Wall Street Journal Features Article on New Profit-Based Microfinance Model

Microfinance has been a non-profit venture since its discovery in the 1970s. This may be a changing reality in the microfinance world. A new profit-based model is emerging in India. The man who is pioneering the movement toward for-profit/ large bank investing in microfinance is 37 year-old Mr. Akula of SKS Microfinance Pvt. Ltd.

Mr. Akula has applied a two step modification to the more traditional micro lending model in order to make the process as efficient as possible. The first step was streamlining. Mr. Akula placed rules upon borrowing and payment. Simple rules allow for loan officers to see more borrowers in the course of a day. Streamlining of payment in combination with the creation of simple loan management software allows for much more efficient accounting practices.

With the reputation of 100,000 borrowers and a default rate of only 2% large lending institutions have become willing investors in SKS’ for-profit style micro-lending. In 2004 Citigroup began lending to SKS and ABN Amro Holding NV and HSBC Holdings PLC were soon to follow.

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