Entertainment is the primary purpose when I pick a book to read. Learning from it is a by-product most of the times. I picked up this book because someone recommended it very strongly after knowing that I am working in Indian education sector.
Well, A Fistful of Rice is not about education but it ended up in educating me about Micro-Finance Industry. Putting aside current controversies around SKS (AP court order, ouster of the CEO after the IPO, falling stock price), there is no doubt that Vikram Akula has got a deep understanding of Micro-Finance Industry. In this book, he travails through his journey from being a student with a vision to do something for poor to the success of SKS serving millions of people. Akula spent many years in the villages understanding the Market he was targeting. From the very beginning he was very clear that he would take the for-profit route unlike Grameen Bank. Profitability enables scalability.
Akula also explains how he always considered other scalability factors while creating SKS. He committed $2 million for the technology platform at the time when the total business was order of magnitude lower than this commitment. Akula also walks through how they got inspired by the McDonald’s’ model and how they got into Google’s domain and grew up so aggressively.
Bill Gates asks a very valid question – What kind of business models provide enough returns to SKS customers after paying the exorbitant interest rates of 28%? Akula impresses Mr. Gates and me as well when he answers this question by explaining the Goat Economics. And this is what he explains –
“a landless agricultural worker might use a 2,000 rupee loan (about $40) to buy a goat. She continues with her daily work and takes the goat along with her to the fields. The goat eats grass and virtually anything else, so there is no investment from her end. A goat gives birth to one or two kids a year and the value of the offspring is about 50% of the mother, or about 1,000 rupees. Even if a borrower took a 28% loan, she makes a return of about 70% on invested capital.”
He adds further,
“There are four other reasons why microenterprises yield very high returns. First, borrowers tend to draw on family to help with microenterprises, which is far more productive than hiring wage laborers. Think of your classic immigrant-owned grocery story in the US where sons and daughters help out. Second, in the informal economy, the poor make too little to pay taxes (they typically make less than $2 a day when they join SKS.) Third, poor entrepreneurs have little infrastructure and overhead costs. A village grocery is a homefront shop, not a separate rental property. And fourth, for the first three reasons, capital is only a small percentage of a new micro-venture’s input. What’s far more important for a micro-entrepreneur is timely access to capital. “
And that timely access to capital is what SKS enables. Must read book, specially for people who are trying to get into Indian markets after serving western markets or people who want to get deeper understanding of rural India.