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SKS Innovations Lab: Catalyzing Innovation for Microfinance

28 January 2008
Mayer Brown Article
Paul Breloff (Real Estate Associate, Chicago)

I spent the last four months of 2007 seconded to SKS Microfinance to help design an "Innovations Lab" to develop new microfinance products and services, and to share the resulting innovations across the microfinance industry.

SKS Microfinance, located in Hyderabad, India, was started in 1998 with a mission to "empower the poor to become economically self-reliant through the provision of financial services in a sustainable manner." Specifically, SKS has focused on providing small loans, typically less than US$200, to groups of rural women to finance small-scale entrepreneurial activities, such as buying a cow to milk, inventory for a doorway "store," or a loom to weave. Today, SKS has a micro-loan portfolio of $185 million, has a presence in 20,000 villages across India, and serves approximately 1.5 million customers, the majority of whom earn less than $2 per day. With an annual customer growth rate of over 150%, SKS expects to be serving nearly 5 million poor entrepreneurs by 2009.

My involvement with SKS began after graduating from law school in 2006. During law school, I worked on the startup of a community development bank, and ever since, I have been fascinated by the social impact and business potential of providing financial services to the underserved. Sponsored by a Mayer Brown-funded PILI Fellowship, I spent August and September 2006 working for SKS in India, focused on writing a long-term business plan and preparing for SKS's second round of equity. Once back at Mayer Brown, I worked with partner David Carpenter to manage the closing of SKS's second round of equity, a groundbreaking deal that was covered extensively in the Indian and international press.

SKS has traditionally focused its efforts on expanding its core lending activities to reach as many poor people as possible, as quickly as possible. However, SKS has always recognized that its customers have a variety of other unmet needs, demanding interventions that go beyond cookie-cutter loans. Specifically, SKS's customers need a great range of financial services - for example, a safe place to put savings, insurance to protect against a variety of potential catastrophes, a quick and cheap way to make payments and remit money to family members away from home, and new forms of credit.  They also need solutions to a variety of other pressing needs, such as health, education, energy, water, and more. The relationships forged by SKS with its customers can be used as a remarkably efficient distribution channel to the socioeconomic "bottom of the pyramid", and SKS has begun to step outside its credit comfort zone to experiment with what other life-enhancing products and services it can provide to its customers.

To address the need for more varied offerings, SKS is proposing to create a semi-autonomous non-profit entity, which we are calling "Innovations Lab," to incubate and disseminate a range of new products, services, and programs. The Lab would not only design, test, and roll-out new ideas within SKS, but also create mechanisms to transmit its ideas to the industry as a whole, hoping to catalyze greater innovation in other institutions and geographies. With a planning grant from the Bill & Melinda Gates Foundation, SKS's founder and CEO, Vikram Akula, asked me to lead the effort to design Innovations Lab: how would the Lab be structured? What sort of ideas should it focus on? What sort of output would be most useful to stimulate innovation at other institutions? Who should we hire to lead and work for the Lab? And how much would it all cost? With the support of Mayer Brown, I began work with Vikram and the team we had assembled, including two consultants based in Boston and a consultant based in Hyderabad.

Over the past four months, my team and I have spoken with nearly 100 microfinance leaders and innovation experts around the world; conducted a cross-industry survey on innovation activities and challenges; benchmarked innovation activities in leading mainstream companies to identify best practices; traveled extensively within India and the U.S. and to Morocco, Peru and Colombia for conferences, interviews, and field visits; and designed the Lab from the ground up, including the organization structure, internal processes, marketing plan, and funding strategy. We hope that our concept will accelerate the development of new products and services offered by microfinance institutions, and that the Lab can bundle these new offerings in a way that addresses the varied needs of the poor. Ultimately, we aim to benefit not only the 1.6 million poor families currently being served by SKS, but also the countless customers at other institutions who can benefit from the ideas that emerge from SKS's Innovations Lab.

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