On February 24, 2012, the Associated Press broke a story about the wave of increased suicides in the Indian state of Andra Pradesh in late 2010, and the alleged role of market leader SKS Microfinance in “fueling a frenzy of over-indebtedness and then pressuring borrowers so relentlessly that some took their own lives.” Knowing that more than a few Abacus clients have been early and loyal investors in microfinance funds, including one which owns SKS, we asked the portfolio managers of that fund to find out just how seriously SKS management is taking this situation, and what changes it has made in its training and collection practices.
Given the tone of the AP article, we were fully ready to insist that the fund sell its SKS holdings at whatever discount necessary to avoid profiting from the kind of suffering that the company seemed to be complicit in allowing. The portfolio managers began by obtaining a point-to-point written to the AP by the EVP of Public Affairs for SKS. The letter defended the company against the allegations made in the article, stating that much of the “report” was a repetition of allegations made against the MFI sector 1.5 years prior but was presented as though it was new information, and that government agencies had already investigated SKS and exonerated them in 14 out of 15 cases, with the remaining one still pending trial. The spokesman went on to describe the company’s Customer Protection Principles, a Helpline it had set up almost three years prior to the report, its interest rate caps, and the creation of an Ombudsman role to handle grievances.
We were also able to obtain a copy of a press interview with SKS’ Chairman, Ravikumar, which provides a rebuttal consistent with the letter mentioned above, and goes on to discuss the company’s future beyond solely microfinance.
In summary, we were highly alarmed by the reports of the suicides and possible intimidation tactics and exorbitant interest rates being charged by SKS loan officers. But upon reading the rebuttals, and looking back at the reports that were surfacing in late 2010 and early 2011 and finding that the suicides in question all occurred in that period, we are satisfied with the way the company is handling these issues. Nevertheless, it reminds us that staying vigilant in the impact investing space is of paramount importance. It’s too easy for greed to be clothed in humanitarianism and cause much more harm than good. But it’s equally easy for the press and public to swell in anger towards successful entrepreneurs and investors in an impact-oriented business, and vent that emotion with false accusations and mis-characterizations.
Note: This is not an offer to sell any type of security, and there is no investment currently available through Abacus that would allow someone to invest in SKS Microfinance Company. The information above is from sources deemed reliable, and is presented merely to help educate Abacus clients about impact investing, and to provide additional qualitative reporting to those Abacus clients who own Unitus Equity Fund which was an early investor in SKS.
