SVKM’S NMIMS

School of Business Management, Hyderabad

PGDM 2016 - 18

Negotiation Skills
Company – Spandana Sphoorty Financial Services
Project

Akash Nachrani – 80303160086 Dr. G. K. Srikanth

NMIMS Hyderabad

23 Feb 2018
Akash Nachrani
80303160086

Analyze the failure of SKS Microfinance with respect to Negotiation Skills only.
Give your opinion weather Vikram Akula is a good or bad negotiator?

Answer:-
SKS Microfinance Failure Story:

India’s lone listed microfinance company SKS Microfinance Ltd has seen a 91% erosion of its
share value from its peak on 28 September 2010 till date and a 72% slump on its loan book after
a state law in Andhra Pradesh (AP) forced it to exit the southern state that made up close to 30%
of its business. Collection levels in AP dropped to 5%, forcing SKS to shrink its loan book in other
states and use the money to provide for the AP bad loans.
Microfinance crisis in the southern Indian state of Andhra Pradesh, triggered by sensationalized
newspaper accounts of suicides among over-indebted clients of some of India’s biggest
microfinance institutions (MFIs): SKS Microfinance, Spandana, Share, and others. These cases
underscore rising debt stress among possibly tens of thousands of clients, brought on by
explosive growth of microfinance organizations in southern India. In the quest to meet their
growth targets, loan officers often sell loans to clients already indebted to other organizations.
The reports offered an opening for the state government, which runs a rival self-help group (SHG)
program, to pass a restrictive ordinance severely curtailing the MFIs. The crisis threatens
microfinance not only in Andhra Pradesh, but nationwide, as the Reserve Bank of India moves
toward removing the priority sector designation that has fueled the sector’s growth (by making
it advantageous for banks to lend to MFIs).
The sole direct support from the Indian government to the MFIs, the priority sector lending
targets, actually contributed to the excessive growth. It prompted the public and private sector
banks to make large loans to MFIs with relatively little scrutiny, allowing MFIs to grow quickly
without enough ballast in the form of institutional capacity building or a solid capital base.

Most importantly, although large MFIs were allowed to convert from non-profits to commercial
institutions, they were not licensed to take deposits, in part because they would have become
competitors to the public sector banks. Deposit-taking, properly supervised, would have allowed
the MFIs to raise funds locally, both from clients and others in their neighborhoods. It would have
created a balanced portfolio of products and revenue sources, rather than exclusive reliance on
the micro-loan mono-product. Instead of unbalanced mono-product giants, MFIs like SKS might
have grown up to look more like Mibanco in Peru, Equity Bank in Kenya or BRI in Indonesia, all
with solid loan and deposit bases. When clients have a place to save (and banks have an interest
in promoting savings) they may be less likely to fall into debt traps.

Next, Indian policies have led to poor governance frameworks for MFIs. In many countries,
leading microfinance organizations like Mibanco and Bancosol (Bolivia) were commercialized
with a mix of owners including the original non-governmental organization (NGO), international
social investors (including development banks), and some local shareholders. The NGOs kept the
focus on the mission, while the international social investors contributed a commercial
orientation, also tempered by social mission. In Indian microfinance, NGOs are prohibited from
becoming shareholders. Instead, authorities accepted a romantic notion that client ownership
would create grassroots accountability, but this actually created a governance void. SKS, for
example, established a client trust that gave clients a monetary stake in the company but left the
voting rights to the founder/managers. At the same time, foreign investment rules have made it
hard for international social investors to participate in ownership and governance. The results:
founder domination, a pattern that affects each of the big three MFIs in Andhra Pradesh and
leads to a lack of checks on decisions by managers, and the entrance of pure commercial players
like Sequoia Capital India with their over-emphasis on fast growth.

Add to this the government support for the self-help group movement, which has been a very
important success story, but which has received preferential treatment. In Andhra Pradesh, the
SHG program received millions of dollars from the World Bank, facilitated by the Indian
government. Nothing wrong with that, except that it created a preference for SHGs over MFIs
throughout the state government.

Crisis of the moment has, correctly, focused attention on modifying specific lending behaviors:
restraining growth, instilling better client protection practices, developing credit bureaus.
However, at the same time, there’s an opportunity now for Indian policy makers to think more
deeply about the role of MFIs in the financial sector. If they welcome the contribution MFIs can
make to reaching the poor with financial services, they could begin to craft a set of ground rules
that promote balanced product offerings, solid institutional development and good governance.
Then perhaps we could talk about sharing the credit rather than the blame.
The whole crisis from the purview of Negotiation Skills:-
Having a look at the whole story, it shows a clear case of failed negotiation between various
parties which resulted in the crisis.

The major parties involved here were Media, Politicians, Microfinance firms, Debtors, Law
makers, Investors and directly or indirectly the whole banking system.

Failed Negotiations:-

1. Microfinance firms including SKS (Vikram Akula) failed to negotiate with media and local
politicians who actually created a rage of suicide committed by debtors, and had put the
entire blame on microfinance firms. But when researches were conducted it was clear
that microfinance debt made a very small portion of such suicides. Here is a story as an
example:-
In Sankarampet village about 2½ hours from Hyderabad, Satyama Ayrene is still in
mourning over the death of her son who hanged himself. While local police say they have
been told to investigate whether microdebt caused the death, Ms. Ayrene says it was the
$2,200 he owed loan sharks that was bothering him, not the $220 his wife owed to a
microlender.

"He did not commit suicide because of the [microloan] companies," said Ms. Ayrene, 55
years old. "He was burdened with loans from the local moneylenders and didn't know how
to pay them back."

2. Microfinance firms failed to negotiate with debtors who could actually pay back the loan
but backed out just because of the rage created by the local politicians and media.

There could have been a better negotiation for gaining the trust and the organization
could have been saved if the negotiation had worked out.

3. Failed negotiation with Banking System: MFIs failed to negotiate with banking system to
grant them license to take deposit like banks.

Deposit-taking, properly supervised, would have allowed the MFIs to raise funds locally,
both from clients and others in their neighborhoods. It would have created a balanced
 portfolio of products and revenue sources, rather than exclusive reliance on the micro-
loan mono-product. Instead of unbalanced mono-product giants

4. MFIs failed to negotiate with law makers which could have turned SKS leading
microfinance organizations like Mibanco and Bancosol (Bolivia).

With a mix of owners including the original non-governmental organization (NGO),

international social investors (including development banks), and some local
shareholders. The NGOs kept the focus on the mission, while the international social
investors contributed a commercial orientation, also tempered by social mission. But this
was not the case at all here in India.

Vikram Akula : Good or Bad Negotiator?

According to me, Vikram Akula is certainly not a very good negotiator. He actually failed
to negotiate with his own organization have put his resignation during the crisis.

Moreover, for all the above failed negotiation he was one of the key person who could
convert it result in successful negotiation, but he actually failed to do so.

The only place where he has shown his somewhat good negotiation skills is the Industry.
Even after resigning from SKS he haven’t left the industry and had actually negotiated
with the key players and government to remain in the industry in form of Chairperson of
VAYA Finserv Private Limited.

He switched to Bihar for starting his new venture where he successfully negotiated with
the authorities. He also negotiated with the investors like YES Bank, RBL Bank and Reliance
Capital to trust him again.

He also negotiated with RBI to grant his firm the license of NBFC.

So, as a conclusion I would say he has got the negotiation skills but failed to project them
properly during the time of crisis. If could have shown it during that time, the situation
could have been much better.