SKS and Citi announce $44 million rural microfinance program

SKS Microfinance and Citibank has announced a USD 44 Million (Rs.1.8 Billion) groundbreaking financing program involving Citibank India purchasing loans that are originated by SKS.

Representing Citibank’s increased foray into rural microfinance, the program will deliver incomegenerating loans of between Rs.5000/- to Rs.20,000/- to a population of over 200,000 unbanked customers spread across 7000 villages in 11 States of the country by financial year 2007-08. The partnership combines SKS’ robust customer acquisition and management model with Citi’s extensive experience in financial structuring for microfinance institutions, networks and investors in emerging markets to fulfill a shared objective of greater financial inclusion and poverty alleviation through commercially viable and sustainable lending programs.

The highlight of the Citi-SKS agreement is in the fact that each individual loan originated by SKS is purchased by Citibank which shares credit risk in the transaction. Grameen Foundation (GF), as part of its global USD 50 million Growth Guarantees program launched in late 2005, will provide a limited guarantee to SKS and be an integral element of the innovative risk-sharing structure. This global guarantee program recognizes and responds to the needs of growing microfinance institutions in India, such as SKS, and encourages sector participants to expand their portfolio and presence through expanded access to local banking finance.

The Citi-SKS program encompasses 49 rural branches of SKS in the states of Andhra Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Jharkhand, Uttar Pradesh, Bihar, Rajasthan, Chattisgarh and West Bengal. Under the partnership, the origination and servicing of loans will rest with SKS. SKS utilizes a five-member group methodology, in which this group serves as the ultimate guarantor for each of its members. As additional groups are formed within a single village, a ‘center’ emerges which is composed of up to 10 groups or 50 members. Center members also provide social collateral, and are responsible for repayments if one member is unable to pay an installment. SKS currently has approximately 650,000 clients, a portfolio of Rs.301 crores, and has so far disbursed Rs.770 crores in 304 microfinance branches in the states of Andhra Pradesh, Karnataka, Maharashtra, Orissa and Madhya Pradesh, Bihar, UP, Rajasthan, West Bengal, Jharkhand, and Chhattisgarh.

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