"Does 'Doing Good' Necessarily Have to Be a Nonprofit Activity?" This line is in context from the book "A Fistful of Rice" written by Vikram Akula. We often discuss poverty, its causes, and search for solutions to eradicate it. The common points that usually come up are overpopulation, lack of education, lack of infrastructure, and our discussions often turn to corruption in the government sector and the perceived impossibility of change, leading us to blame the systems we live in.
However, this book challenges us to think differently. It tells the story of one man's quest to eliminate poverty through microfinance and that too making it work as a 'for profit' business. It is the real story of a person whose focused and determined approach made his vision a reality. Vikram Akula, the founder and chairperson of SKS Microfinance, resides in Hyderabad, India. In 2006, Time magazine named him one of the world's 100 most influential people, and he has received numerous awards for his work.
The pivotal moment for Vikram came when a poor woman, unable to get a loan from the NGO he was working for due to lack of funds, asked, "Am I not poor too? Do I not get a chance to lift my family out of poverty?" This question made him ponder how he could help every poor person, and it became a defining moment in his life.
In the book the author argues that microfinancing offers benefits to economies, banking systems, and political systems. He also believes that Micro Financial Institutions (MFIs) should be set up as highly commercial, for-profit entities. Born in Hyderabad, India, Vikram's family immigrated to the United States in 1970 as part of the "brain drain." Growing up, he observed the stark contrast between the privileged life in the US and the extreme poverty prevalent in India. Two incidents, one at the age of 7 and another at 12, motivated him to return to India and help people in need.
After completing his graduation, Vikram went back to India to work for a nonprofit organization and embarked on his journey to change the world. In his book, he outlines how he turned his idealistic vision into a thriving for-profit business that could combat one of the world's most pressing problems: poverty.
He drew inspiration from Muhammad Yunus, an economist and professor in Bangladesh. Moved by the plight of a group of starving families, Yunus gave a $27 loan to help them launch a small business and escape poverty. This act led to the creation of the Grameen Bank, which provided microfinance and was recognized by the Bangladesh government.
When the Indian government initiated the food grain distribution program, the DDS, a nonprofit organization Vikram worked for, was given the task of disbursement. Instead of simply distributing subsidized grain, DDS came up with an alternative idea. They decided to provide subsidy money to the poor so they could plant and grow their own grain, sell some of it, keep some for themselves, and repay the government. This sustainable approach led to job creation and better utilization of fallow land. While the idea was excellent, it faced challenges in terms of execution and reaching a larger number of poor people.
Three major problems- capital, capacity and costs, in the way microfinance was being practiced, were identified by Vikram. There was never enough money or capital to help everyone, the practices varied in terms of loan amounts and repayment dates, and the cost of doing business was too high in terms of time, effort, and energy.
These challenges led the author to the idea of making microfinance a profitable venture. Along the way, he met Michelle Obama, who advised and guided him in making proposals to raise money. She emphasized the importance of providing specific operational details rather than just philosophical ideas.
SKS-Swayam Krishi Sangam, was started by Vikram. It was a microfinance venture based on the principles he had learned from the Grameen Microfinance system which involved forming self-help groups of women, with each group consisting of five women. Each woman in the group was responsible for her own loan repayments. However, if one woman missed a payment, no one else in the group could receive a loan until it was paid. This group lending approach helped manage situations of adverse selection and moral hazard due to asymmetric information. In India, where community plays a significant role, this system worked well as "social collateral" replaced the lack of asset collateral among the poorer segments of society.
The poor women possessed intelligence and a strong entrepreneurial spirit. They were primarily invested in taking care of their households rather than pursuing personal interests. The expression "a fistful of rice" symbolizes the entrepreneurial practice of poor women. When cooking a pot of rice, they would typically set aside a handful of grains as a hedge against possible shortages in the future. Vikram was able to recognize and appreciate this. Microfinance provided tools for these individuals who had talent but lacked the necessary resources to escape poverty.
Vikram's journey was far from easy. He faced corruption at every step and was threatened by politicians and local money lenders who feared losing control and power over the villagers. In his book, he shares how they had to find indigenous ways to explain the concepts of principal, interest, and credit to illiterate women using currency notes, coins, and small stones. One interesting exercise involved creating a little cardboard hut for each woman and dividing it into five pieces, like a jigsaw puzzle. The pieces were mixed together, and each woman was given five random pieces. The task was to rebuild their little five-piece huts without talking to each other. This exercise aimed to help them realize the importance of mutual assistance and teamwork.
The principles of trust and accountability between SKS, it's employees and the borrowers were emphasized. Punctuality in loan repayments and the development of good habits and practices among his staff was promoted. In the early years, SKS charged a 36 percent interest rate, which may sound high, but it was still lower than what moneylenders charged. There was no collateral involved, and repayment was the responsibility of the group. Over time, the interest rate gradually decreased to 28 percent.
Possibility of making the systems more efficient in terms of cost helping in reduction of the interest charged to the poor was recognized by Vikram. Taking inspiration from McDonald's, he observed their average time to serve each customer and started using a stopwatch to time his loan officers in action. He streamlined the process, bringing an assembly-line style to save time and effort for loan officers. He also standardized systems by implementing easy-to-scale and cost-effective software.
Vikram successfully convinced venture capitalists to invest in his vision of microfinance as a profitable venture. He raised a significant amount of capital, with SKS Microfinance raising $11.5 million through equity investments led by Sequoia Capital in 2007. This marked the beginning of his journey. It is inspiring to see how Vikram was able to connect with Metro Cash & Carry, Nokia, Airtel, and Bajaj Alliance, and build a successful business model with them. He helped these businesses tap into the untapped market of remote, impoverished villagers who could purchase their products at a more affordable cost. This success was made possible by the highly efficient distribution channels of the SKS company. The result was that the suppliers find new market segments, poor people get high-quality goods for cheap at their doorstep and SKS took a small percentage of the transactions.
Driven by a strong intuitive mind and a belief that, if trusted and given a chance, young fresh graduates would be successful in managing projects, Vikram expanded and grew his venture. His team of young blood proved to be more enthusiastic, easier to train, and cost-effective. Theories such as "goat economics" and "Google territory" are discussed in his book. These concepts, along with the need to charge higher interest rates, demonstrate his innovative thinking and ability to apply successful practices from other businesses to his own.
Vikram showed great insight by understanding that the needs of rural people differ from those of the middle and upper class. Therefore, it was important to reconsider the entire product line and offer customized products based on the preferences of the poor. This is how SKS came up with the Endowment Life insurance policy.
As SKS achieved economies of scale, they were able to provide social, educational, and health benefits to their members. SKS's affiliated NGO launched an elementary school and implemented social initiatives like deworming in the villages. Their non-profit affiliate also launched the Ultra Poor program, a three-pronged initiative aiming to improve the health, economic, and social stability of the ultra-poor. This program identifies the poorest individuals in the villages, often widows, the elderly, and the disabled, who have numerous unmet basic needs. They are provided with assets and trained on how to work with them for a year until they become profitable.
In conclusion, Vikram's journey with SKS Microfinance has been a remarkable example of the power of microfinance in transforming the lives of impoverished communities. Through his innovative approach of turning this as a 'for profit' venture and unwavering determination, Vikram created a system that empowered women, fostered trust and accountability, and provided access to financial resources previously unavailable to them. SKS not only enabled economic growth and entrepreneurship but also brought about positive social change, education, and healthcare benefits to the villagers. Vikram's vision, coupled with his ability to forge strategic partnerships and adapt to the specific needs of the rural population, has made a lasting impact on the lives of countless individuals. His story serves as an inspiration, reminding us of the immense potential that lies within communities when given the tools and opportunities to thrive.
There have been controversies regarding the downfall of SKS in later years and then it’s resurgence. Still, I feel that we can draw lots of inspiration from this story. It motivates us to build hope that change can be brought in the world.
As Dale Carnegie said, “Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all.”
References-
'A Fistful of Rice' by Vikram Akula
A day in the field- https://www.youtube.com/watch?v=Lqo45GX5p98
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