes it is possible to access commercial capital for good.
Contributor Profile: Naiomi
Naiomi is passionate about business for good and the field of social entrepreneurship. As co-founder of SocialEarth, she hopes to help create an uplifting and informative news source for anyone interested in helping those less fortunate.
Twitter: @naiomibisram
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