MUMBAI, India — First they were stripped of their utensils,
furniture, mobile phones, televisions, ration cards and heirloom gold
jewelry. Then, some of them drank pesticide. One woman threw herself
in a pond. Another jumped into a well with her children.
Sometimes, the debt collectors watched nearby.
More than 200 poor, debt-ridden residents of Andhra Pradesh killed
themselves in late 2010, according to media reports compiled by the
government of the south Indian state. The state blamed microfinance
companies–which give small loans intended to lift up the very
poor–for fueling a frenzy of overindebtedness and then pressuring
borrowers so relentlessly that some took their own lives.
The companies, including market leader SKS Microfinance, denied it.
However, internal documents obtained by The Associated Press, as well
as interviews with more than a dozen current and former employees,
independent researchers and videotaped testimony from the families of
the dead, show top SKS officials had information implicating company
employees in some of the suicides.
An independent investigation commissioned by the company linked SKS
employees to at least seven of the deaths. A second investigation
commissioned by an industry umbrella group that probed the role of
many microfinance companies did not draw conclusions but pointed to
SKS involvement in two more cases that ended in suicide. Neither study
has been made public.
Both reports said SKS employees had verbally harassed over-indebted
borrowers, forced them to pawn valuable items, incited other borrowers
to humiliate them and orchestrated sit-ins outside their homes to
publicly shame them. In some cases, the SKS staff physically harassed
defaulters, according to the report commissioned by the company. Only
in death would the debts be forgiven.
The videos and reports tell stark stories: One woman drank pesticide
and died a day after an SKS loan agent told her to prostitute her
daughters to pay off her debt. She had been given 150,000 rupees
($3,000) in loans but only made 600 rupees ($12) a week.
Another SKS debt collector told a delinquent borrower to drown herself
in a pond if she wanted her loan waived. The next day, she did. She
left behind four children.
One agent blocked a woman from bringing her young son, weak with
diarrhea, to the hospital, demanding payment first. Other borrowers,
who could not get any new loans until she paid, told her that if she
wanted to die, they would bring her pesticide. An SKS staff member was
there when she drank the poison. She survived.
An 18-year-old girl, pressured until she handed over 150 rupees
($3)–meant for a school examination fee–also drank pesticide. She
left a suicide note: “Work hard and earn money. Do not take loans.”
In all these cases, the report commissioned by SKS concluded that the
company’s staff was either directly or indirectly responsible.
Caught in the despair of poverty, tens of thousands of impoverished
Indians kill themselves every year, often because of insurmountable
The supportive structure of the microfinance companies was supposed to
But Davuluri Venkateswarlu, director of Glocal Research in Hyderabad,
which conducted the industrywide investigation, said in an interview
that he told SKS executives there was “clear involvement of SKS
personnel” in some suicides.
SKS continues to deny all responsibility for the deaths and says it
never commissioned an independent inquiry. SKS spokesman J.S. Sai, who
flew to Mumbai from the company’s Hyderabad headquarters to discuss
the AP findings, said the company stands by its September 2011
affidavit before India’s Supreme Court. In that affidavit, chief
executive M.R. Rao says SKS “is neither the cause of nor responsible
for any suicides in the state of Andhra Pradesh.”
The deaths came after a period of hypergrowth leading up to the
company’s hugely successful August 2010 initial public offering.
Originally developed as a nonprofit effort to lift society’s most
downtrodden, microfinance has increasingly become a for-profit
enterprise that serves investors as well as the poor. As India’s
market leader, SKS has pioneered a business model that many others
hoped to emulate.
But the story of what went wrong at SKS has led current and former
employees and even some major shareholders to question that strategy
and raises fundamental questions for the multibillion-dollar global
Meanwhile, whistleblowers at SKS say that they have been targeted for
retaliation and that the company has failed to correct structural
flaws that contributed to the suicides.
“At the end of it,” said Alok Prasad, chief executive of the
Microfinance Institutions Network, the industry group that
commissioned the Glocal report, “you come down to a handful of cases
where some things went wrong. Is that indicative of the model being
bad or very rapid expansion leading to a loss of control?”
Microfinance was born in desperation. Amid the 1970s famine in
Bangladesh, Muhammad Yunus began giving small loans to poor women with
his own money.
Despite the predictions of bankers, the women paid him back.
The core idea of Mr. Yunus’ Grameen Bank was the borrower group. Five
women from a village determine how large a loan each member gets and
act as guarantors.
If even one member is delinquent, no new loans are issued. Group
members apply pressure–and support–that has kept repayment rates
near 100 percent.
Mr. Yunus’ innovation won him the Nobel Peace Prize in 2006.
In 1997, Yunus acolyte Vikram Akula founded his own microcredit
organization, Swayam Krishi Sangam, Sanskrit for “self-help
society.” In 2005, SKS started operating as a for-profit company and
Akula began chasing private investment to achieve the massive scale
required to dent global poverty.
In August 2010, SKS Microfinance–then India’s largest
microlender–went public. Exuberant investors oversubscribed the $350
million offering nearly 14 times. The stock surged more than 10
percent its first day. The company handed out 21,000 watches to
employees in celebration.
Then media reports began to surface that over-indebted borrowers were
In October 2010, a mob of 150 people surrounded SKS’s Hyderabad
headquarters, protesting the suicide of a borrower’s husband. They
threatened to drag the corpse inside and demanded $20,000.
It was one of dozens of deaths the government of Andhra Pradesh blamed
on aggressive tactics by microfinance companies. Police jailed
microfinance employees, including dozens from SKS. Among the charges
was abetment to suicide, essentially driving people to kill
themselves, a crime under Indian law. Authorities investigated 76
cases in which employees from SKS and
other microfinance companies were blamed for driving borrowers to take
their own lives. The state passed a law designed to clamp down on
abuses with new restrictions on loan disbursement and collection and
onerous registration requirements on the companies. Microlending in
India’s largest microcredit market was effectively shut down.
Microfinance officials fought the new law and denied the charges,
accusing the state government of trying to gain traction with voters
and punish companies for capturing valuable market share from
state-run lending groups.
Established microlenders such as SKS said loan sharks operating under
the guise of microfinance were behind the excesses. SKS and other
companies asked a court to stop the arrest of their employees. The
court issued a stay on new arrests. Today, no one is in jail.
In a November 2010 letter to India’s finance minister, Mr. Akula
defended his company and included supportive articles from The Wall
Street Journal and the Financial Times.
At the same time, the industry group Microfinance Institutions Network
hired Glocal to investigate 44 deaths among debtors of microfinance
companies, including SKS.
Venkateswarlu, the Glocal director, presented the findings to
executives at three lenders. In January 2011, he delivered startling
news to Mr. Akula and Mr. Rao: SKS employees had clear involvement in
the suicides of four borrowers, meaning that their actions appeared
strongly linked to the subsequent deaths, according to their
The AP obtained a four-page section of the Glocal report that deals
with the SKS case studies. It related the financial history of
borrowers, the loans obtained, the nature of pressure or harassment
for repayment and the microfinance company involved. Venkateswarlu
verified that it was the material he presented to Mr. Akula and Mr.
“They said they’d look into the issue and take some appropriate
action,” Venkateswarlu said.
SKS sent internal audit teams to the field. Their reports exonerated
Unable to reconcile the two sets of findings, SKS hired Guardian’s
Human & Civil Rights Forum and Third Eye, a private investigative
agency, to do a more thorough, independent inquiry, according to
Ramesh Vautrey, head of administration at SKS, who oversaw the
investigation, and Rajender Khanna, the president of Guardian’s.
A Jan. 17, 2011, letter from SKS, signed and stamped by Mr. Vautrey,
asked Mr. Khanna to “carry out a fact finding enquiry on the causes
of suicide and complicity of our field staffs without any prejudice,”
according to a copy of the letter obtained by AP. The AP was shown
invoice numbers for SKS payments to Third Eye and emails indicating
the findings were sent to top management.
P.H. Ravikumar, who became interim chairman of the SKS board last
November, said neither management nor the board authorized an
independent inquiry into borrower deaths.
“Our enquiries from 2009 to 2011 have revealed that neither SKS nor
its employees have been the cause for any of the suicides in the state
of Andhra Pradesh,” the company said in a statement. The company also
said SKS employees have been acquitted in two borrower suicide cases
in Andhra Pradesh and that only one criminal case remains outstanding.
Mr. Khanna sent teams to speak with families of the dead, village
leaders, neighbors and loan agents, videotaping the interviews. Their
report said SKS employees bore direct or indirect responsibility for
at least seven suicides, including two that overlapped with the Glocal
The interview videos were shown to the AP by Uma Maheshwari, who said
she was present during one set of recordings and visited several of
the families personally. She left SKS in July.
In one video, the daughter of borrower Dhake Lakshmi Rajyam cries,
gasping as she talks to an investigator in Tadepalligudem, Andhra
Ms. Rajyam was unable to pay off $2,400 owed to eight different companies.
Employees of microfinance companies, including SKS, urged other
borrowers to seize the family’s chairs, utensils and wardrobe and pawn
them to make loan payments, her family told investigators. Unable to
bear the insults and pressure of the crowd of borrowers who sat
outside her home for hours to shame her, Ms. Rajyam drank pesticide on
Sept. 16, 2010, and died, the family
“We have lost my mother,” her daughter says. “Nobody will support us.”
The investigator’s conclusions lay the blame on SKS employees, saying
they failed to comply with company policies “and even basic moral
Mr. Vautrey said he sent the case studies to three top managers,
including Mr. Rao. Emails obtained by AP indicate that summary reports
were emailed to the managers.
Mr. Rao did not respond to multiple requests from AP seeking comment.
Mr. Vautrey went to Mr. Akula’s office one night and told him what
they were doing was bad karma.
“I don’t want to be part of a team abetting suicides,” Mr. Vautrey
said in an interview. “It is systemic failure. We have no right to
kill anybody for our own business. Let’s close down our business if we
can’t do it right.”
A profound shift in values and incentives at SKS began in 2008.
In October, Boston-based Sandstone Capital, now SKS’ largest investor,
made a major investment. It joined U.S. private equity firm Sequoia
Capital, which funded Google and Apple and is SKS’ largest
shareholder, on the board of directors.
Mr. Akula, who had been chief executive in the company’s early days,
stepped down in December 2008 but stayed on as chairman. The company
brought in new top executives from the worlds of finance and
SKS also began transferring more loans off its books, selling highly
rated pools of loans to banks, which then assumed most of the
associated risk of borrower default. That freed SKS to push out more
and bigger loans.
In December 2009, SKS launched a massive sales drive. The “Incentives
Galore” program ran through February 2010–just one month before the
company filed its IPO prospectus.
Agents won prizes worth up to 10 times their average monthly salary
for signing huge numbers of new borrowers. Mr. Vautrey said he
coordinated the shipment of 8,800 televisions, refrigerators, gold
coins, mixers, washing machines and DVDs as rewards for more than
3,000 districts nationwide.
One loan officer signed up 273 groups in a month. Under training
protocols, the ideal number of groups formed per month is 12, the
maximum is 36, according to field agents and reports written by Mr.
“The focus is only on targets,” Ramulu Sirgapur, who spent a decade
at SKS before he left in December, told AP. “Even if we’ve given
feedback, there might be recovery or repayment issues. That’s OK. Just
concentrate on growth.”
The result: Management had a great set of numbers to show investors as
it shopped the IPO. In a month, SKS could add 400,000 borrowers and
100 branches, and train more than 1,000 new loan officers. SKS had 6.8
million borrowers and had disbursed $3.2 billion in loans. India was
pimpled with SKS branches, which bloomed in nearly 100,000 villages.
SKS said it was the fastest growing microfinance company in the world.
But basic principles of lending were overlooked, according to
interviews with current and former employees, as well as
correspondence and internal PowerPoint presentations by Mr. Akula.
Six current and former SKS staffers with experience in the field told
the AP they no longer had time to check a borrower’s assets or follow
up and make sure a loan was put to productive use. They said that they
were pressured to push more debt onto people than they could handle
and that the number of days devoted to borrower training was cut in
“You have a (borrower group), and a loan officer goes out and trains
them, educates them, then they give the loan. That’s the SKS I’d seen
in 1999. That was the whole model on which microfinance is supposed to
In the quest for growth, a lot of these things got neglected,” said
Ankur Sarin, director of the SKS trusts, which are the fourth largest
shareholder in the company and tasked with looking out for borrower
As the relationships between heavily indebted borrowers and loan
agents broke down, it became harder to collect.
Frustrated agents began working together and going door to door to
collect, rather than taking payments only in public a company rule
designed to limit coercion. They began using other borrowers to
pressure defaulters into repaying.
“The growth was very rapid. That growth led to some suboptimal
outcomes,” said Ashish Lakhanpal, managing director of Kismet
Capital, one of SKS’s largest shareholders, who was on the SKS board
until October 2010. “Were there lapses? Absolutely.”
While the board was concerned about fast credit growth, the company
never believed it was harming borrowers, Mr. Lakhanpal said.
“Mistakes were made, but I find it difficult to believe there was
anything people did at a managerial level to encourage field officers
to do that,” he said.
In spring 2011, Mr. Akula began circulating a plan to spend $10
million to train financial counselors who would make sure clients
weren’t getting into too much debt and used their loans productively,
according to Mr. Sarin, Mr. Vautrey and others with firsthand
knowledge of the proposal.
The plan was never adopted.
Publicly, Mr. Akula continued to deny that SKS bore any responsibility
for suicides. “Whatever happened was due to external factors and was
not reflective of any fundamental flaw in our model,” he told India’s
Privately, Mr. Akula prepared a 55-page presentation for the board
that detailed the seven suicides that SKS’ outside investigation had
blamed on the company. The presentation showed how the pre-IPO push
for growth led to a systemic breakdown, and again urged core reforms
to restore training and lending discipline.
Board members received copies of Akula’s presentation at a July 26,
2011, meeting, said a former employee who helped prepare the material
and spoke anonymously for fear of retribution.
The minutes of the meeting, however, make no mention of the report.
“As per my notes, this was not part of the board proceedings,”
company secretary Sudershan Pallap wrote in a Sept. 26 email to Mr.
Akula, who had complained of the omission.
Ravikumar, who would become interim chairman when Mr. Akula resigned,
said the board was never informed that SKS employees were implicated
in any suicides, and denied Mr. Akula presented any such findings to
“There was no presentation from Vikram Akula at that board meeting.
This will be reflected in the minutes, as signed by Vikram Akula,” he said.
Ravikumar said the board reviewed reports from the Microfinance
Institutions Network, but none of them implicated SKS employees.
Mr. Akula continued to complain to the board that his presentation had
been ignored. He summarized his concerns about the company’s direction
in emails, obtained by the AP, to seven board members, including
Sequoia’s Sumir Chadha, Sandstone’s Paresh Patel and three independent
directors: Ravikumar, Harvard’s Tarun Khanna, and Pramod Bhasin, the
former chief executive of Genpact.
Mr. Chadha, Mr. Patel and Mr. Khanna did not respond to multiple
requests for comment.
Ravikumar declined to comment on what he said was personal correspondence.
Mr. Bhasin said reports claiming SKS bore responsibility for borrower
suicides were “unsubstantiated.”
“Any issues raised to the Board at various times were fully
investigated by external parties and found to be unsubstantiated or
without evidence or actions were taken on them where appropriate,” he
wrote in an email.
Rancor within the company was intensifying. Board members felt Mr.
Akula was suffering from a bad case of “founder’s syndrome,” that he
couldn’t stand to share power at a company that had become too big for
him to run.
Finally, on Nov. 23, 2011, Mr. Akula resigned.
Mr. Vautrey said he was targeted, and SKS began termination
proceedings against him on Feb. 6. Three members of his staff have
been fired and have filed wrongful termination complaints with the
On Feb. 6, SKS also sold 2.43 billion rupees ($49 million) in
securitized loans. The stock price surged 10 percent. Top executives
have been on the road, hoping to raise 5 billion rupees ($100 million)
from international investors.
Mr. Sai, the company spokesman, said SKS has hired an ombudsman, is
spending $3 million to improve its customer grievance program and has
revamped training to ensure that employees comply with current
regulations and do not lend to over-indebted borrowers. He said the
company would like to reorganize incentives to maintain rapid growth
while ensuring loan quality. Those changes have yet to be implemented,