Vikram Akula: An accidental tycoon

One of India's most successful bottom-of-the-pyramid entrepreneurs parries questions on several issues that have arisen around his venture, Kanika Datta.

Vikram Akula would be hard to pick out in a crowd.

The white half-sleeved khadi top, black jeans, backpack and unassuming, low-key style come as a surprise for a man who is not only the cynosure of the worlds of microfinance, NGOs, private equity and capital markets but at the epicentre of an escalating controversy over the dismissal of his newly-listed company's managing director.

It soon becomes evident, though, that he's used to getting his way in the gentlest possible manner.

We're meeting at Little Italy in Jubilee Hills, Hyderabad's famously fashionable residential area. Akula says he chose it because of the sumptuous view of K B R Park, a lush swathe of over 200 acres.

We're craving coffee - especially me after a dawn wake-up to watch one of SKS Microfinance's daily Sangam meetings that take repayments and top up loans - but the coffee maker isn't working, so we settle for tea.

Akula is unhappy with this compromise and phones his driver to get coffee from a nearby caf.

No restaurant allows outside food and beverage - but when it arrives, Little Italy's staff can do little more than look on bemused as Akula distributes it and I gratefully accept.

...

The order is placed for some cheesy starters and two kinds of pizza.

Akula isn't too involved in the food because he's been "grazing all morning".

He tells me how his Telugu is far more rustic than most urban Hyderabadis because he had had to re-learn it in the villages (his English remains strongly American-accented, a legacy of his upbringing in the US from age two).

This Lunch with BS is two months in the planning and, coincidentally, two days after SKS Microfinance's managing director Suresh Gurumani is dismissed in controversial circumstances.

Naturally, that's the first question, since Gurumani's dismissal comes soon after Akula, 41, was appointed executive chairman and will play a bigger role in the company he built.

Akula doesn't deviate from the official position. "There were strategic differences in terms of approach. Microfinance is not a mainstream business and there's a certain way of doing it and that requires a certain intimate knowledge of the field and industry.

Sometimes external people find it difficult to understand how it works. When that became clear, a separation took place."

It happens in many organisations and at many levels; "it's happened for us at this level," he says.

...

So why was Gurumani seeking legal options?

Another careful reply: "Everyone has the right to pursue any options. If there were any legal steps taken, they would be without merit. We haven't done anything that's not as per the statutory requirements."

I tell him the talk about a personality clash and he's jokingly evasive, "Can anyone have a personality clash with me?!", then reiterates the point about strategic differences.

Much later I abruptly ask if he got on with the new MD M R Rao and he replies without missing a heartbeat, "Yes, he's a great guy." Then sensing the intent behind the question he laughs, "Hey, I got on well with the old MD too!"

L'affaire Gurumani is one of several questions that have developed around the 12-year-old company that attracted attention by, first, turning an effective poverty-alleviation initiative into a profit-making business and, then, launching an IPO that raised Rs 1,650 crore (Rs 16.5 billion) in August.

Akula enjoyed a positive image for giving up life in the US to work with the poor in India.

Now, there's a frisson of disapproval among NGOs because of the overt commercial style of operations.

...

He points out that SKS adopted the commercial model because it was "painfully obvious" that "the NGO manner of accessing capital - donations, grants - isn't enough to reach out to the vast number of poor we have in our country".

Microfinance doesn't scale up in large numbers, he says, because of three Cs - capital, capacity and cost.

In India, there are roughly 800 million poor people going by the World Bank definition of $2 a day; that's 150 million households and an estimated credit need of Rs 2,40,000 crore (Rs 2,400 billion).

An NGO could raise Rs 10,000 crore (Rs 100 billion), maybe Rs 50,000 crore (Rs 500 billion) if you have the credibility of a Yunus.

"So we have to go to commercial capital. Here, there is competition from other sectors like telecom and the perception that you are lending unsecured to poor women who have no credit history. The only way to make capital come to this sector is to say we're not only giving you profits but high profit."

As for capacity, most NGOs can cover 20 to 30 villages, SKS Microfinance services over 7.3 million families, "three times the size of Grameen".

"When I worked in an NGO, the process took hours. So, though I did study Grameen Bank I also looked at the Cokes, McDonald's and Starbucks - the kind of companies that scale rapidly - and asked can we learn from them."

...

The answer was efficient standardisation of functions, an example of which I witnessed at that morning's Sangam meeting "Look at McDonald's - the process means it takes a minute and a half for you to get your hamburger.

Similarly, there is nothing we do that is not planned. Across the country today there were 25,000 Sangam meetings done exactly the same way."

Six months later, he says, the same loan officer I watched in action would go to a different place "where he won't know anybody and they won't see the difference".

On the issue of costs - the KYC norms are cumbersome and paper-filled - Akula says technology provides the answers with computers in each branch office where loan officers fill in simply designed forms at considerable speed.

"For the poor it doesn't matter how much profit the company is making," he points out.

"What they want is timely access to finance." The issue is a "middle-class concern - people who don't understand what it means to not have access to finance".

I raise the point about high interest rates and the huge margins micro-finance companies make.

He pulls out his laptop and brings up a slide that demonstrates how SFK Microfinance's margins are not more than 5 per cent.

Interest costs are high because this is a "high touch, small value business".

"Typically if you're giving a Rs 10,000 loan and collecting Rs 200 every week from 7.5 million people, your operating costs are going to be high," he says.

...

Then there was the question of his personal wealth after he (and many employees) sold stock ahead of the IPO.

He demurs that SKS Microfinance was never about making money. It was a by-product, not the focus of his business.

But he's made a lot, I point out. "I've made a tonne of money," he admits, "more than I ever thought I would make in my lifetime and my kid's lifetime combined."

How much was he worth now? "I own 3.4 per cent of the company as stock options, the company has a $2 billion market cap...so on paper I am worth about $8 million."

On his pre-IPO gain, he grins and asks, "You want the pre-tax or the post-tax number? I made a gross sale of about $12 million, so that's $8.5 million post-tax."

This for someone who started his NGO career in 1990 on a salary of Rs 1,000.

I say the suspicion - suggested by a paper written by M S Sriram of the IIM, Ahmedabad in March - is that he will make his millions and exit.

"That's true of someone who is financially motivated," he counters and then pulls up a slide to explain why Sriram "had muddled".

...

Little Italy's chef does not commit the cardinal Indian sin of over-cheesing and -tomatoeing the pizza.

Akula's phone flashes and he tells me we have 13 minutes left.

We chat about his brief time as an "accidental consultant" in McKinsey, an exigency as a result of a divorce, the need to return to the US to be with his son and "a mountain of debt" that required him to "make money quickly".

That experience gave him an insight into Fortune 500 companies - and confidence when he realised how robust SKS's own processes were.

I ask him about his name, which I thought was Maharashtrian. "I'm a pucca Hyderabadi," he replies.

His family comes from the "Munnuru Kapu" (or 300 Kapu) community that came together when the Nizam called for 300 Kapus to run the merchant establishments in Hyderabad.

Kapu is a backward caste in Andhra ("Chiranjeevi is a Kapu," but they're not related).

In fact, if it hadn't been for reservations, his father wouldn't have been a surgeon.

"My father was the first to be educated in his family and I realise that I am not far away from the communities we work with," he points out.

...

I ask him to quickly name his heroes. Gandhi, he says.

I urge him not to be politically correct. "Honestly," he laughs, "I studied philosophy in college  and I always wondered why some people have wealth and some don't. I read all the moral sceptics (Nietzsche - who hit me the hardest - and so on) but Gandhi resolved that problem for me."

Not with My Experiments with Truth "where you get 'the Mahatma' but with Satyagraha in South Africa.

There you get the young Gandhi who was troubled by the same issues as I was and that book told me to get out of America, go into the villages and the answer would show itself."

The other hero, unexpectedly, is Jimmy Connors because "he had less talent than McEnroe and Borg but he worked harder".

Akula says he, too, played tennis at university and was "also less talented but worked hard".

By now, he's overshot his time and he makes for the door, looking more like a preppy development-wallah rather than an emerging tycoon.