Crafting her FutureMamatha is a resident of the little toy town of Nirmal in Adilabad district, in Andhra Pradesh state. When she married a toy maker, Mamatha learnt how to shape wood into colorful birds, animals, fruits and dolls. Using tamarind seeds, saw dust, gum, paint and varnish, Mamatha creates these bright, alluring toys that are popular even overseas. She first borrowed money from SKS in 2003 and has steadily proven her artistic and business skills. Today she supplies to stores in Karimnagar, Hyderabad and Warangal and earns between Rs.8,000 to Rs.10,000 per month.

ContentsMission & Vision 04

Core Values 06

Letter from the Chairperson 08

Message from CEO, COO and CFO 10

Operational and Financial Highlights 12

Directors’ Report 14

Management Discussion and Analysis 27

Report on Corporate Governance 35

Auditors’ Report 45

Balance Sheet Abstract 83

Notice of Sixth Annual General Meeting 84

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MissionOur mission is to eradicate poverty. We do that by providing financial services to the poor and by using our channel to provide goods and services that the poor need.

VisionOur vision is to serve 50 million households across India and other parts of the world and also to create a commercial microfinance model that delivers high value to our customers.

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SKS members seek an opportunity not charity

In the poor we trustTrust is central to the microfinance business model. Every day we extend millions of collateral-free loans, yet we continue to maintain astonishing re-payment rates of 99%. Through business practices that promote growth and efficiency, we are able to scale at an unprecedented pace. Yet our mission of reducing poverty and empowering the poor is the core of our for-profit model of microfinance. We strive to help create a world that is more equitable by giving the poor tools, products and services that are not accessible to them.

To help channel the energy of thousands of dedicated employees, SKS has defined values that are the foundation of our work. These values underpinned our growth in 2008-09 as we expanded and introduced innovative products, services and business practices.

In addition to adding millions of new members this year, we strive to serve them better. We dropped interest rates in the state of Orissa when we achieved sufficient scale. SKS showed its commitment to providing value for our members when we launched our micro-insurance product. Our ambitious program to connect with thousands of center leaders or sangam leaders, helped us strengthen our relationship with our members through direct contact and extensive interaction.

Mix Market, the Washington-based micro-finance information platform, ranked SKS number two in the world in its annual rankings of microfinance institutions. Transparency is one of the key parameters in Mix Market’s prestigious ranking. SKS made a further com-mitment to transparency when we listed our non-convertible debt on the Bombay Stock Exchange. Thus, our financial information will be in the public domain and subjected to external scrutiny. SKS has raised the bar on accountability.

Stringent processes ensure the highest quality of service for our members. SKS has also in-vested significant time, energy and resources in training sessions for employees in order for them to serve our members with the highest levels of professionalism. A robust technology backbone, which will ensure a more agile or-ganization in the years to come, is being set up.

Right Focus : Customer First Right Means : Ethics Always Right Way : Consistent Quality

3.9millionpoor households served

INR 4399crore($897m) worth loans disbursed

99%re-payment rates

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SKS micro-entrepreneurs in Nirmal

In 2005, when SKS changed from a non-profit to a non-banking finan-cial company (NBFC) we had 1.2 lakh (120,000) members. We have grown exponentially since then and by the financial year ending in March 2009, SKS counted membership of 39 lakhs (3.9 m) poor households across 18 states of India. Through all this we have maintained on-time re-payment rates of 99%.

Even in the midst of the worst global financial turmoil in decades, SKS flourished. In November 2008, just after the collapse of Lehman Broth-ers, SKS received an investment of INR 366 crore (USD 75 m) from Sandstone Capital, Kismet Capital and Silicon Valley Bank. That deal – the largest for microfinance in India – underscored investor confidence in our Company. The fresh injection of capital helped SKS distribute loans worth more than INR 4,399 crore (USD 897 m) in fiscal year 2009, compared to INR 1,679 crore (USD 343 m) the previous year.

To strengthen our business as we continue to grow it, SKS has long invested heavily in information technology. In 2000 we pioneered a ro-bust IT system to manage loans and increase our efficiency. This year we are taking the next step by creating innovative IT systems for data warehousing, business intelligence, disaster recovery and linking SKS branches across the country.

From just a handful of employees in 1998, our ranks have mushroomed to 14,000 as we meet the needs of our growing number of customers. Our emphasis on training and systematic processes continues. SKS conducted numerous training sessions for employees that focused on process and managerial training in order to ensure the high quality of our services.

At SKS, we are also using our wide reach across India to distribute goods and services that the poor need. We are working with a range of partners to offer micro-insurance; financing for mobile phones; so-lar lanterns; clean water systems; and access to affordable consumer goods so our borrowers can stock their shops with quality inventory.

Without a doubt there is still a long way to go in the battle against pov-erty. But we believe that microfinance is an important tool to transform the lives of the poor for the better.

We have made great strides at SKS this past year and look forward to further advancing our goal of eradicating poverty by empowering the poor. We owe that to every poor woman who wants a better life for herself and her family.

Sincerely,

Vikram Akula

Dr Vikram Akula, Founder and Chairperson

We need to continue to grow and reach out to as many poor households as we can. We owe that to every woman who seeks a better life for her family.

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14000employeesAfter decades of working in the banking and finance sector it was re-freshing to get involved with microfinance when I joined SKS in 2008. Both the very simplicity of our operations and the pace of growth leave one filled with amazement. For someone from the formal banking sector the tremendous promise of microfinance is at once a revelation and a huge challenge.

As a financial institution that deals with money, it is critical that ethi-cal values form our foundation. Then we need the right infrastructure – technology, business intelligence, and enterprise risk management systems - that can then help us cope with the challenges of managing

growth. The right products, robust operational plans, timely hiring and steady funds then become the drivers of growth.

This year, our growth model has yielded rapid results. The core values of SKS have been formally rolled out as we expand across India. At the same time we are putting important building blocks in place, such as strong risk management and business intelligence tools, and an enter-prise-wide IT backbone.

With all this we are well on our way to ensure SKS is prepared to man-age growth and flourish in the years to come.

If our aim is to be the largest MFI in the world, how do we ensure the organization is prepared for growth?

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At SKS, growth and pace are not new. Ever since we transformed into an NBFC, capital has been readily accessible to fuel our growth. In 2008-09, we continued to demonstrate similar growth but when we wanted to ensure this growth did not compromise on either quality or customer care, we were able to halt growth and take stock.

Around August 2008, SKS paused. Member acquisition in all branches, except those that audit had graded an A, was stopped. For the entire month the organization had one obsession – quality. This initiative along with our very ambitious customer contact programme – perhaps the largest such initiative in the financial sector - held across our network helped us strengthen our base further and support our next phase of growth. In this novel initiative, we were able to interact directly with over 45,000 Sangam Leaders representing 75 percent of our member base in Andhra Pradesh, Orissa, Karnataka, Maharashtra, v, Madhya Pradesh, West Bengal, Uttar Pradesh, Rajasthan and Gujarat.

Both these critical initiatives have helped SKS strengthen its brand equity as a company that is extremely customer centric and quality concious.

In the midst of the global financial crisis, SKS announced the largest equity round in the microfinance sector. Sandstone Capital’s investment of INR 360 crore (USD 75 Million) in SKS proved the credibility the sector and the company has established amongst investors.

The year saw the consolidation of our banking relationships further when a large number of PSU banks also reposed faith in us by extending loans to SKS. The year saw 27 per cent of our lending coming from PSU banks.

The year also saw strategic funding initiatives by the company, which were defining moments for the sector as well. For the very first time in micro-finance, mainstream financial instruments like Non-Convertible Deben-tures, Commercial Papers, Rated Pool Securitization and Listed debt were introduced by SKS.

While these were path-breaking initiatives, the coming years will see SKS setting a clear cut strategy for highest safety rated instruments, steady funding resources with minimum risk elements. Then the commercial model of microfinance would have truly come of age.

M R Rao, Cheif Operating Officer

Dilli Raj, Cheif Financial Officer

The largest customer contactprogramme in the financial sector

At SKS, growth and expansion are not new. Ever since we transformed into a non-banking financial company, capital has been readily accessi-ble to fuel our growth. In 2008-09, we continued to demonstrate similar growth. However, we wanted to ensure this rapid pace did not compro-mise either quality or customer care so we did something different.

Around August 2008, SKS paused to take stock. We halted member acquisition in all branches, except those with highest ratings from our audit team. For the entire month we had one obsession: quality. This initiative along with our very ambitious customer contact programme – perhaps the largest such initiative in the financial sector - helped strengthen our base and supported our next phase of growth. In this novel initiative, we were able to interact directly with over 45,000 center leaders or “sangam” leaders, who represent 75% of our member base in Andhra Pradesh, Orissa, Karnataka, Maharashtra, Chhattisgarh, Madhya Pradesh, West Bengal, Uttar Pradesh, Rajasthan and Gujarat.

Both of these critical initiatives have helped SKS strengthen its credibility across regions and strengthen its core values of quality and customer focus.

The largest equity round in themicrofinance sector

From a financial perspective, 2008-09 was a momentous year for SKS. In the midst of the global financial crisis in late 2008, SKS announced the largest-ever private equity investment in India’s microfinance sec-tor. An equity issue of INR 366 crore (USD 75 m) led by Sandstone Capital gave credibility to the sector and bolstered our reputation among investors.

In addition, SKS raised incremental debt of INR 3,762 crore (USD 777 m) last fiscal year even during the most hostile period for fundraising in recent economic history. We further strengthened our banking relation-ships when a large number of public sector banks (PSB) demonstrated faith in us by extending larger loan volumes to SKS. Public sector banks contribute 27% of our loan capital that we on-lend to borrowers.

This year, SKS pioneered strategic funding initiatives, which were wa-tershed moments for the sector. For the very first time in microfinance, mainstream financial instruments like non-convertible debentures, com-mercial papers, rated pool securitization and listed debt were introduced by SKS. In an especially notable transaction, SKS assigned a pool of INR 750 crores (USD 153 m) comprised of receivables exclusively from scheduled castes and tribes and minorities identified as ‘weaker sec-tion’ by the Reserve Bank of India. This ‘affirmative action’ has not gone unnoticed.

While these were path-breaking initiatives, we have a clear strategy for the future to create a funding structure with the highest safety rated financial instruments, stable funding resources, mitigated risks and low-est possible interest cost. Upon execution of this vision, the commercial model of microfinance will have truly come of age.

M R Rao, Chief Operating Officer Dilli Raj, Chief Financial Officer

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FY 06 FY 07 FY08 FY 09

Operational Information Mar-06 Mar-07 Mar-08 Mar-09

Total No. of Branches 80 275 771 1354

Total No. of Districts 19 102 235 336

Total No. Staff 574 2389 6425 12814

Total No. of Members (in millions) 0.20 0.60 1.87 3.95

Amount Disbursed (Rs. in millions) 1525 4454 16789 43988

Portfolio Outstanding (Rs. in millions) 921 2756 10506 24565

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FY 06 FY 07 FY 08 FY 09

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24565

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80

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FY 06 FY 07 FY 08 FY 09

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FY 06 FY 07 FY 08 FY 09

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PATIncremental Debt Raised Total Revenue

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18.10%16.30%

19.20%

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Financial Information Mar-06 Mar-07 Mar-08 Mar-09

Incremental Debt (Rs. in Crores) 88 277 1063 3762

Total Revenue (Rs. in Crores) 10 46 170 554

PAT (Rs. in Crores) 0.44 3.67 16.64 80.22

Total Assets (Rs. in Crores) 98 332 1083 3033

Return on Assest 0.48% 1.00% 2.51% 4.39%

Return on Equity 3.08% 18.1% 16.3% 19.2%

Financial Highlights

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Vikram Akula was named by TIME Magazine as one of the “People Who Shape Our World” in 2006, the annual list of the world’s 100 most influential people. A former management consultant with McKinsey & Company, he has over a decade of work and research experience in microfinance. He was a Fulbright Scholar in India, during which he coordinated an action-research project on providing micro-credit to farmers. He was also researcher with the Worldwatch Institute, where he wrote articles focused on poverty and development, and has worked as a community organizer with the Deccan Development Society in India. He holds a B.A. from Tufts, an M.A. from Yale, and has a Ph.D. from the University of Chicago. His Ph.D. dissertation focused on the impact of microfinance. He has received several awards for his work with SKS, including the Echoing Green Public Service Entrepreneur Fellowship, Ernst & Young’s Entrepreneur of the Year Award in the Startup category (2006), and the Social Entrepreneur of the Year Award (2006) from the Schwab and Khemka Foundations. Vikram has also been profiled in numerous publications, including the front page of the Wall Street Journal.

Suresh Gurumani is a banking veteran with 22 years of valuable experience. He has a keen understanding of pan-India consumer market, emerging opportunities and profitability models. At Barclays, he launched retail banking in less than a year’s time. Barclay’s retail banking achieved leadership position in personal and business loans, mobile banking for mass segment and NRI services. He was also instrumental in launching Barclays Finance, an NBFC with 120 branches across 40 cities to create alternate distribution channels. Suresh has also been associated with Standard Chartered for 12 years. He was the General Manager, Consumer Finance and SME banking and launched SME Banking which delivered significant revenues of the consumer bank. He was also actively involved in the merger with Grindlays Bank. One of the major initiatives undertaken by Suresh at Standard Chartered was the launch of Business Installment Loans which currently accounts for significant revenue share of SME business. Suresh also set up the Consumer Finance business at Standard Chartered. The key challenge in this role was to establish the market opportunity and identify the right business model, technology, Risk and operational model for the business. He was also part of the India Consumer Banking team which was involved in the strategy development for the Bank and identifying opportunities in the market place.

Gurcharan Das is an author and public intellectual. He is the author of the international bestseller, India Unbound, which has been published in many countries and languages and filmed by the BBC. He has published numerous books and plays and writes a regular column on Sundays for the Times of India and Dainik Bhaskar, as well as occasional guest columns for the Wall Street Journal, Financial Times and Time Magazine. Gurcharan was CEO of Procter & Gamble India and Vice President, Procter & Gamble Far East from 1985 to 1992 and later Vice President and Managing Director, Procter & Gamble Worldwide. Prior to P&G, he was Chairman and Managing Director of Richardson Hindustan Limited from 1981 to 1985, the Company where he started as a trainee. He currently consults with a number of companies on global corporate strategy and is associated with a private equity fund. Gurcharan Das graduated with honors from Harvard University in Philosophy and Politics. He later attended Harvard Business School (AMP). He is an independent Director on the SKS board.

Vikram Akula Founder and Chairman

Suresh Gurumani Managing Director & CEO

Gurcharan DasIndependent Director

Directors’ Report

Ravikumar has 32 years of banking experience, spanning retail, corporate and treasury banking areas in India and abroad. Prior to his current assignment, Ravikumar was Senior General Manager & Head of Emerging Corporates (SMEs) & Agri Business at ICICI Limited. His responsibilities included business strategy and risk management and he helped this unit become an industry leader in a short span of time. As Head of Agri Business, his role included similar responsibilities. In its first full year of functioning, the bank emerged as the second largest lender to the agri business sector in India, with disbursements of over Rs. 20 billion. Ravikumar was awarded the Gold Medal for Excellence in Banking by French Chamber of Commerce, Industry and Economy. He is a regular guest speaker on issues in banking at Bankers’ Training College, National Institute of Bank Management and other major Institutes of Management. He is an independent Director on the SKS Board.

Sumir Chadha is the Managing Director with Sequoia Capital India. Sequoia Capital India was formed by merging Sequoia Capital and WestBridge Capital Partners, India’s leading venture capital fund, which Sumir co-founded in 2000. Sumir has been investing in the Indian venture capital industry for the past ten years in several industries including offshore services, consumer internet and financial services. Prior to co-founding WestBridge, Sumir was a member of the Principal Investment Area at Goldman Sachs & Co., where he led a number of successful software and services investments. Prior to that, Sumir worked at McKinsey & Co. in New York and New Delhi. Sumir received an MBA with Distinction from Harvard Business School and a BSE in Computer Science from Princeton University. Sumir is the co-founder and Chairman of the US-India Venture Capital Association (US-IVCA) and also a Charter Member of The Indus Entrepreneurs (TiE).

Geoff Woolley is founding partner of Dominion Ventures, Inc., which he founded in 1985, Chairman of European Venture Partners and Chairman of MACC Private Equity. For over 25 years, Geoff has been involved in financing more than 300 emerging growth companies, including Ceina, Coinstar, Hotmail and Human Genome Science while managing more than USD 1.5 billion in cumulative assets. His non-profit experience includes being the founding chairman of the NAMES Project Foundation, (the AIDS Memorial Quilt) and working with foundations to empower the less fortunate. He founded and chairs the University Venture Fund at the University of Utah, the nation’s largest and most successful student led venture fund. Geoff holds a B.S. in Business Management from Brigham Young University and an M.B.A from the University of Utah. Geoff represents Unitus on the SKS Board.

P H Ravikumar Independent Director

Sumir ChadhaSequoia Capital

Geoff WoolleyIndependent Director

Chandrashekaran is a veteran in the banking industry with an extensive stint at the apex banking institution SIDBI. He has extensive exposure to understanding the needs and potential of the under-developed regions of the country, creating not only income generating avenues for the poor but also rural employment and overall rural economic growth, by virtue of his work at SIDBI. He retired recently as head of credit at SIDBI and represents SIDBI on the SKS Board.

V ChandrashekaranSIDBI

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Tarun Khanna, Jorge Paulo Lemann Professor at Harvard Business School, has been a member of the faculty since 1993, where he studies, and works with, multinational and indigenous companies and investors in emerging markets worldwide. He has served as course head of the required Strategy course in the Harvard MBA program, and chaired the executive education program on Strategy, Leadership & Governance. Currently, he teaches in Harvard’s comprehensive general management executive education programs. He earned a Bachelors of Science in Engineering degree from Princeton University in 1988, summa cum laude, Phi Beta Kappa, and a Ph.D. in Business Economics from Harvard University in 1993. A forthcoming book, Billions of Entrepreneurs: How China and India are Reshaping their Futures and Yours, will be published by Harvard Business School Press (Penguin in South Asia) in 2008. In 2007, he was nominated to be a Young Global Leader (under 40) by the World Economic Forum.

Paresh Patel is the CEO of Sandstone Capital, an India-focused hedge fund. Sandstone is a value-oriented investment partnership focused on long-term opportunities in India, with a preference for deep value, special situations, midcaps and complex opportunities. Sandstone Capital has an office in Boston. Prior to Sandstone Capital LLC, Paresh was the Managing Director of Sparta Group, the private investment office of Gururaj Deshpande, founder of Sycamore Networks. At Sparta, Paresh invested with Desh in early-stage ventures in the US and India - including A123 Systems, Indian Lotus, Relicore and Tejas Networks. Paresh is a graduate of Harvard Business School and Boston College.

Ashish Lakhanpal is the Founder and Managing Director of Kismet Capital, LLC, a private equity investment firm focused on growth and special situation opportunities in India and ASEAN countries. Since its founding in 2004, Kismet and its affiliates have invested over USD100 m across industries including real estate, energy, financial services, hospitality, and energy services. Prior to Kismet’s founding Ashish was the Managing Director of Think Capital, LLC, a New York based Family Office with diverse interests in areas such as contract manufacturing, energy, real estate, software, and IT enabled services. Prior to Think, Ashish has experience at Goldman Sachs & Co. as well as McKinsey & Co. Ashish received an MBA from Harvard Business School and a Bachelor of Arts, Summa Cum Laude, from Georgetown University.

Tarun KhannaIndependent Director

Paresh PatelSandstone Capital

Ashish LakhanpalKismet Capital

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Year ended 31st March 2009 2008

Gross Income 554.00 170.00

Less: Expenditure 429.94 141.06

Profit Before Tax 124.06 28.94

Profit After Tax 80.22 16.64

Surplus brought forward 16.65 3.31

Amount available for appropriation 96.87 19.95

Appropriation have been made as under:

Transfer to Statutory Reserve 16.04 3.33

Surplus carried to Balance Sheet 80.83 16.62

Dear Members,

Your Directors have pleasure in presenting the Sixth Annual Report of the Company together with the audited statement of accounts for the year ended 31st March, 2009.

The year was significant on quite a few counts for your Company. SKS Microfinance became the largest microfinance institution in the country. Your Company was also listed among the Top 5 Emerging companies to watch out for in the world by Business Week. By announcing a fresh equity round - that too the largest in the microfinance sector - right in the middle of the global financial crisis, the Company firmly helped establish credibility for the sector. Even as it continued to grow during the year, the Company has displayed leadership in thought and action. The commercial model ofmicrofinance envisioned by the Company is fast gaining credibility among investors and the communities it works with.

Financial Highlights

The financial performance for fiscal ended 31st March, 2009 is summarized in the following table:

- The Company’s gross income for the year ended 31st March, 2009 has increased to Rs. 554 crore from Rs. 170 crore in the previous year registering a growth of 226 per cent.

- Net profit after tax for the year increased by over 382 per cent to Rs. 80.22 crore from Rs. 16.64 crore in the previous year.

- An amount of Rs. 16.04 crore was transferred to Statutory Reserve Fund pursuant to section 45-IC of the Reserve Bank of India Act, 1934.

(Rs. in crores)

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Year ended 31st March 2009 2008 Percent Change

Number of Branches 1,354 771 76

No. of Sangam members (in lakhs) 39.53 18.79 110

Number of Employees 12,814 6,425 99

Number of loans disbursed (in lakhs) 46.99 20.50 129

Amount Disbursed (Amount in crores) 4,398.83 1,678.90 162

Portfolio Outstanding (Amount in crores) 2,456.53 1,050.60 134

In the year under review, the Company’s Sangam member base was at 39.53 lakh (3.95 million) as on 31st March, 2009 up from 18.79 lakh (1.87 million) Sangam members on 31st March, 2008 a robust growth of 110 per cent, which resulted in a 162 per cent increase in loans disbursed to Rs. 4,398.83 crore from Rs. 1,678.90 crore during the previous year ended 31st March, 2008. Your Company was also able to extend services to many new membersby adding 583 new branches.

Dividend

Your Directors have not recommended for any dividend as the Board is of the view that the Company is growing at a rapid pace and strong networth will act as a catalyst for growth.

Capitalization of Reserves/Issue of Bonus Shares

Your Directors recommend, subject to the approval of the shareholders in the forthcoming Annual General Meeting, issue of Bonus Shares in the proportion of 1 (One) Equity Share of Rs. 10/- (Rupees Ten only) fully paid-up for every 1 (One) Equity Share of Rs. 10/- (Rupees Ten only) fullypaid-up held by the shareholders as on the Record date. The Company will separately announce the record date in due course.

Conversion to Public Company

Your Company has become a Public Limited Company pursuant to the special resolution passed by the shareholders at the extra-ordinary general meeting of the Company held on 2nd May, 2009 and a fresh Certificate of Incorporation, dated 20th May, 2009 in the name of “SKS Microfinance Limited” has been obtained from the Registrar of Companies, Andhra Pradesh, Hyderabad in this regard. Fresh Certificate of Registration in thename of ‘SKS Microfinance Limited’ has also been obtained from Reserve Bank of India, Regional office, Hyderabad on 3rd June, 2009.

Liaison/Representative Office

During the year under reference, your Directors have proposed the opening of a Liaison/Representative Office in Palatine, Illinois, United States ofAmerica for creating awareness about the Company and microfinance in general for alleviation of poverty at various US and International markets.Your Company has obtained permission from the Reserve Bank of India to open a Liaison/Representative Office on 13th May, 2009.

Management Discussion and Analysis

The Management Discussion and Analysis Report for the year under review is presented in a separate section of this Annual report.

Capital Infusion

Your Company has raised Rs. 366 crore (USD 75 million), the largest private equity investment in any microfinance institution till date in India.The fact that this investment has come during the global economic meltdown is proof of the confidence that investors have in the Company and

Operational Highlights

The following table summarizes the operational performance of the Company for the year ended 31st March, 2009:

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CRISIL NA P2+ P1+(so) mfR2

CARE PR 1 PR2+* PR1+(so) NA

more importantly of the resilience and entrepreneurial abilities of the poor not only to survive in periods of economic crisis but actually to prosperbecause the poor are largely de-coupled from global trends.

Your Company issued 3,051,875 equity shares and 9,155,625 compulsorily convertible preference shares under fourth round capital infusion. Theinvestment was led by Sandstone Investment Partners I with total investment of USD 51.25 million along with existing investors, KISMET SKS II (anaffiliate of Kismet Capital)and ICP Holding I (an affiliate of Silicon Valley Bank), who invested USD 21.75 million and USD 2.00 million respectively.Also, the Company has issued some shares/options to its employees as mentioned under “Employee Share Purchase Scheme and EmployeeStock Option Plan” below.

Your Company further received strategic domestic investment of Rs. 50 crore from Bajaj Allianz Life Insurance Company subscribing to 416,666equity shares and 1,250,000 Compulsorily Convertible Preference Shares of the Company.

Resources and Liquidity

Your Company being a Systemically Important Non-Deposit Accepting NBFC is subject to the capital adequacy requirements prescribed by the Reserve Bank of India. We need to maintain a minimum ratio of 10 per cent as prescribed under the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 (as amended from time to time) based on total capital to risk weighted assets. Your Company maintains capital adequacy higher than the statutorily prescribed Capital Adequacy Ratio (CAR). Our CAR as on 31st March,2009 and as on 31st March, 2008 was 39.04 per cent and 24.77 per cent respectively.

During the year, the Company has received ratings for various instruments to raise funds and a summary of the ratings is presented in the followingtable:

* Subsequently upgraded to PR1+ (Highest Safety Rating)

- The Company accessed an incremental borrowing of Rs. 3,762 crore in debt (including commercial paper and rated short-term Non Convertible Debenture) from 39 credit grantors in the financial year 2008-09;

- Accessed Rs. 25 crore during the year under review by issue of Commercial Paper, a first of its kind in the history of Microfinance in the world;

- It became the first MFI in India to issue rated short-term Non Convertible Debentures worth Rs. 25 crore;

- It became the first MFI in India to issue Non Convertible Debentures for Rs. 75 Crore which are listed with BSE.

Our credit rating, risk containment measures and position in MFI Sector help us to access capital on relatively favorable terms.

RBI Guidelines

Your Company is registered with Reserve Bank of India (RBI), as a non-deposit accepting NBFC (“NBFC-ND”) under Section 45-IA of the RBI Act, 1934. As per Non-Banking Finance Companies RBI Directions, 1998, the Directors hereby report that the Company did not accept any publicdeposits during the year and did not have any public deposits outstanding at the end of the year.

Pursuant to RBI guidelines on regulation of interest charged by NBFCs, your Board of Directors have readopted an interest rate model to determinethe rate of interest to be charged for loans to provide consistency and transparency.

Further, in the month of May 2009 the Department of Non Banking Supervision (DNBS) - RBI has conducted annual onsite inspection at the Registered Office of the Company for scrutiny of books of account/records with reference to the financial position of the Company as on 31st March,

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2009. The Company has provided all the relevant information as requested during the inspection to the satisfaction of the officials of DNBS - RBI.

Directors

During the year under reference, Mr. V. Sitaram Rao and Mr. Shekhar Iyer have resigned from the Board w.e.f. 1st November, 2008 and 10th November, 2008 respectively. Mauritius Unitus Corporation has withdrawn the nomination of Mr. Geoff Woolley on the Board of the Company astheir investor nominee Director w.e.f. 6th May, 2009.

On satisfying the “fit and proper” criteria as stipulated by RBI vide its Master Circular on Corporate Governance, Mr. Paresh Patel representing Sandstone Investment Partners I and Mr. Ashish Lakhanpal representing SKS Capital and Kismet SKS II have been appointed as Additional Directors subsequent to the resignation of Mr. Shekhar Iyer and Mr. V. Sitaram Rao from the Board in November, 2008. The Directors place on record their appreciation of the services rendered by Mr. Shekhar Iyer and Mr. V. Sitaram Rao during their respective tenure as Directors on the Board of theCompany. Mr. Suresh Gurumani was appointed as Additional Director, Managing Director and CEO of the Company w.e.f. 8th December, 2008.

Mr. Geoff Woolley has been inducted into the Board as an “Independent Director” of the Company w.e.f. 6th May, 2009 as the Board felt that it would be immensely beneficial to the Company to have Mr. Geoff Woolley on the Board of the Company, because of his nonprofit experience and numerousworks with foundations to empower the less fortunate.

Mr. Paresh Patel has been appointed as regular Director in the Extraordinary General Meeting of the Company held on 25th March, 2009. Mr. AshishLakhanpal, Mr. Suresh Gurumani and Mr. Geoff Woolley being Additional Directors, appointed under Section 260 of the Companies Act, 1956, hold their respective offices up to the date of the ensuing Annual General Meeting. The Company has received notice together with deposit as required under Section257 of the Companies Act, 1956 proposing their appointment as Director of the Company.

Mr. Gurcharan Das, Dr. Tarun Khanna and Mr. Sumir Chadha retire by rotation and being eligible offer themselves for re-appointment. A brief profileof these Directors is given in the Notice of the Sixth Annual General Meeting.

Your Directors have, subject to approval of the shareholders at the ensuing Annual General Meeting and further, subject to such other approvals as may be required, appointed Mr. Vikram Akula as Executive Chairman w.e.f. 29th July, 2009 and re-appointed Mr. Suresh Gurumani as Managing Director and CEO w.e.f. 1st April, 2009. The details of the proposed terms and remuneration in respect of the foregoing executive directors areprovided in the notice and the explanatory statement for the ensuing Annual General Meeting.

Your Company mourned the sudden demise of Mr. V. Sitaram Rao, who suffered a heart attack and passed away on 10th July, 2009 in Hyderabad. Mr. V. Sitaram Rao was associated with the Company as a CEO, then as a member of the Board and thereafter as an Advisor and was instrumental in makingthe Company’s strong presence in the sector.

Increase in Authorized Share Capital of the Company and consequent amendment in Memorandum and Articles of Association of the Company

The current Authorized Share Capital of the Company as increased pursuant to the resolution passed by the shareholder of the Company at the extra-ordinary general meeting of the Company dated 8th October, 2008 is Rs. 95 Crore divided into 82,000,000 (Eight Crore Twenty Lakh) equity shares of Rs. 10 (Rupees Ten only) each, and 13,000,000 (One Crore Thirty Lakh) Preference shares of Rs. 10 (Rupees Ten only) each, whetherconvertible or non-convertible.

The Company proposes to further increase the above mentioned Authorized Share Capital of the Company to accommodate the proposed issue of Bonus Shares. It is proposed to increase the Authorized Share Capital to Rs. 163 Crore divided into 150,000,000 (Fifteen Crore) Equity shares of Rs. 10 (Rupees Ten only) each and 13,000,000 (One Crore Thirty Lakh) Preference shares of Rs. 10 (Rupees Ten only) each, whether convertible or non-convertible, by creation of 68,000,000 (Six Crore Eighty Lakh) equity shares of Rs. 10 (Rupees Ten only) each. The proposed increase in the Authorized Share Capital and consequent amendment in Memorandum and Articles of Association of the Company shall be subject to theapproval of the members of the Company at the forthcoming Annual General Meeting.

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Auditors

The Statutory Auditors of the Company, M/s. S. R. Batliboi & Associates, Chartered Accountants, Mumbai, retire at the ensuing Annual GeneralMeeting and have confirmed their eligibility and willingness to accept office of the Auditors, if appointed. The Audit committee and the Board of Directors recommend reappointment of M/s. S. R. Batliboi & Associates as Statutory Auditors of the Company for the financial year 2009-10 forshareholders approval.

Corporate Governance

Your Company adopts best corporate practices and is committed to conducting its business in accordance with applicable laws, rules andregulations and the highest standards of business ethics and ethical conduct. A report on Corporate Governance pursuant to RBI Guidelines isprovided separately in the Annual Report.

Employee Share Purchase Scheme and Employee Stock Option Plan

Your Company has introduced employee share purchase plan and stock option plans for its employees.

Your Company on the recommendation of the Compensation Committee of the Board has allotted 517,500 ESPS to the eligible employees of theCompany under the “SKS Microfinance Employee Share Purchase Scheme 2007”.

The details of the options granted under SKS Microfinance Employee Stock Option Plan - 2007 and SKS Microfinance Employee Stock Option Plan - 2008 and SKS Microfinance Stock Option Plan - 2008 are disclosed in Note 8 of Schedule 17 forming part of the financial statements.

Director’s Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, your Directors’ confirm as under:

i) In the preparation of the annual accounts, the applicable accounting standards read with requirements set out under Schedule VI to the Companies Act, 1956 have been followed and there are no material departures from the same.

ii) Your Company has selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year 2008-09 and of the profit of the Company for that year.

iii) Your Company has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

iv) Your Company has prepared the annual accounts of the Company on a ‘going concern’ basis.

Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo

The particulars required to be furnished under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are asunder:

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(1) Part A and B pertaining to conservation of energy and technology absorption are not applicable to the Company.

(2) Foreign Exchange earnings and outgo:

Earnings - Nil

Outgo - Rs. 11,866,249

Particulars of Employees

Pursuant to the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975 asamended, the names and other particulars of employees are set out in Annexure to the Directors’ Report.

Response of the Board to the Auditors Comments

In terms of the provisions of Section 217(3) of the Companies Act, 1956, the Board would like to place on record an explanation to the Auditors’comments in their Audit Report dated 6th May, 2009.

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1 Undisputed statutory dues including provident fund, investor education and protection fund, employees’ state insurance, income-tax, sales-tax, wealth-tax, service-tax, customs duty, excise duty, cess have generally been regularly deposited with the appropriate authorities except in the case of dues of employees’ professional tax which have not been regularly deposited with the appropriate authorities though the delays in deposit have not been serious.

2 Thirty-three cases of embezzlements by employees of the Company aggregating to Rs. 7,079,683 were reported during the year. The services of all such employees involved have been terminated and the Company is in the process of taking legal action. We have been informed that nine of these employees are absconding. The outstanding loan balance (net of recovery) aggregating to Rs. 5,377,428 has been written off.

3 Eighteen cases of loan given to non-existent borrowers on the basis of fictitious documentation created by the employees of the Company aggregating to Rs. 5,645,657 were reported during the year. The services of all such employees involved have been terminated and the Company is in the process of taking legal action. The outstanding loan balance (net of recovery) aggregating to Rs. 4,253,379 has been written off.

4 One case of fraud by an employee of the Company in collusion with vendors has been reported the year. The aggregate value of transactions is Rs. 9,610,755 (including Rs. 3,051,510 in respect of the previous year). The services of the said employee and the arrangements with the said vendors have been terminated. The Company has initiated legal action and criminal proceedings against the employee. The financial effect of the loss incurred by the Company is not currently quantifiable.

There were instances of delay in depositing professional tax due to administrative reasons as the Company was on a fast growth track and has opened 583 new branches in the year 2008-2009. There were procedural delays in obtaining professional tax licenses from the respective state authorities without which tax cannot be remitted. The management has taken a note of this and shall ensure timely deposit of taxes in future.

There is an inherent risk involved in our operations as all the transactions at the field are in cash. The Company has taken legal or remedial action in all the cases of embezzlement of cash and issue of fake loans by employees. The Company has recovered an amount of Rs. 4,218,209 out of cash embezzled.

The Company’s Management has taken sufficient and appropriate care for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities. To ensure this, the Company has enhanced internal control systems, consistent with its size and nature of operations, subject to the inherent limitations that should be recognized in weighing the assurance provided by any such system of internal controls. These systems are reviewed and updated on an ongoing basis. Also, the company has initiated action in implementing Online (internet-based) Cash Management System which will facilitate better monitoring of funds and Head Office will be able to do instant fund transfer to and from branches, to ensure optimum balance.

As a remedial measure to safeguard the Company’s resources from fraud resulting from collusion of employees with vendors, the Company has identified, initiated and implemented the following process- strengthening steps:

• Enforced 18-point checklist for vendor due diligence and adherence of the same is monitored regularly within the Administration department and at regular intervals by the Internal Audit department;

• Policy on dealing with vendors of national presence has been adopted with the objective of having better control and cost rationalization;

• Increased the manpower in administration to exercise better control and monitoring.

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Acknowledgements

Your Directors would like to express their sincere appreciation of the co-operation and assistance received from Reserve Bank of India, SangamMembers, Shareholders, Bankers and other Business constituents during the year under review. Your directors also wish to place on record theirdeep sense of appreciation for the commitment displayed from all executives, officers and field staff resulting in the successful performance of theCompany during the year.

For and on behalf of the Board of Directors

Place: Secunderabad SD/- SD/- Date: 29th July, 2009 Vikram Akula Suresh Gurumani Chairman Managing Director

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A. Employed throughout the year and in receipt of remuneration of Rs. 2,400,000/- and above:

S No Employee Name Designation

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1 M. R. Rao Chief Operating Officer 12,012,710 MMS 22 23/11/2006 46 Head- Alternate Channels, ING Vysya Life

2 S. Dilli Raj Chief Financial Officer 5,396,377 B.Com, MBA 17 28/01/2008 42 CFO, First Leasing Company of India Ltd.

3 Manjusha Raulkar VP - HR & Training 4,404,125 B.Com, MBA 16 26/12/2006 39 Associate Vice President, EXL Services

4 Kanchan Pandhre VP - Finance & Accounts 3,218,185 B.Com, CA 10 14/12/2006 33 Manager- Finance & Accts, Transcibernet India Pvt. Ltd.

5 KV Rao VP - Member Services 3,544,586 B.SC, PGDBM 17 02/04/2007 42 Regional Manager, Sundaram Home Finance Ltd

6 Paul Breloff VP - Business 3,018,000 BA, Juris Doctor 7 01/04/2008 31 Mayer Development Degree Brown LLP

7 Mamta Bharadwaj VP - Communications 2,715,871 B.A 21 09/07/2007 48 Client Servicing & Mktg (Journalism, Director-South, Psychology & Rediffusion, DYR English Literature)

8 Ashish Damani VP - Strategy & 2,494,465 B.Com, AGMP 8 01/12/2006 31 Manager-CMM, New Initiatives Fullerton

9 Sandeep Ralhan VP - Member Services 2,437,176 B.Com 14 30/06/2007 39 Regional Manager, (RI) ING Vysya Life

10 A Srikanth AVP - MIS 2,589,249 B.Sc, M.Sc 9 21/06/2007 32 Solution (Computers) Owner, Microsoft

Annexure to the Directors’ Report

Information under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, andforming part of the Directors’ Report for the Financial Year ended 31st March, 2009.

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B. Employed partly during the year and in receipt of remuneration of Rs. 200,000/- per month and above:

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1 Vikram Akula Chief Executive 69,99,998 B.A - Tufts 19 01/09/2005 40 McKinsey & Co. Officer* M.A - Yale Ph.D - University of Chicago

2 Suresh Gurumani Chief Executive Officer 4,636,292 B.Com, CA 24 08/12/2008 47 Director- Retail Banking, Barclays

3 Prashant Gupta VP - Business 1,179,708 B.Tech, PGDBM 13 23/04/2007 38 Domain Architect, Development Infosys Tech Ltd

4 G. Surya Kumar VP - Information 2,589,249 B.E (Mech) 20 10/11/2008 43 VP-Quality & Technology IS, Sierra Atlantic Services Ltd.

* Mr. Vikram Akula was Chief Executive Officer of the Company till 8th December, 2008.

Notes:

1. All appointments are contractual.

2. No Director is related to any other Director or employee of the Company listed above.

3. Remunerations received/receivable includes Gross Salary (Fixed), Employers Contribution to PF, actual bonus and special incentive paid.

4. None of the employees listed above, individually or along with his/her spouse and dependent children holds 2 per cent or more, of the Equity Shares of the Company. For and on behalf of the Board of Directors

Place : Secunderabad SD/- SD/- Date : 29th July, 2009 Vikram Akula Suresh Gurumani Chairman Managing Director

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1. Introduction: Focus on Financial Inclusion

There is an increasing focus on financial inclusion and the Government of India in its recent “Pro-poor” budget has underlined the need to reduce the proportion of people living below poverty line to less than half from current levels by 2014. The budget also emphasized the need to promotemicrocredit and has provided a special fund of Rs. 4,000 crore out of Rural Infrastructure Development Fund (RIDF) to Small IndustriesDevelopment Bank (SIDBI) for onward lending to Micro and Small Enterprises.

2. Sector Performance

In 2008-2009, Indian microfinance has reached out to 8.62 crore (86.2 million) clients and the portfolio outstanding of Rs. 35,100 crores (351billion), according to the Bharat Microfinance report for March 2009. Of this, MFI channel client outreach has grown at 60 per cent in 2009 against41 per cent in 2008.

The portfolio of MFIs has grown at 53 per cent during the year as compared to 41 per cent in the previous year. Out of 226 lakh (22.6 million) clients ofMFIs, 179 lakh (17.9 million) (79 per cent) are active borrowers.

Of the 331 poorest districts identified by National Rural Employment Guarantee Plan (NREGP), MFIs have expanded operations from 63 per cent in2008 to 71 per cent (235 districts) in 2009. In total, they operate in 413 districts all over India. About 20 per cent of MFI clients belong to SC/ST.

Source: The Bharat Microfinance Report - Quick Data 2009

3. Financial Inclusion at SKS Microfinance

SKS Microfinance Ltd (the Company) operates in 336 districts across 19 States out of which 315 have been identified as the poorest by NREGPdata. The Company’s services reach out to millions of poor - over 40 per cent of who belong to Backward Castes, nearly 30 per cent to ScheduledCastes and 20 per cent to Other Backward Castes.

Amongst our employee base, over 25 per cent belong to Other Backward Castes, 20 per cent to Scheduled Castes and Backward Castes.Significantly, 16 per cent of our employees are children of our Sangam members.

4. Regulatory Changes

The Reserve Bank of India (RBI) in its Annual Policy Statement for 2008-09 announced that Capital Adequacy Ratio (CRAR) shall be raisedfrom 10 per cent to 12 per cent by 31st March, 2009 and further to 15 per cent by 31st March, 2010. However, RBI vide its circular DNBS.PD/CC.No.140/03.02.002 dated 26th May, 2009 has extended the time for the increase in CRAR. As per the aforesaid circular the Company is requiredto maintain a minimum CRAR of 12 per cent and 15 per cent by 31st March, 2010 and 31st March, 2011 respectively.

5. Key Milestones

The Company has been ranked the top microfinance institution in the country and stands second in the world in terms of Outreach, Efficiency andTransparency. The ranking is awarded by Microfinance Information Exchange (MIX) Market in its ‘2008 Mix Global 100 Composite: Ranking ofMicrofinance Institution’, the world’s leading business information provider for the microfinance industry.

In keeping with its transformation over the years from a small NGO with operations limited to the northern part of Andhra Pradesh to the world’s fastest-growing microfinance institution, the Company has redefined the rules of the game. As it grows further and gains more attention in thepublic eye, there was a need for the Company’s brand identity to reflect it’s more vibrant and dynamic image. During 2008, the Company adorned a new face that was contemporary and international even while it retained its essence - commitment to the Sangam member and the 5 (five) - Sangam member groupthat is at the core of its operations.

The Company made remarkable strides in offering a security cover in the form of micro-insurance to its Sangam members. Over 17 lakhs (1.7 million)Sangam members opted for insurance cover under Bajaj Allianz Life Insurance cover for the FY 2008-09. The product is available to Sangam members in

Management Discussion and Analysis

2008-09 2007-08

Rs. in crores Percentage Rs. in Percentage Increase/ to revenue crores to revenue (Decrease)

Income from operations 506 91% 162 96% 211%

Other income 48 9% 8 4% 536%

Gross Revenue 554 100% 170 100% 226%

Financial expenses 194 35% 56 33% 244%

Personnel expenses 138 25% 48 28% 188%

Operating and other expenses 76 14% 28 17% 171%

Depreciation and amortization 11 2% 5 3% 112%

Provisions and write offs 11 2% 4 2% 201%

Profit before tax 124 22% 29 17% 329%

Tax expense 44 8% 12 7% 256%

Profit after tax 80 14% 17 10% 382%

the states of Andhra Pradesh, Bihar, Chhattisgarh, Delhi, Haryana, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Uttar Pradesh, and West Bengal.

The Company was able to raise the largest round of equity in the microfinance sector worth Rs. 366 crores (USD 75 million) right in the midst ofthe global financial meltdown. This firmly demonstrated the confidence investors repose in the sector and For-Profit model of microfinance and itsscalability of the Company.

6. Financial Performance

Income from operations: Interest income from operations increased by 211per cent to Rs. 506 crores in 2008-09 from Rs. 162 crores in 2007-08. Revenue increase was contributed by increase in amount disbursed from Rs. 1,678.90 crores in 2007-08 to Rs. 4,398.83 in 2008-09. Also number of branches increased from 771 to 1,354 and the borrowers increased from 18.79 lakhs (1.87 million) to 39.5 lakhs (3.95 million) in 2007-08 and 2008-09respectively.

Other Income: Other Income increased by 536 per cent to Rs. 48 crores in 2008-09 from Rs. 8 crores in 2007-08. Interest income from bank deposits increased by 750 per cent to Rs. 17 crores in 2008-09 from Rs. 2 crores in 2007-08. Increase in interest income from bank deposits was on account of equity proceeds raised in the month of October, 2008 of amount Rs. 366 crores. Further, the Company has launched retail insuranceduring the year 2008-09 from which the Company generated an income of Rs. 11 crores.

Financial expenses: Financial expenses increased by 244 per cent to Rs. 194 crores in 2008-09 from Rs. 56 crores in 2007-08 on account ofincrease in borrowings by 189 per cent from Rs. 1,132 crores in 2007-08 to Rs. 3,269 crores in 2008-09.

Personnel expenses: The Company saw an increase in personnel expenses by 188 percent to Rs. 138 crores in 2008-09 from 48 crores in 2007-08 onaccount of increase in headcount by 88 per cent from 6,425 in 2007-08 to 12,814 in 2008-09 and also on account of increased overall annualsalaries.

Operating and other expenses: Operating and other expenses increased by 171 per cent to Rs. 76 crores in 2008-09 from Rs. 28 crores in 2007-08 on account of increase in number of branches - up 76 per cent from 771 in 2007-08 to 1,354 in 2008-09.

Depreciation and amortization: Depreciation and amortization increased by 112 per cent to Rs. 11 crores in 2008-09 from Rs. 5 crores in 2007-08. This increase was mainly on account of additions of Rs. 15 crores made during the year to fixed assets as against fixed assets openingbalance of Rs. 22 crores.SK

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7. Operations

7.1 Existing Operations

The Company has adapted Grameen Bank’s Joint Liability Group model of lending. This model has been successfully followed by many MFIs in India and other parts of the world. In the year under review, the Company’s Sangam member base was 39.53 lakhs (3.95 million) as on 31st March, 2009 - up from 18.79 lakhs (1.87 million) Sangam members on 31st March, 2008 a robust growth of 110 per cent. This resulted in a 162 per cent increase in loans disbursed to Rs. 4,398.83 crore from Rs. 1,678.90 crore during the previous year ended 31st March, 2008. In all, 583 branches were added duringthe year across 16 States and 2 new states where the Company started operations in 2008-09.

7.2 Asset Quality & Composition

Loan assets typically comprise a majority of the assets of any microfinance institution. Loan asset quality directly impacts the other key areas such as capital, earnings and the Management. Asset quality is the barometer for the effectiveness and efficiency with which the operations are carried out by the Company. Collection efficiency of the Company is at 99.5 per cent with gross NPA % of 0.34 and the Company’s portfolio is welldiversified and spread over 60,000 villages for nearly 170 economic activities facilitating 39 lakhs (3.9 million) Sangam members.

7.3 New Products

Retail Insurance:The security that insurance cover provides human being has eluded the poorer sections of society due to various reasons. This vulnerable section which is more in need of insurance has so far not experienced the benefits of leading a secure life. The year under review sawthe Company joining hands with leading insurance company Bajaj Allianz to launch India’s first truly micro-insurance product.

The Company under its Retail Insurance Product ‘Swayam Shakti Suraksha’ has issued 17 lakh (1.7 million) policies during the year under review which resulted in a premium of Rs. 93.25 crore and generated income of Rs. 11.88 crores. Further, the Company has honored 232 death claims duringthe year 2008-09. The Company is planning to extend the benefit of retail insurance to even Sangam members’ husband in 2009-10.

Mobile Financing Program:India has a high potential in the mobile market and we understand that high cost of mobile handsets is a key deterrent for Sangam members in microfinance. Considering the factors in rural India the Company has launched mobile finance program that offered Sangam members an affordable phone in easy installments at less than market price. This has installed confidence in our Sangam members and increased their business through access of better communication. In a pilot conducted in four branches the Company has provided 1,699 mobile loan to its Sangam members. The extendedpilot conducted in Karnataka in 10 branches also got an enthusiastic response with 4,000 handsets being financed.

Sangam Stores Project:Nearly 4 lakh Sangam members of the Company own Kirana or small grocery stores. The Company has launched this project to provide working capital finance to help these Sangam members to buy Fast Moving Consumer Goods (FMCG) and groceries through a dedicated vendor. The Company has partnered with METRO Cash & Carry India Private Limited, one of the world’s most-reputed wholesalers, who deliver 13,000 SKU (Stock Keeping Unit) at competitive prices and standard quality at their doorstep. This not only gives Kirana store owners access to quality products at competitive rates but also eliminates other costs of traveling to the nearest stockiest to pick up goods. Pilot launched in February 2009 in Sangareddy and Amberpet branches near Hyderabad serves 80 Kirana stores. The Company aims to extend this program across all urban branches. This projectcan act as the first step towards creating a vibrant network of “Sangam Stores” who can form a base for other distribution initiatives for theCompany.

Water Purifier:Health is a major concern amongst the poor. The Company recognizes the fact that lack of safe drinking water is the cause of over 90 per cent of illnesses in India, leading to high healthcare costs and loss of productivity. For this reason, the Company has introduced a loan product whereby Sangam members can purchase water filters at affordable rates through weekly installments. These filters operate without electricity, batteries or continuous tap and provide 100 per cent protection against drinking water diseases. This was introduced as a loan product across 19 branches in Warangal,Hyderabad and East Godavari, selling nearly 10,700 units and achieving a penetration of 14 per cent in 10 week sales periods.

Solar Energy:In semi-urban and across rural India, erratic and poor quality power supply is a constant bane bringing life to a halt. The Company successfully piloted a solar lamp product in the Balasore region of Orissa. Sangam members reported commendable satisfaction using the product for income-generating activities. Subsequently, the Company is engaged in a thorough market analysis and product partner research to identify themost-suitable solar powered lights, solar home systems and improved cooking stoves for Sangam members’ needs.

8. Risk Management Framework

The Company has implemented an Enterprise Risk Framework based on a clear understanding of various risks, disciplined risk assessment and measurement procedures and continuous monitoring. The policies and procedures established for this purpose are continuously benchmarked withinternational best practices.

Some of the key risks along with the mitigation strategies are enumerated below:

8.1 Credit Risk:

Credit risk is the risk of suffering financial loss on account of Sangam members not being able to meet their contractual financial obligations to the Company. The Company advances collateral-free loans of average ticket size of Rs. 9,361 to individual women formed under groups. As these advances arecollateral free, credit risk attached to these advances is high.

Mitigation:Credit Risk is mitigated by way of joint liability of the remaining Sangam members to make good the default, in case, by any Sangam member. Peer pressure and dynamics within the group also mitigates the risk. Further, the Company advances loans only for income-generating purposes as against loans for consumption. As a check and internal control measure, the Sangam Manager/Branch Manager routinely conduct loan utilizationchecks to ensure the loan is utilized for income generation as mentioned in the loan document.

8.2 Operational risk

Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risks and losses can result from fraud, employee errors, failure to properly document transactions or to obtain proper internal authorization, failure to comply with regulatory requirements and conduct of business rules, equipment failures, natural disasters, acts of thirdparties or the failure of external systems.

Mitigation:

Some of the risk mitigation measures taken by the Company are as follows:

• Ensuring proper internal check of all day-to-day transactions within the branch

• Takes advice from reputable professional firms

• Safe custody of cash with two key holders of the safe

• Joint signatory mechanism for all the bank transactions, including all the branches for withdrawal of cash

• Internal Audit department visits every branch on a monthly basis to ensure that the policies and procedures as prescribed, among others, are being adhered to

Further, the Company has enforced the following human resource policies to reduce its exposure to fraud risk:

• Refrain from posting staff to home areas to reduce the opportunity and temptation to collude

• Rotate staff regularly within the branches/ centers

• Obtain indemnity bond before the employee gets confirmed

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• Pay staff well, relative to other available job opportunities in the area

• Take immediate and correct action against staff involved in fraud

8.3 Market Risk:

Market risk is the risk that the Company’s earnings or capital, or its ability to meet business objectives, will be adversely affected by changes in thelevel or volatility of interest rates and credit spreads.

Mitigation:The Company has a mechanism of continuous monitoring of money markets to update and act to ensure that the required credit spread is ensured. Further, the finance team of the Company functions with an objective, to raise funds from sources, which were hitherto not available for Microfinance Industry, thereby ensuring better credit spread. A combination of fixed and floating rates on borrowings plays a role of a catalyst inmitigating the interest rate risk.

8.4 Portfolio Risk:

Portfolio risk is the risk attached to the loan portfolio arising out of loan growth, geographic concentration, unfavorable economic conditions onaccount of drought and natural disasters among others which in turn affect the ability of the borrower to repay on outstanding loans.

Mitigation:The Company mitigates the risk arising out of portfolio risk by geographically diversifying its operations with 1,354 branches across 19 states in 60,000 villages. As on date, the Company lends to cover around 170 economic activities and this assists in diversifying the portfolio risk.Further, the Company also takes certain off balance sheet initiatives by way of sale of loan portfolio to certain other banks and financial institutions.

8.5 Competition risk:

Demand for micro credit in India is estimated at USD 55 billion as against current outstanding of USD 5 billion, covered in part by moneylenders and largely informal sources, but largely untapped. Entry of new players and expansion to newer areas to achieve pan India presence by some of the existing and new players will further intensify the competition. However, given the under penetration in the market, this should help to furtherincrease the overall market for Microfinance Industry.

Mitigation:Company’s growth will depend on its ability to compete effectively. The Company believes that with the size and scale that was built over the years the Company is well poised to take full advantage of the market opportunities as the management placed the Company at highly advantageous position to deal effectively against competition with its strong brand image, leadership position amongst the private operators, widedistribution network, strong operational processes, and diversified product offerings, among others.

9. Internal Audit & Internal Control

Internal audit is an independent and objective function which reviews the effectiveness of risk management, control, and governance processes within the Company and provides reasonable assurance to the Board of Directors and management on the same. The Head - Internal Audit reports to the Managing Director & CEO. The Internal audit team consists of more than 350 staff spread across the country. The Internal audits at all the branches are carried out on a monthly basis as per the annual risk based internal audit plan. The Internal Audit Department in the Company has beencertified with ISO 9001:2000 in the year 2008 which is the first in Microfinance industry in India.

The Management has overall responsibility for the system of internal control. Procedures have been designed for safeguarding assets against unauthorized use or disposition; for maintaining proper accounting records; and for the reliability of financial information used within the business or for publication. The internal audit department along with the risk management department identifies and monitors the most important operationalrisks of the Company and periodically reports on the internal control framework to the Board of Directors, Audit Committee and Management.

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10. Human Resources

Over the years, the HR function in the Company has evolved from a control and process based function to more of a strategic business partner to help theorganization achieve its mission and business objectives. The team has grown from a 2 member team in FY 2006-07 to 130 people at the end of FY 2008-09.

The Company’s success depends largely upon the quality and competence of its management team and key personnel. Attracting and retaining talented professionals is therefore a key element of the Company’s strategy. Further, the Company has initiated succession planning which will help in creation of talented pool which can be used in the years to come. While the Company has a salary and incentive structure designed to encourage employee retention, a failure to attract and retain talented professionals, or the resignation or loss of key management personnel, may have anadverse impact on the Company’s business, its future financial performance.

10.1 Major Achievements

1. Centralization of Payroll and HR Shared Services. This brought in standardization and made up for timely payment of salaries and also generating pay slips for each and every employee.

2. Recruitment of Asst. HR Managers at the Regional Office for streamlining and smooth functioning of HR functions and interventions. This provided a one-point contact for the employees at the Regional Office to address and resolve routine issues.

3. Optimization of the organization structure for role clarity.

4. Implementation of the Indemnity Bonds to control any kinds of frauds.

5. Training of employees PAN India.

6. Release of the Disciplinary & Corrective Action Policy.

10.2 Talent acquisition

Employees are very vital to the success of the organization. The Company has created a favorable work atmosphere and encourages innovation and meritocracy. The Company has also set up a scalable recruitment and human resource management process, which enables us to attract and retain high performing employees. The Company has made a gross addition of 10,586 people in the financial year and the total manpower strength stood at 12,814 PAN India as on 31st March, 2009. Field Staff comprised of 10,934 (85.33 per cent); Regional Office Staff - 1,597 (12.46 per cent) and Head Office Staff - 283 (2.21 per cent). This is a growth of 88 per cent over the last financial year-end where the numbers were at 6,425. The overall Female ratio is a low 4 per cent but it shows a 1 per cent rise over last year. At the Regional Office, it is at 4 per cent while it is 24 per cent at the HeadOffice and the Core Management Team accounts for 17 per cent women representatives.

10.3 Talent Management

The Company has a conscious and deliberate approach undertaken to attract, develop and retain people with the aptitude and abilities to meetcurrent and future organizational needs. The Company focuses on the following aspects as part of its talent management approach:

1. Learning & Development: The Company has invested 3,309 days in training 37,142 people over the last one year making it a total of 122.9 million man-days of training in processes of Operations, Human Resources, IT, Internal Audit and Finance and Accounts. These also include Behavioral and Managerial Training

2. Compensation: The Company adopted a performance-linked compensation program that links compensation to the individual performance as well as the Company’s performance with top performers being eligible to participate in our Employee Share Purchase Scheme (ESPS).

3. Incentives: Incentives are paid to all employees on the field on a monthly basis. This is based on the performance of the individual and the grading of the branch for the field staff. For employees based out of head office Incentives are paid on an annual basis.

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4. Performance evaluation: Performance evaluation is done for all the employees in the Regional Offices and Head Office twice a year (Sept and Mar). The process is found to be very effective and is seen as a process of feedback and also for assessing the potential of employees for handling newer and bigger roles.

5. Succession planning: This exercise has been initiated for the people at the senior levels and will ensure leadership continuity from within the organization. The implementation of this exercise will lead to creation of talent pools which the organization can draw from in the years to come.

6. Induction program: An orientation/induction program is held for all the employees to acclimatize them with the culture and working of the organization. This has reduced the time taken for people to be effective in their new roles. Employees from the Head Office are taken for branch visits to familiarize them with the Operational processes and also to help them understand the way the business operates.

7. Dealing with errant employees: The Company has implemented Indemnity Bonds for all field employees as criteria for joining which has helped us keep a check on any kind of frauds in the organization. A strict Disciplinary and Corrective Action Policy ensures that the employees know behaviors expected of them with Sangam members and with other employees. This also assures equal opportunities and a healthy working environment for our employees who come from different strata of the society.

8. Rewards program: During the year, employees were rewarded with a one-time special bonus for the Company achieving the targeted Profit after tax.

9. Human Resource Management System (HRMS): Adrenalin, an off the shelf HRMS product of Polaris was procured and work on customization to meet the requirements of the Company was undertaken by the HR Team. The HRMS will be beneficial to all as it will reduce the time taken to generate certain reports and also improve the turnaround time for people PAN India who need to rely on correct information for decision making.

10.4 Building an inclusive organization

The year ahead would be crucial for the Company in terms of growth and the focus of HR is to have an engaged workforce and to vie for a position in the “Best Employer in India” Survey. Creating and cultivating a talented workforce will help us in our mission. Major efforts would also be on building scalable HR systems to move the organization from good to great. HR process automation and Employee Engagement would be the keyfor achieving this goal.

The focus for this year would also be on building and retaining talent using performance consulting and competency based approaches. Building leadership talent will continue to remain a focus area from the training perspective. Several behavioral programs for different groups and functions will be launched. A scientific process to identify training needs and catering to those will be chalked out. Competency awareness campaigns will be rolled out across the organization for different functional levels and these sessions will focus on how the PMS is tied to competencies. HighPotential employees will be identified and groomed through learning interventions for Succession Planning, Career growth and Self-Development.

11. Treasury

Strong Capital base, Impeccable Asset Quality and Experienced Management enabled the Company to raise debt capital to fund its ambitiousgrowth plans and has been able to raise debt worth Rs. 3,761 crore from more than 42 grantors including 15 Public Sector Banks for financial year 2008-09 alone despite global financial meltdown.

If financial year 2008 was a year of sector leadership for the Company, financial year 2009 was a year of thought leadership. Your Company became the firstMicrofinance Institution to:

• Issue commercial paper, which is first of its kind in the global MFI history

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• Complete rated bond issuance

• Assign a rated pool

• Sell a “weaker section portfolio”

• List a debt instrument in Bombay Stock Exchange (BSE)

• Place a debt instrument with a Foreign Institutional Investor

• Complete assignment of receivable with a Public Sector Bank

• Obtain stand alone “Highest Safety” (PR1+) rating

12. Support Process & Information Technology

The Company is widely recognized as a global leader in microfinance technology. Its award-winning management information systems (MIS) and innovative delivery solutions have increased operational efficiency and reduced transaction costs. It believes that the future of microfinance industry will be shaped by innovative technologies and it is focused on leading the global effort. All the Branches of the Company are supported by proprietary software ‘Portfolio Tracker’ tool which facilitates as a data repository system and as an analytical tool enabling customer wiseinformation. Consolidation of information of all the Branches is performed at the Head Office.

The Company has taken certain strategic IT initiatives during fiscal 2009 with the objective of exercising better control and improving processes:

• Deploying SKS Lite (offline) across all branches for migrating historical and incremental data to Company’s online central server, a very critical milestone to ensure zero business disruption during transition of data with the goal of creating a very robust, enterprise-class IT application platform that can support high-level growth.

• Branch Ops Agent and Console application which empowers the organization with key branch operational metrics via a dashboard console with powerful drilldown and reporting capabilities with the goal of de-risking the business by providing near real-time view into the daily branch operations’ metrics for sustainable growth.

• Business Intelligence Tool: This tool assists in evaluating data across numerous metrics based on individual analysis needs.

13. Customer Contact Programme

The year also saw the Company conducting the largest customer contact programme in the financial sector. The Company’s key operational unit for its members is a Sangam which consists of 20-50 customers. Each Sangam has a Sangam Leader who represents the other members in that Sangam. During the year ended 31st March, 2009 the Company has conducted 112 Sangam Leader Meetings by which it managed to reach out to 45,242 Sangam Leaders in the states of Andhra Pradesh, Karnataka, Maharashtra, Orissa, West Bengal, Madhya Pradesh, Chhattisgarh, Gujarat, Rajasthan, and parts of Uttar Pradesh. These together represent 30 lakhs (3 million) members or 75 per cent of the Company’s Sangam member base. As the Company is growing at a rapid pace year on year this ambitious brand-building and brand loyalty exercise gave a very good oppor tunity for member interaction with the Management Team. There was a healthy exchange of ideas, feedback, thoughts and learning during these highly-interactive sessionsduring which members were extremely candid while sharing their experiences, raising issues, and articulating their expectations from the company.

The platform also helped the Company to gather critical data from over 20,000 Sangam members on product expectations and its service feedback. This data would be a critical tool in deciding the future product launches by the Company.

14. Note On International Financial Reporting Standards

The Institute of Chartered Accountants of India (ICAI) has issued a roadmap for convergence of Indian GAAP with IFRS by 1st April, 2011.Convergence with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) is gainingmomentum. Currently, the Company reports its financial statements under Indian GAAP. The Company will adopt IFRS for financial statements asper the roadmap issued by ICAI.

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Company’s Philosophy

SKS Microfinance Limited (“the Company”) adopts best corporate practices and is committed to conducting its business in accordance withapplicable laws, rules and regulations and the highest standards of business ethics and ethical conduct.

Your Company being registered with Reserve Bank of India (RBI) as a non-deposit accepting systematically important NBFC (“NBFC-ND-SI”) underSection 45-IA of the RBI Act, 1934 adheres to transparency in its operations inline with the Guidelines on Corporate Governance issued by RBI videDNBS.PD/CC 94/03.10.042/2006-07 dated 8th May, 2007.

Your Company follows the “Know Your Customer” (KYC) guidelines, “fair-practices code”, which lays down detailed guidelines for dealing withmembers and has also constituted Audit Committee, Nomination Committee, Risk Management Committee in accordance with the Reserve Bank’sinitiatives towards improving transparency in operations and strengthening Corporate Governance standards on NBFCs.

Corporate Governance Guidelines

The Board of Directors in their meeting held on 16th May, 2007 implemented Corporate Governance Guidelines as stipulated by the RBI. Theseguidelines empower the Board with necessary authority and practices in place, to review and evaluate our operations when required. Further, theseguidelines allow the Board to make decisions that are independent of the Management. The Board may change these guidelines from time to time toeffectively achieve our stated objectives.

1. BOARD OF DIRECTORS:

The Company currently has a judicious mix of executive and Independent Directors on the Board for maintaining the independence of the Board andto separate the Board functions of governance and management.

As on 31st March, 2009, the strength of the Board is 10 (Ten) Directors of which 3 (Three) are Independent Directors who bring independentjudgment in the Board’s deliberations and decisions.

Board Meetings

The Board of Directors approve business plan and decide on strategic issues concerning the Company and they generally meet once in a quarter toreview the business performance.

During the year 2008-09, 4 (four) meetings of the Board of Directors were held on 2nd May, 2008; 20th July, 2008; 10th November, 2008 and21st January, 2009.

Report on Corporate Governance as at 31st March, 2009

Name of the Director Category

Attendance at Directorships in Board Meetings other Companies

Mr. Gurcharan Das Independent Director 1 7

Mr. P. H. Ravi Kumar Independent Director 4 8

Dr. Tarun Khanna Independent Director 1 2

Mr. V. Chandrashekaran Nominee Director 3 -

Mr. Vikram Akula Chairman 4 -

Mr. Geoff Woolley Director 3 15

Mr. Sumir Chadha Director 4 30

Mr. Suresh Gurumani $ Managing Director 1 -

Mr. Ashish Lakhanpal * Additional Director 2 22

Mr. Paresh Patel * Director 2 3

Mr. Shekhar Iyer # Director 2 3

Mr. V. Sitaram Rao # Director 2 3

# Mr. V. Sitaram Rao and Mr. Shekhar Iyer have resigned from their Board position on 1st November, 2008 and 10th November, 2008 respectively.

* Mr. Ashish Lakhanpal and Mr. Paresh Patel were appointed on 10th November, 2008.

$ Mr. Suresh Gurumani has joined as the Managing Director & CEO w.e.f. 8th December, 2008.

COMMITTEES OF THE BOARD

The Board currently has 6 (Six) Committees namely : Audit Committee, Finance Committee, Asset Liability Management/Risk ManagementCommittee, Compensation Committee, Nomination Committee and Share Issue & Allotment Committee. The Board is responsible for constituting,assigning, co-opting the members of the committee, fixing their terms of reference and also delegating powers from time to time. The minutes ofthe meetings are circulated to the Board for its information and confirmation.

AUDIT COMMITTEE

The Audit Committee of the Board was constituted under Section 292-A of the Companies Act, 1956 in accordance Para 9A of NBFC PrudentialNorms (RB) Directions, 1998. The Committee shall consist of not less than three directors and one of whom shall be an “Independent Director”.

The objective of the Audit Committee is to monitor and provide effective supervision of the Management’s financial reporting process with a view toensure accurate, timely and proper disclosures, by maintaining transparency, integrity and quality of financial reporting.

The Audit Committee oversees the work carried out in the financial reporting process by the Management, the internal auditors and the statutory auditor,and notes the processes and safeguards employed by each.

The Composition of the Board of Directors of the Company including their attendance, category of Directorship, attendance at Board Meetings and number of memberships of Directors in other Boards as on 31st March, 2009, are stated below:

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Name of Member Designation No. of Meetings Attended

Mr. P.H Ravi Kumar Chairman 3

Mr. Sumir Chadha Member 3

Mr. Paresh Patel * Member 1

Mr. Vikram Akula ** Member 2

Mr. Shekhar Iyer # Member 2

Mr. V. Sitaram Rao # Member 2

# Mr. V. Sitaram Rao and Mr. Shekhar Iyer have resigned from their Committee position on 1st November, 2008 and 10th November, 2008 respectively.

** Ceased to be a member w.e.f. 10th November, 2008 Board Meeting.

* Appointed as a Committee member in the Board Meeting held on 10th November, 2008.

Three Committee meetings were held during the year on 2nd May, 2008; 20th July, 2008 and 21st January, 2009.

Terms of Reference

• The Role and Function of the Audit Committee is as follows:

- Responsible for the overall supervision and scrutiny of financial statements;

- Reviewing, with the management, the annual financial statements before submission to the board for approval;

- Reviewing, with the management, the quarterly/periodical financial statements before submission to the board for approval;

- Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees;

- Oversee the Company’s compliance with legal and regulatory requirements;

- Shall attend the Annual General Meeting to answer shareholder queries;

- Review Internal audit reports relating to internal control weaknesses and adequacy of the internal control systems

FINANCE COMMITTEE

Finance Committee is constituted by the Board and is delegated with the power to borrow money upto specified limits. The Committee shall comprise of representative from members of the Board and also from the management at senior level in the Company. The Committee is responsible to the Board ofDirectors to provide general oversight with regard to the financial affairs of the Company.

Composition & Meetings

Audit Committee currently consists of the following members:

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Names of Members Designation No. of Meetings Attended

Mr. Paresh Patel * Chairman 5

Mr. P.H. Ravikumar * Member 3

Mr. Suresh Gurumani @ Member 4

Mr. Ashish Lakhanpal * Member 5

Mr. Vikram Akula ** Member 1

Mr. Sumir Chadha ** Member 4

Mr. V. Sitaram Rao # Member 19

Mr. Shekhar Iyer # Member 3

# Mr. V. Sitaram Rao and Mr. Shekhar Iyer have resigned from their Committee position on 1st November, 2008 and 10th Novermber, 2008 respectively.

** Ceased to be Committee member w.e.f. 10th November, 2008 Board Meeting.

* Appointed as Committee member in the Board Meeting held on 10th November, 2008.

@ Appointed as Committee member w.e.f. 8th December, 2008;

The Finance Committee also includes the following management representative of the Company: Mr. M.R. Rao - Chief Operating Officer Mr. S. Dilli Raj - Chief Financial Officer Ms. Kanchan Pandhre - Vice President (Finance & Accounts) Mr. Ashish Damani - Assistant Vice President (Finance & Accounts)

The Committee has held 25 meetings for the financial year 2008-09

Terms of Reference

• The meeting(s) of the Finance Committee shall be convened monthly to review and approve the facilities as and when the need arises; Further the meeting(s) of the Committee shall be convened one week ahead of Board Meeting to discuss and approve the administrative items for the Board Meeting;

• The Quorum of the Meetings will be a minimum of -3- members with shall include at least -1- Board member;

• The Finance Committee to consider under each loan/credit facilities upto Rs. 350 crores from any single Bank/Institution and the aggregate borrowings to be approved by the Finance Committee shall be to the extent of Rs. 1,500 crores in total between two Board Meetings;

• The committee would consider facilities having rate of interest not more than 15% per annum;

• External Commercial Borrowings (ECBs) - Consider and approve ECBs up to USD 75 million subject to compliance with RBI norms and proper hedging of the cross currency exposure;

• The report of the meeting(s) of the Finance Committee convened between two Board Meetings shall be kept before the Board for its perusal and taking note.

• The Role and Function of the Finance Committee is as follows: - Review and approve the loan facilities (on-balance sheet and/or off-balance sheet) and borrowings within the limits specified;

Composition & Meetings

Finance Committee currently consists of the following members:

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Name of Member Designation No. of Meetings Attended

Mr. Paresh Patel * Chairman -

Mr. P.H. Ravikumar * Member -

Mr. Suresh Gurumani @ Member -

Mr. Ashish Lakhanpal * Member -

Mr. Vikram Akula ** Member 1

Mr. V. Chandrashekaran ** Member 1

Mr. V. Sitaram Rao # Member 1

- Review the facilities beyond their limits and thereafter propose to the Board; - Nominate and designate representative/s to carry out the required documentation for the facilities approved by the committee; - Review the annual budget and revisions made to the Business Plan and make specific recommendations to the Board on its adoption, including where desirable, comments on expense levels, revenue structures, fees and charges, adequacy of proposed funding levels, and adequacy of provision for reserves. - Review the Funding mix from time to time to ensure mitigation of concentration risk in term of specific lender or lender class;

- Review of cash flows in comparison to the Liquidity metric; - Review the targeted credit limits (Funnel);

ASSET LIABILITY MANAGEMENT/RISK MANAGEMENT COMMITTEE

The Asset Liability Management/Risk Management Committee constituted in terms of Circular RBI/2006-2007/385/DNBS.PD/CC 94/03.10.042/2006-07 dated 8th May, 2007 issued by Reserve Bank of India (RBI) to monitor the asset liability gap and strategize action to mitigate the risk associatedwith the Company.

Composition & Meetings

Asset Liability Management/Risk Management Committee consists of the following members:

# Mr. V. Sitaram Rao has resigned from the Committee position on 1st November, 2008.

** Ceased to be Committee member w.e.f. 10th November, 2008 Board Meeting.

* Appointed as Committee member in the Board Meeting held on 10th November, 2008.

@ Appointed as Committee member w.e.f. 8th December, 2008;

Only 1 (One) meeting of the Asset Liability Management/Risk Management Committee Meeting was held on 20th July, 2008.

Terms of reference

• The scope of the Asset Liability Management/Risk Management Committee includes Operational Risk (including sub risks for operational risk), Information Technology Risk, Integrity Risk, etc.

• The meeting(s) of the Asset Liability Management/Risk Management Committee shall be convened at regular intervals to review and assess the risk the Company is exposed to do and take necessary action;

• The Role and Function of the Asset Liability Management/Risk Management Committee is as follows:

- To address concerns regarding Asset Liability mismatches and interest rate risk exposures;

- To take strategic actions to mitigate the risk associated with the nature of business;

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Names of Members Designation No. of Meetings Attended

Dr. Tarun Khanna * Chairman -

Mr. Sumir Chadha Member 4

Mr. Ashish Lakhanpal * Member 1

Mr. Geoff Woolley * Member 1

Mr. Gurcharan Das ** Member 1

Mr. P.H. Ravikumar ** Member 3

Mr. Shekhar Iyer ** Member 2

- To achieve optimal return on capital employed, whilst maintaining acceptable levels of risks (such as liquidity, market, operational etc.) and adhering to policies and regulations;

- To reviewing the management of enterprise level risk and determined recommendations for a more comprehensive risk management process;

- To report statement of short term dynamic liquidity, structural liquidity and Interest Rate Sensitivity to Reserve Bank of India (RBI); and

- To apprise the Board of Directors at regular intervals regarding the progress made in putting in place a progressive risk management system, and risk management policy and strategy followed.

COMPENSATION COMMITTEE

The Compensation Committee was constituted to discharge Board’s responsibilities relating to compensation of the Company’s Executive Directorsand senior management. The Compensation Committee has the overall responsibility of approving and evaluating the compensation plans, policiesand programs for Executive Directors and senior management of the Company.

Composition & Meetings

Compensation Committee currently consists of the following members:

* Appointed as Committee member in the Board Meeting held on 10th November, 2008.

** Ceased to be a Committee member w.e.f. 10th November, 2008 Board Meeting;

The Committee met 4 (Four) times during the year on 2nd May, 2008, 20th July, 2008, 10th November, 2008 and 21st January, 2009.

Terms of Reference

• The Role and Function of the Compensation Committee is as follows:

- To identify and nominate “Key Management Personnel” of the Company;

- To determine the revenue matrix, salary and bonus to be paid to Whole time Director(s) or Managing Director of the Company;

- To determine the revenue matrix, salary and bonus to be paid to “Key Management Personnel” of the Company;

- To review the performance of “Key Management Personnel” of the Company;

- To make recommendation to the Board of Directors with respect to the compensation to be paid to the Whole time Director(s) or Managing Director or Employees of the Company;

- To determine the criteria for the grant of options or shares under the Stock Option or Stock Purchase Scheme;

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Name of Member Designation No. of Meetings Attended

Dr. Tarun Khanna * Chairman -

Mr. Sumir Chadha Member 1

Mr. Ashish Lakhanpal * Member -

Mr. Geoff Woolley * Member -

Mr. V. Chandrashakeran ** Member 1

Mr. Vikram Akula ** Member 1

Mr. P.H. Ravikumar $ Member 1

SHARE ISSUE & ALLOTMENT COMMITTEE

Share Issue & Allotment Committee is constituted to approve the terms of the Capital Issue made by the Company, including negotiations, pricing,approval of transaction documents, authorizing execution thereof and take all actions and do all acts, things and matters as are necessary inrespect of the proposed Capital Issue, subject to the provisions of the Act, the Articles of Association of the Company and other applicable lawsincluding the Foreign Exchange Management Act, 1999 and all applicable regulatory provisions in respect of issue of capital & allotment of Equityand Preference Shares of the Company;

* Appointed as Committee member in the Board Meeting held on 10th November, 2008. ** Ceased to be Committee member w.e.f. 10th November, 2008 Board Meeting; $ Ceased to be Chairman/member of the Committee w.e.f. 10th November, 2008 Board Meeting;

The Committee met once during the year on 10th November, 2008.

Terms of Reference

• The meeting(s) of the Committee shall be convened for the appointment of members of the Board in term of Articles of Association of the Company as and when the need arises.

• The Role and Function of the Nomination Committee is as follows:

- To ensure “fit and proper” credentials of proposed/existing Directors;

- Appointment and reappointment of Directors on the Board;

- Filling of a Vacancy on the Board;

- Appointment of members to the Executive Committee of the Board.

NOMINATION COMMITTEE

The Nomination Committee has been constituted in accordance with the Reserve Bank of India’s Guidelines on Corporate Governance issuedvide Notification No. RBI/2006-07/385 DNBS.PD/CC 94/03.10.042/2006-07, dated 8th May, 2007 to ensure that the general character of themanagement or the proposed management of the non-banking financial company shall not be prejudicial to the interest of its present and futurestakeholders and to ensure ‘fit and proper’ credentials/status of proposed/existing Directors of the company.

Composition & Meetings

Nomination Committee currently consist of the following members:

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# Mr. V. Sitaram Rao and Mr. Shekhar Iyer have resigned from their Committee position on 1st November, 2008 and 10th November, 2008 respectively. ** Ceased to be a Committee member w.e.f. 10th November, 2008 Board Meeting. $ Ceased to be Chairman of the Committee w.e.f. 10th November, 2008 Board Meeting and continues as member of the Committee; * Appointed as member of the Committee w.e.f. 10th November, 2008 Board Meeting; @ Appointed as Committee member w.e.f. 8th December, 2008;

The Share Issue & Allotment Committee Meeting was held on 25th August, 2008.

Terms of Reference

• The Role and Function of the Share Issue and Allotment Committee is as follows: - To deal with all aspects relating to Share Issue and Allotment; - To address to and attend the grievances of share holders;

- To function in close association with the Compensation Committee for the allotment of equity shares under Share Option or Stock Purchase Plan;

- To allot, approve, subdivide, and consolidate securities including issue of duplicate Certificates;

- Authority to do any matter in relation to the above powers.

Composition & Meetings

Share Issue Allotment & Transfer Committee currently consist of the following members:

Names of Members Designation No. of Meetings Attended

Mr. Paresh Patel * Chairman -

Mr. Ashish Lakhanpal * Member -

Mr. Suresh Gurumani @ Member -

Mr. P.H. Ravikumar $ Member 1

Mr. Sumir Chadha ** Member -

Mr. V. Sitaram Rao # Member 1

Mr. Shekhar Ayer # Member 1

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Name of the Director Sitting Fees (Rs.)

Mr. Gurucharan Das 10,000

Mr. P. H. Ravi Kumar 40,000

Dr. Tarun Khanna 10,000

Mr. V. Sitaram Rao # 20,000

Mr. Shekhar Iyer # 20,000

Mr. Geoff Woolley 30,000

Mr. Sumir Chadha 40,000

Mr. V. Chandrasekhran * 20,000

Mr. Ashish Lakhanpal * 10,000

Mr. Paresh Patel * 10,000

(Rs. in lakhs) Name Salary & Incentives Value of Perquisites Contribution to ESOPs Total Provident Fund

Mr. Vikarm Akula 70.00 - - 109.76 179.76

Mr. Suresh Gurumani 131.71 12.00 2.65 1.77 148.13

• 1,769,537 options were granted to Mr. Vikram Akula pursuant to SKS Microfinance Employee Stock Option Plan - 2008 at an exercise price of Rs. 300.00.

• 9,00,000 options were granted to Mr. Suresh Gurumani pursuant to SKS Microfinance Employee Stock Option Plan - 2008 at an exercise price of Rs. 300.00.

The details of stock options granted to Independent Directors during the year under review are as follows:

• 3,000 stock options were granted to Dr. Tarun Khanna pursuant to SKS Microfinance Stock Option Plan - 2008 at an exercise price of Rs. 70.67.

• 3,000 stock options were granted to Mr. P.H. Ravi Kumar pursuant to SKS Microfinance Stock Option Plan - 2008 at an exercise price of Rs. 70.67.

The details of Sitting Fees paid/payable to Directors for the year ended 31st March, 2009:

2. REMUNERATION TO DIRECTORS:

All Directors except the Executive Directors are paid sitting fees of Rs. 10,000 per meeting for attendance at each Board Meeting. No sitting fees is payable to Chairman & members for attending any committee meeting.

The details of remuneration paid / payable to the Executive Directors for the financial year ended 31st March, 2009 is as follows:

# Mr. V. Sitaram Rao and Mr. Shekhar Iyer have resigned from their Board position on 1st November, 2008 and 10th November, 2008 respectively.

* As per Audited Financials for the year ended 31st March, 2009.

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Location AGM / EGM Date Time

SKS Microfinance Pvt. Ltd, AGM 07/08/2008 04.00 PM # 8-2-608/1/1, Karama Enclave, Road No. 10, Banjara Hills, Hyderabad - 500 034

SKS Microfinance Pvt. Ltd, EGM 08/10/2008 02.00 PM # 8-2-608/1/1, Karama Enclave, Road No. 10, Banjara Hills, Hyderabad - 500 034

SKS Microfinance Pvt. Ltd, EGM 08/11/2008 11.30 AM # 2-3-578/1, Maruti Mansion, Kachi Colony, Nallagutta, Minister Road, Secunderabad - 500003

SKS Microfinance Pvt. Ltd, EGM 25/03/2009 11.30 AM # 2-3-578/1, Maruti Mansion, Kachi Colony, Nallagutta, Minister Road, Secunderabad - 500003

SKS Microfinance Pvt. Ltd, EGM 02/05/2009 11.30 AM # 2-3-578/1, Maruti Mansion, Kachi Colony, Nallagutta, Minister Road, Secunderabad - 500003

SKS Microfinance Ltd, EGM 25/07/2009 11.30 AM # 2-3-578/1, Maruti Mansion, Kachi Colony, Nallagutta, Minister Road, Secunderabad - 500003

3. GENERAL BODY MEETINGS:

Date /time and venue of all General Meetings held since last Annual General Meeting:

All the proposed resolutions including special resolutions are passed by the shareholders as set out in their respective notice & agenda of meeting.

• Special Resolution has been passed at AGM dated 7th August, 2008 to alter the Article of Association with regard to increase of Authorized share capital from Rs. 55 Crores to Rs. 85 crores, consisting of Rs. 82 crores as Equity Share Capital and Rs. 3 Crores as Preference shares, whether convertible or non-convertible.

• Special Resolution has been passed at EGM dated 8th October, 2008 to alter the Articles of Association with regard to increase of authorized share capital from Rs. 85 Crores to Rs. 95 crores consisting of Rs. 82 crores as Equity Share Capital and Rs. 13 Crores as Preference shares, whether convertible or non-convertible.

• Special Resolution has been passed at EGM dated 8th November, 2008 to approve the SKS Microfinance Employee Stock Option Plan - 2008.

• Special Resolution has been passed at EGM dated 25th March, 2009 to alter the Articles of Association of the Company to include the terms of the Amended and Restated Share Holders Agreement and Subscription Agreement under Round 4 Capital Infusion.

• Special Resolution has been passed at EGM dated 2nd May, 2009 to approve the conversion of the Company into Public Limited Company, consequent Change in the name, alteration of Articles of Association and fresh issue of equity shares and compulsorily convertible preference shares to Bajaj Allianz Life Insurance Company Limited.

• Special Resolution has been passed at EGM dated 25th July, 2009 to approve fresh issue of equity shares to Dr. Tarun Khanna.

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Auditors’ ReportTo The Members of SKS Microfinance Private Limited

1. We have audited the attached Balance Sheet of SKS Microfinance Private Limited (‘the Company’) as at March 31, 2009 and also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 (as amended) (‘the Order’) issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, (‘the Act’) we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we report that:

i. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; ii. In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; iii. The Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account; iv. In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Act; v. On the basis of the written representations received from the directors, as on March 31, 2009, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2009 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Act; vi. In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India; a) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2009; b) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and c) in the case of Cash Flow Statement, of the cash flows for the year ended on that date.

SD/-For S.R. BATLIBOI & Co.Chartered Accountants SD/-per Viren H. MehtaPartner Membership No.: 48749MumbaiDate: 6 May, 2009

Annexure referred to in paragraph 3 of our report of even dateSKS Microfinance Private Limited (‘the Company’)

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

(b) All fixed assets have not been physically verified by the management during the year but there is a regular programme of verification which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. As informed, no material discrepancies were noticed on such verification.

(c) There was no substantial disposal of fixed assets during the year.

(ii) The Company is a Non-Banking Financial Company (‘NBFC’) engaged in the business of providing loans and does not maintain any inventory. Therefore the provisions of clause 4(ii) of the Order are not applicable to the Company.

(iii) (a) As informed, the Company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

(b) As informed, the Company has not taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

(iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of fixed assets and for rendering of services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas.

(v) (a) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Act that need to be entered into the register maintained under section 301 of the Act have been so entered.

(b) In respect of transactions made in pursuance of such contracts or arrangements exceeding value of Rupees five lakhs entered into during the financial year, because of the specialized nature of the items involved and absence of any comparable prices, we are unable to comment whether the transactions were made at prevailing market prices at the relevant time.

(vi) The Company has not accepted any deposits from the public.

(vii) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

(viii) To the best of our knowledge and as explained, the Central Government has not prescribed maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 for the products of the Company.

(ix) (a) Undisputed statutory dues including provident fund, investor education and protection fund, employees’ state insurance, income-tax, sales-tax, wealth-tax, service-tax, customs duty, excise duty and cess have generally been regularly deposited with the appropriate authorities, except in case of dues of employees’ profession tax which have not been regularly deposited with the appropriate authorities though the delays in deposit have not been serious.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, investor education and protection fund, employees’ state insurance, income-tax, wealth-tax, service tax, sales-tax, customs duty, excise duty, cess and other undisputed statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable.SK

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(c) According to the information and explanation given to us, there are no dues of income tax, sales-tax, wealth tax, service tax, customs duty, excise duty and cess which have not been deposited on account of any dispute.

(x) The Company has no accumulated losses at the end of the financial year and it has not incurred cash losses in the current and immediately preceding financial year.

(xi) Based on our audit procedures and as per the information and explanations given by the management, we are of the opinion that the Company has not defaulted in repayment of dues to a financial institution, bank or debenture holders.

(xii) According to the information and explanations given to us and based on the documents and records produced to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause 4(xiii) of the Order are not applicable to the Company.

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Order are not applicable to the Company.

(xv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institution.

(xvi) Based on information and explanations given to us by the management, term loans were applied for the purpose for which the loans were obtained, though idle/surplus funds which were not required for immediate utilization have been gainfully invested in liquid investments payable on demand. The maximum amount of idle/surplus fund invested during the year was Rs.12,677,820,861 of which Rs.12,677,820,861 was outstanding at the end of the year.

(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that no funds raised on short-term basis have been used for long-term investment.

(xviii) The Company has not made any preferential allotment of shares to parties or companies covered in the register maintained under section 301 of the Companies Act, 1956.

(xix) According to the information and explanations given to us, during the year covered by our audit report, the Company had issued 2,500 debentures of Rs. 100,000 each. The Company has not created any security / charge in respect of debentures issued. However, the time for such creation security / charge has not elapsed as on the date of this report.

(xx) The Company has not made any public issues during the year.

(xxi) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no material frauds on or by the Company were noticed / reported during the year although there were some instances of frauds on the Company by its employees as given below:

(a) Thirty-three cases of cash embezzlements by the employees of the Company aggregating to Rs.7,079,683 were reported during the year. The services of all such employees involved have been terminated and the Company is in the process of taking legal action. We have been informed that nine of these employees are absconding. The outstanding loan balance (net of recovery) aggregating to Rs. 5,377,428 has been written off;

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(b) Eighteen cases of loans given to non-existent borrowers on the basis of fictitious documentation created by the employees of the Company aggregating to Rs.5,645,657 were reported during the year. The services of all such employees involved have been terminated and the Company is in the process of taking legal action. The outstanding loan balance (net of recovery) aggregating to Rs.4,253,379 has been written off; and

(c) One case of fraud by an employee of the Company in collusion with vendors has been reported during the year. The aggregate value of transactions is Rs.9,610,755 (including Rs.3,051,510 in respect of the previous year). The services of the said employee and the arrangements with the said vendors have been terminated. The Company has initiated legal action and criminal proceedings against such employee. The financial effect of the loss incurred by the Company is not currently quantifiable.

SD/-For S.R. BATLIBOI & Co.Chartered Accountants

SD/-per Viren H. MehtaPartner Membership No.: 48749

MumbaiDate: 6 May 2009

Balance Sheet as at March 31, 2009 Schedules March 31, 2009 March 31, 2008 Rupees Rupees

SOURCES OF FUNDS Shareholders’ Funds Share Capital 1 570,566,520 443,316,520 Stock Options Outstanding 1A 19,293,235 2,569,412 Reserves and Surplus 2 6,058,634,113 1,679,472,069 Loan Funds Secured Loans 3A 19,473,781,711 7,898,449,915 Unsecured Loans 3B 394,371,918 -

TOTAL 26,516,647,497 10,023,807,916

APPLICATION OF FUNDS Fixed Assets 4A Gross Block 250,994,853 123,289,326 Less: Accumulated Depreciation 126,862,689 48,355,901 Net Block 124,132,164 74,933,425 Capital Work in Progress Including Capital Advances 69,102 3,996,977 124,201,266 78,930,402 Intangible Assets 4B Gross Block 121,236,871 100,003,354 Less: Accumulated Amortization 65,551,244 35,657,550 Net Block 55,685,627 64,345,804 Capital Work in Progress Including Capital Advances 9,836,800 1,675,000 65,522,427 66,020,804

Deferred Tax Assets (Net) 5 42,403,359 9,389,663

Current Assets, Loans and Advances Cash and Bank Balances 6 15,470,212,491 2,752,275,237 Other Current Assets 7 317,205,395 44,302,133 Loans and Advances 8 14,369,462,869 7,936,529,420 30,156,880,755 10,733,106,790 Less: Current Liabilities and Provisions Current Liabilities 9 3,721,294,681 769,438,769 Provisions 10 151,065,629 94,200,974 3,872,360,310 863,639,743 Net Current Assets 26,284,520,445 9,869,467,047 TOTAL 26,516,647,497 10,023,807,916 Notes to Accounts 17

The schedules referred to above and notes to accounts form an integral part of the Balance Sheet.

As per our report of even date

SD/- For S. R. Batliboi & Co. For and on behalf of the Board of Directors of Chartered Accountants SKS Microfinance Private Limited SD/- SD/- SD/- per Viren H. Mehta Vikram Akula Suresh Gurumani Partner Chairman Managing Director Membership No.048749 SD/- SD/- Place: S. Dilli Raj Manish Kumar Date: 6 May 2009 Chief Financial Officer Company Secretary

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Profit and Loss Account for the year ended March 31, 2009

Schedules March 31, 2009 March 31, 2008 Rupees Rupees

INCOME Income from operations 11 5,060,401,138 1,624,656,820 Other income 12 479,599,353 75,420,144

TOTAL 5,540,000,491 1,700,076,964

EXPENDITURE Financial expenses 13 1,944,308,792 564,647,002 Personnel expenses 14 1,376,734,410 477,553,378 Operating and other expenses 15 759,662,790 280,711,304 Depreciation and amortization 4A & 4B 108,468,322 51,110,338 Provisions and write offs 16 110,254,386 36,628,138

TOTAL 4,299,428,700 1,410,650,160

Profit before tax 1,240,571,791 289,426,804

Provision for tax

Current tax 453,300,000 111,629,578 Deferred tax (33,013,693) (493,316) Income tax for the previous year 2,684,104 2,835,200 Fringe benefit tax 15,356,836 8,991,712

Total tax expense 438,327,247 122,963,174

Profit after tax 802,244,544 166,463,630

Profit brought forward from previous year 166,525,672 33,086,598

Profit available for appropriation 968,770,216 199,550,228

APPROPRIATIONS

Transferred to Statutory Reserve 160,448,909 33,292,726

Surplus carried to Balance Sheet 808,321,307 166,257,502

Earning per Share (Basic) (Refer Note 13 of Schedule 17 ) 17.95 5.53

Earning per Share (Diluted) (Refer Note 13 of Schedule 17 ) 17.89 5.53

Notes to accounts 17

The schedules referred to above and notes to accounts form an integral part of the Profit and Loss Account

As per our report of even date

SD/- For S. R. Batliboi & Co. For and on behalf of the Board of Chartered Accountants SKS Microfinance Private Limited

SD/- SD/- SD/- per Viren H. Mehta Vikram Akula Suresh Gurumani Partner Chairman Managing Director Membership No.048749 SD/- SD/- Place: S. Dilli Raj Manish Kumar Date: 6 May 2009 Chief Financial Officer Company Secretary

Schedules to Balance Sheet and Profit and Loss Account

March 31, 2009 March 31, 2008

Schedule 1: Share Capital

Authorized Share Capital

Equity Shares 82,000,000 (Previous Year 52,000,000) equity shares of Rs. 10 each 820,000,000 520,000,000

Preference Shares 13,000,000 (Previous Year 3,000,000) preference shares of Rs. 10 each 130,000,000 30,000,000

950,000,000 550,000,000 Issued Share Capital Equity Share Capital

Issued, Subscribed and Paid-up 47,707,856 (Previous Year: 44,138,481) equity shares of Rs. 10 each fully paid up 477,078,560 441,384,810

Issued, Subscribed and Partly Paid-up 3,863,415 (Previous Year: 3,863,415) equity shares of Rs. 10 each, Rs.0.50 paid up 1,931,710 1,931,710 Preference Share Capital

Issued, Subscribed and Fully Paid-up

9,155,625 (Previous Year: Nil) 0% compulsorily convertible preference shares of Rs. 10 each 91,556,250 - compulsorily convertible on December 26, 2009 with an option to the holder to convert the holding at any time before that date

Total 570,566,520 443,316,520

Schedule 1A: Stock Options Outstanding (Refer Note 8 of Schedule 17)

Employee stock options outstanding 21,316,514 14,212,480 Less : Deferred Employee compensation outstanding 2,023,279 11,643,068 19,293,235 2,569,412 Schedule 2: Reserves and Surplus A. Securities Premium Account

As per last Balance Sheet 1,471,324,586 408,904,759 Add: Additions during the year 3,576,917,500 1,062,419,827

Sub-Total 5,048,242,086 1,471,324,586

B. Statutory Reserve As per last Balance Sheet 41,621,811 8,329,085 Add: Transferred from Profit and Loss Account 160,448,909 33,292,726

Sub-Total 202,070,720 41,621,811

C. Profit and Loss Account Surplus brought forward from the Profit and Loss Account 808,321,307 166,257,502 Add: Adjustment for provision for employee benefits provision (Refer Note 9 of Schedule 17) - 268,170

Sub-Total 808,321,307 166,525,672

Total (A+B+C) 6,058,634,113 1,679,472,069

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Schedules to Balance Sheet and Profit and Loss Account March 31, 2009 March 31, 2008 Schedule 3 (A): Secured Loans

Term Loans From banks 14,290,741,048 5,935,104,021 (*Secured by hypothecation of portfolio loans) From financial institutions 4,933,040,663 1,963,345,894 (*Secured by hypothecation of portfolio loans and by lien marked on bank deposits) Debentures

2500 (Previous Year: Nil) 10.5% Secured Redeemable Non - Convertible Debentures of Rs. 100,000 each redeemable at par at the end of one year from the date of allotment Feb 27, 2009 250,000,000 - (**Secured by hypothecation of portfolio loans)

Total 19,473,781,711 7,898,449,915

Schedule 3 (B): Unsecured Loans Term Loans From banks 150,000,000 - Commercial paper (Short term) 250,000,000 - Less: Unamortized interest (5,628,082) 244,371,918 Maximum amount outstanding at any time during the year Rs. 244,371,918 (Previous Year: Nil)

Total 394,371,918 - * The total secured loans borrowing outstanding as at the Balance Sheet date includes Rs.1,900,000,000 for which the creation of charge for security has been done subsequent to the Balance Sheet date.

** The creation of charge for security is pending as at the Balance Sheet date.

Schedule to Balance Sheet and Profit and Loss Account

Schedule 4 : Fixed Assets and Intangible Assets

4A. Fixed Assets

PARTICULARS GROSS BLOCK DEPRECIATION NET BLOCK As on Additions Deletion As on As on For the Deletion Total As on As on April 1, March 31, April 1, Year March 31, March 31, March 31, 2008 2009 2008 2009 2009 2008

(I) Furniture and 35,428,584 42,070,497 101,655 77,397,426 26,733,509 32,738,706 44,117 59,428,098 17,969,328 8,695,075 Fixture

(II) Plant and Machinery: Computers 76,635,326 73,174,192 39,923 149,769,595 19,273,214 42,013,546 7,880 61,278,880 88,490,715 57,362,112

Office Equipments 10,484,266 12,703,866 101,450 23,086,682 2,000,318 3,720,812 15,843 5,705,287 17,381,395 8,483,948 (III) Vehicles 741,150 - - 741,150 348,860 101,564 - 450,424 290,726 392,290

Total 123,289,326 127,948,555 243,028 250,994,853 48,355,901 78,574,628 67,840 126,862,689 124,132,164 74,933,425

Previous Year - 86,784,508 - 123,289,326 - 32,477,542 - 48,355,901 74,933,425

4B. Intangible Assets

PARTICULARS GROSS BLOCK DEPRECIATION NET BLOCK As on Additions Deletion As on As on For the Deletion Total As on As on April 1, March 31, April 1, Year March 31, March 31, March 31, 2008 2009 2008 2009 2009 2008

(I) Goodwill 39,701,135 - - 39,701,135 20,511,454 7,940,227 - 28,451,681 11,249,454 19,189,681

(II) Computer Software 60,302,219 21,233,517 - 81,535,736 15,146,096 21,953,467 - 37,099,563 44,436,173 45,156,123

Total 100,003,354 21,233,517 - 121,236,871 35,657,550 29,893,694 - 65,551,244 55,685,627 64,345,804

Previous Year - 52,048,719 - 100,003,354 - 18,632,796 - 35,657,550 64,345,804

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Schedules to Balance Sheet and Profit and Loss Account

March 31, 2009 March 31, 2008

Schedule 5: Deferred Tax Assets / (Liabilities) (Net)

Deferred Tax Assets

Difference due to disallowance of expenses under section 43B of Income tax Act, 1961 16,502,644 3,919,935

Difference due to disallowance of provision for doubtful debts 23,266,153 10,927,347

Difference due to charge of tax on income on non-performing assets 2,886,556 -

Gross Deferred Tax Assets 42,655,353 14,847,282

Deferred Tax Liabilities

Differences in depreciation and other differences in block of fixed assets and intangible assets as per tax books and financial books 251,994 5,457,619

Gross Deferred Tax Liabilities 251,994 5,457,619

Net Deferred Tax Assets 42,403,359 9,389,663

Schedule 7: Other Current Assets

Interest accrued but not due

On portfolio loans 53,523,235 35,252,129

On deposits placed with banks 26,451,991 4,790,007

Others 237,230,169 4,259,997

Total 317,205,395 44,302,133

Schedule 6: Cash and Bank Balances

Cash on hand 12,041,234 106,787,608

Balances with Scheduled Banks:

On current accounts 1,565,288,217 1,483,111,733

On deposit accounts 13,890,916,254 1,161,538,551 (Of the total deposits placed with banks, lien has been partly maked against deposit certificates of Rs.1,213,095,393 (Previous Year Rs.136,897,979) towards term loans availed from banks, financial institutions and towards cash collateral placed in connection with asset assignments)

Balances with Unscheduled Banks (Refer Note 17 of Schedule 17):

On current accounts 1,966,786 837,345

Total 15,470,212,491 2,752,275,237

Schedules to Balance Sheet and Profit and Loss Account

March 31, 2009 March 31, 2008

Schedule 8: Loans and Advances

A. Portfolio Loans (Unsecured, considered good)

Loans under joint liability group scheme 13,228,105,463 7,188,556,687

Individual loans 899,242,433 604,903,707

Sub-Total (A) 14,127,347,896 7,793,460,394 B. Portfolio Loans (Unsecured, considered doubtful)

Loans under joint liability group scheme 37,264,254 14,510,354

Individual loans 10,614,815 924,529

Sub-Total (B) 47,879,069 15,434,883

C. Other Loans and Advances

Secured, considered good

Employee loans 3,810,013 9,255,683

Unsecured, considered good

Loans to SKS Microfinance Employees Benefit Trust 69,813,060 33,826,023 (Refer Note 18 of Schedule 17)

Advances recoverable in cash or kind or value to be received 44,014,133 68,984,234

Deposits 58,017,182 10,374,931

Interest accrued and due

On portfolio loans 2,330,021 355,707

On deposits placed with banks 16,251,495 4,837,565

Sub-Total (C) 194,235,904 127,634,143

Total (A+B+C) 14,369,462,869 7,936,529,420

Schedule 9: Current Liabilities

Sundry creditors (Refer Note 19 of Schedule 17) 3,208,675,673 628,691,078 (Due to micro and small enterprises: Nil (Previous Year: Nil)

Deferred income 421,753,978 112,437,225

Interest accrued but not due 68,310,390 26,149,656

Statutory dues 22,554,640 2,160,810

Total 3,721,294,681 769,438,769

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Schedule 11: Income from Operations

Interest income on portfolio loans 4,417,689,723 1,330,783,339

Membership fees 75,783,484 36,653,550 (Net of service tax of Rs. 9,284,426 (Previous Year: Rs. 4,530,379))

Loan origination charges 86,713,512 87,989,265

Income from loan management services - 3,610,799

Income from assignment of loans (Refer Note 3 of Schedule 17) 480,214,419 165,619,867

Total 5,060,401,138 1,624,656,820

Schedule 12: Other Income

Interest on bank deposits 171,371,356 20,164,961 (Tax deducted at source: Rs. 37,848,044 (Previous Year: Rs.4,218,984))

Dividend from mutual fund investments (non-trade) - 142,805

Insurance commission (Tax deducted at source: Rs. 27,041,408 (Previous Year : Nil)) 118,843,425 -

Group insurance administrative charges 175,368,805 45,818,734

Profit on disposal of fixed assets 9,532 -

Miscellaneous income (Tax deducted at source : Rs. 80,104 (Previous Year : Nil)) 14,006,235 9,293,644

Total 479,599,353 75,420,144

Schedules to Balance Sheet and Profit and Loss Account

March 31, 2009 March 31, 2008

Schedule 10: Provisions

Provision for taxation (Net of advance tax payments) 31,373,477 16,861,702

Provision for fringe benefit tax (Net of advance tax payments) 871,134 542,182

Provision for non performing assets 68,449,994 61,491,239

Provision for gratuity 1,819,557 82,118

Provision for leave encashment 48,551,467 15,223,733

Total 151,065,629 94,200,974

Schedule 14: Personnel Expenses

Salaries and incentives 1,189,371,576 417,322,101

Staff leave encashment 56,305,907 16,898,847

Contribution to Provident Fund 37,629,387 13,154,115

Gratuity 13,330,020 3,627,458

Staff welfare expenses 80,097,520 26,550,857

Total 1,376,734,410 477,553,378

Schedules to Balance Sheet and Profit and Loss Account

March 31, 2009 March 31, 2008

Schedule 13: Financial Expenses

Interest

On term loans from banks 1,308,028,721 424,977,398

On term loans from financial institutions 400,402,340 96,522,586

On other loans 39,943,499 -

On overdraft facility 22,460,812 287,643

On debentures 2,862,186 -

Loan processing fees 137,479,689 28,184,532

Guarantee fees 1,419,187 1,725,938

Bank charges 31,712,358 12,948,905

Total 1,944,308,792 564,647,002

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Schedule 16 : Provisions and Write offs

Provision for non performing assets 6,958,755 32,148,713

Bad debts written off 103,295,631 4,479,425

Total 110,254,386 36,628,138

Schedules to Balance Sheet and Profit and Loss Account

March 31, 2009 March 31, 2008

Schedule 15: Operating and Other Expenses

Rent 88,124,809 26,259,842

Rates and taxes 25,675,331 11,639,142 Insurance 1,054,662 858,754 Repairs and maintenance

Plant and machinery 6,871,834 2,045,762

Others 35,499,647 15,332,605

Electricity charges 15,231,603 4,860,990

Travelling and conveyance 253,597,823 110,182,382

Communication expenses 49,483,072 16,865,291

Printing and stationery 112,188,056 51,666,988

Professional and consultancy charges 69,531,286 18,070,888

Directors’ sitting fees 210,000 165,000

Auditors’ remuneration

Audit fees 3,900,000 2,500,000

Certification fees 130,000 -

Out of pocket expenses 754,108 4,784,108 425,768 2,925,768

Share issue expenses 29,390,187 899,833

Loss from assigned loans 24,746,894 5,454,863

Other balances written off 28,688,553 8,680,651

Miscellaneous expenses 14,584,925 4,802,545

Total 759,662,790 280,711,304

Cash Flow Statement for the year ended March 31, 2009 March 31, 2009 March 31, 2008 Rupees Rupees

A. Cash flow from operating activities Net profit before taxation 1,240,571,791 289,426,804 Adjustments for: Depreciation and amortization 108,468,322 51,110,338 Provision for employee benefits 46,657,754 18,851,191 Employee stock options and share purchase scheme 22,069,598 2,569,412 Share issue expenses 29,390,187 899,833 Provision for non performing assets 6,958,755 32,148,713 Bad debts written off 103,295,631 4,479,425 Loss on asset assignment 24,746,894 5,454,863 Other balances written off 28,688,553 8,680,651 Profit on disposal of fixed assets (9,532) -

Operating profit before working capital changes 1,610,837,953 413,621,230

Movements in working capital: (Increase) / decrease in portfolio loans (6,469,627,319) (5,179,430,362) (Increase) / decrease in current assets (272,903,262) (33,908,381) (Increase) / decrease in loans and advances (131,629,789) (66,360,948) (Decrease) / Increase in current liabilities 2,951,855,912 687,827,167 Cash generated from operations (2,311,466,505) (4,178,251,294)

Direct taxes paid (456,500,283) (136,742,012)

Net cash generated from operating activities (A) (2,767,966,788) (4,314,993,306)

B. Cash flow from investing activities Purchase of fixed assets (Including capital work in progress) (124,020,680) (90,745,779) Sale of fixed assets 184,720 - Purchase of intangible assets (Including capital work in progress) (29,395,317) (53,183,719) Purchase of mutual funds units - (100,000,000) Redemption of mutual fund units - 100,000,000 Net cash flow in investing activities (B) (153,231,277) (143,929,498)

C. Cash flow from financing activities Proceeds from issuance of share capital (Including share premium) 3,698,821,725 1,239,305,877 Share issue expenses (29,390,187) (899,833) Secured borrowings (net) 11,575,331,796 5,408,255,847 Unsecured borrowings (net) 394,371,918 - Bank deposits not considered as cash and cash equivalent (net) (2,146,197,347) (108,881,915)

Net cash generated from financing activities (C) 13,492,937,905 6,537,779,976

Net increase/ (decrease) in cash and cash equivalents (A)+(B)+(C) 10,571,739,840 2,078,857,172

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As per our report of even date

SD/- For S.R. Batliboi & Co. For and on behalf of the Board of Directors of Chartered Accountants SKS Microfinance Private Limited

SD/- SD/- SD/- per Viren H. Mehta Vikram Akula Suresh Gurumani Partner Chairman Managing Director Membership No.048749 Place: Date: 6 May 2009 SD/- SD/- S.Dilli Raj Manish Kumar Chief Financial Officer Company Secretary

Cash Flow Statement for the year ended March 31, 2009 March 31, 2009 March 31, 2008 Rupees Rupees

Cash and cash equivalents at the beginning of the year 2,615,377,258 536,520,086

Cash and cash equivalents at the end of the year 13,187,117,098 2,615,377,258 (Refer Note 20 of Schedule 17)

Schedule 17: Notes to Accounts

1. Nature of operations

SKS Microfinance Private Limited (‘the Company’) is engaged in micro finance lending activities for providing financial services to poor women in the rural areas of India who are organized as Joint Liability Groups (‘JLGs’). The Company provides small value collateral free loans up to Rs.25,000/- for tenure of fifty weeks for income generation to poor women in groups.

All financial transactions are conducted in the group meetings organized near the habitats of these women. The operations, in the initial stages of group formation, involves efforts, on development training on financial discipline, and later constant monitoring through weekly meetings, and providing financial and support services at the doorsteps of the borrowers to ensure high rates of recovery. In case of loans given to JLGs, the Company follows weekly collection for recovery of loans and the interest accrued thereon.

The Company also provides individual loans to the existing members ranging between Rs. 25,000 to Rs.50,000 for income generation activities for a tenure ranging from twelve months to twenty four months. These loans are generally given to members who have completed a minimum of one cycle of loan under JLG. In case of individual loans, the Company follows monthly collection for recovery of loans and the interest accrued thereon.

The Company has also tied up with insurance companies to acts as Group Insurance Manager and Micro-Insurance agent for providing group health and life insurance to its members. The Company collects nominal charges from its members to meet the administrative cost incurred.

2. Statement of Significant Accounting Policies

a. Basis of preparation of financial statements

The financial statements have been prepared to comply in all material respects with the Notified Accounting Standards by Companies Accounting Standards Rules, 2006, the relevant provisions of the Companies Act, 1956 (‘the Act’) and the provisions of the Reserve Bank of India (‘RBI’) as applicable to a non banking financial Company. The financial statements have been prepared under the historical cost convention on an accrual basis except interest/discount on a loan which have been classified as Non Performing Assets and is accounted for on cash basis. The accounting policies have been consistently applied by the Company and are consistent with those applied in the previous year.

b. Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period end. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates.

c. Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.

i. Interest income on loans given is recognized under the internal rate of return method. Income on non-performing assets is recognized only when realized and any interest accruing on such assets is de-recognized totally by reversing the interest income already recognized.

ii. Loan origination fees on loans being an adjustment to yield is recognized over the life of the loan on a straight line basis.

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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iii. Interest income on deposits with banks is recognized on a time proportion accrual basis taking into account the amount outstanding and the rate applicable.

iv. Membership fees are recognized on an upfront basis.

v. On sale of receivables under asset assignment arrangement, the profit arising on account of sale is recognized over the life of the receivables assigned on an accrual basis and loss, if any, arising on account of sale is accounted immediately.

vi. Dividend income is accounted on establishment of right to receive basis by the Balance Sheet date.

vii. All other income is recognized on an accrual basis.

d. Fixed assets

All fixed assets are stated at historical cost less accumulated depreciation and impairment loss, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use.

e. Intangibles

i. Goodwill is amortized using the straight-line method over a period of five years.

ii. Software cost related to computers are capitalized and amortized using the written down value method at a rate of 40% per annum.

f. Depreciation

i. Depreciation on fixed assets has been provided on the written down value method at the rates prescribed under Schedule XIV of the Companies Act, 1956.

ii. Fixed assets costing upto Rs. 5,000 individually are fully depreciated in the year of purchase.

g. Impairment

The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/ external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset’s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital.

After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

h. Leases

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased term are classified as operating leases. Operating lease payments are recognized as an expense in the Profit and Loss Account on a straight-line basis over the lease term.

i. Investments

Investments that are readily realizable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long-term investments. Current investments are carried at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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j. Foreign Currency Transactions

i. All transactions in the foreign currency are recognized at the exchange rate prevailing on the date of transactions.

ii. Foreign currency monetary items are reported using the exchange rate prevailing at the close of the financial year and net gain or losses are recognized as income or expense. iii. Exchange differences arising on the settlement of monetary items or on reporting Company’s monetary items at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognized as income or as expenses in the year in which they arise.

k. Retirement and other employee benefits

i. The monthly contributions towards Provident Fund and Employee’s State Insurance Scheme are charged to Profit and Loss Account for the year.

ii. Gratuity liability is defined benefit obligations and is provided for on the basis of an actuarial valuation on projected unit credit method made at the end of the financial year.

iii. Short term compensated absences are provided for based on estimates. Long term compensated absences are provided for based on actuarial valuation. The actuarial valuation is done as per projected unit credit method at the end of the financial year.

iv. Actuarial gains/losses are immediately taken to Profit and Loss Account and are not deferred.

l. Income Taxes

Tax expense comprises of current, deferred and fringe benefit tax. Current income tax and fringe benefit tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

The carrying amount of the deferred tax assets are reviewed at each balance sheet date. The Company writes down the carrying amount of the deferred tax assets to the extent that it is no longer reasonably certain or virtually certain as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be that sufficient future taxable income will be available.

m. Earnings per Share

Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting preference dividend and attributable taxes) by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as fraction of an equity share to the extent that they were entitled to participate in dividends related to a fully paid equity share during the reporting period.

For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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n. Provisions

A provision is recognized when an enterprise has a present obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

o. Cash and Cash Equivalents

Cash and Cash equivalents in the Balance Sheet comprise cash at bank and in hand and short-term investments with an original maturity of three months or less.

p. Employee Share Based payments

(a) In case of Employee Share Purchase Plan, measurement and disclosure of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the ICAI. The Company measures compensation cost relating to employee share purchase plan using the fair value method. Such compensation expense is recognized immediately as these are granted and vested immediately.

(b) In case of Employee Stock Option Plan, measurement and disclosure of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the ICAI. The Company measures compensation cost relating to employee stock options using the Black-Scholes Model. Compensation expense is recognized over the vesting period of the option on the straight line basis.

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q. Classification of Loan Portfolio

i. Loans are classified as follows:

Asset Classification Loans under JLG scheme Individual Loans

Non Performing Assets Overdue over 8 weeks Overdue over 3 months

Sub-Standard Overdue for 8 weeks - 25 weeks Overdue for 3 - 6 months

Doubtful assets -- Overdue for 6 - 12 Months

Loss Assets Overdue for more than 25 weeks Overdue for more than 12 months

“Overdue” refers to interest and/ or installment remaining unpaid from the day it became receivable.

ii. All other loans and advances are classified as standard, sub-standard, doubtful, and loss assets in accordance with the extant Non- Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007.

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

If Portfolio at Risk (PAR) Estimated Provision adopted by the Company (% of Standard Assets)

0 - 1% 0.25%

Above 1% to 1.5% 0.50%

Above 1.5% to 2% 0.75%

Above 2% 1.00%

** Portfolio at Risk represent overdue as percentage at gross loans outstanding computed separately for JLG loans and ILP loans.

ii. All other loans & advances are provided for in accordance with the extant Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007.

iii. All overdue loans where the tenure of the loan is completed and in the opinion of the management amount is not recoverable, are written off.

iv. Further all loss assets identified per the extant RBI guidelines are provided / written off.

r. Provision policy for Portfolio Loans

i. Loans are provided for as per the management’s estimates, subject to the minimum provision required as per Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007. The provisions norm adopted by the Company is as follows:

JLG Loans - Provisioning and write off policy

Asset Classification Arrear Period Provision as per Estimated Provision RBI prudential norms adopted by the Company

Standard Less than 8 weeks Nil Note 1

Sub-Standard Over 8 weeks - 25weeks Nil 50%

Loss Assets More than 25 weeks 100% Write off

ILP Loans - Provisioning and write off policy

Asset Classification

Arrear Period Provision as per Estimated Provision RBI prudential norms adopted by the Company

Standard Less than 3 months NIL Note 1

Sub-Standard Over 3 - 6 months NIL 10%

Doubtful assets Over 6 - 12 months 10% 50%

Loss Assets More than 12 months 100% 100%

Note 1: Standard Asset provision is linked to the Portfolio at Risk** (PAR) as shown below:

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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Under the agreement for the assignment of loans the Company has transferred all the rights and obligations relating to the loan assets assigned as shown above to various banks. The guarantee given by the Company under the asset assignment has been disclosed in note 7 below.

4. Segment information

The Company operates in a single reportable segment i.e. lending to members, which have similar risks and returns for the purpose of AS 17 on ‘Segment Reporting’ issued by the ICAI. The Company does not have any reportable geographical segment.

5. Related parties

a. Names of the related parties

Entities holding Substantial Interest The entities mentioned in aggregate hold substantial interest in the Company: a. Sequoia Capital India Growth Investment I b. Sequoia Capital India II, LLC c. Tejas Ventures

Key Management Personnel Mr. Suresh Gurumani, (Managing Director and CEO from Dec 8, 2008) Mr. Vikram Akula, (Managing Director and CEO till October 13, 2008)

Relatives of Key Management Personnel Mr. Krishna Akula - Father of Mr. Vikram Akula (Related Party till October 13, 2008)

Particulars For the year ended For the year ended 31-Mar-09 31-Mar-08

Total book value of the loan asset assigned 13,977,404,462 4,102,683,779

Sale consideration received for the loan asset assigned 14,412,999,597 4,102,683,779

Income from asset assignment recognized in the Profit and Loss Account 480,214,419 165,619,867

Cash margin placed with banks 834,045,299 40,621,915

3. Assignment of loans

During the year the Company has sold loans through direct assignment. The information on direct assignment activity of the Company as an originator is as shown below:

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NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

7. Contingent liabilities not provided for

Particulars 31-Mar-2009 31-Mar-2008

Guarantees given by the Company for the loans assigned to 1,958,157,926 276,091,810 various banks (including cash collaterals and receivable placed with banks)

6. Capital commitments

Estimated amounts of contracts remaining to be executed on capital account and not provided for:

Particulars 31-Mar-2009 31-Mar-2008

For purchase / development of computer software 8,990,400 -

For purchase of fixed assets 6,391,000 4,425,000

b. Related party transactions

Key Management Relatives of Key Management Entities holding Personnel ** Personnel Substantial Interest

31-Mar-09 31-Mar-08 31-Mar-09 31-Mar-08 31-Mar-09 31-Mar-08

Transaction during the year

Issue of Equity Shares (including share premium) - - - - - 537,371,924

Rent expenses - - - 875,000 - -

Balances as at year end

Share Capital - 16,361,380 - - 138,524,980 130,344,290

Incentive Payables 10,000,000 7,040,000 - - - -

ESOP Outstanding 177,162 2,511,958 - - - -

**Remuneration paid to Managing director is disclosed in note 10 below.

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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8. Employee share purchase plan and employee stock option scheme

a. Pursuant to the approval of shareholders at the Annual General Meeting on August 07, 2008, the Company approved an Employee Share Purchase Plan (‘ESPS’) for its employees.

The detail of equity shares granted and alloted to employees under this plan is as follows: -

Particulars

Date of grant Aug 25, 2008

Date of Board approval July 20, 2008

Date of shareholder’s approval Aug 07, 2008

Vesting Option Immediate

Number of shares allotted 517,500

Fair value per share Rs. 81.00

Intrinsic value per share Rs. 10.33

Issue price per share Rs. 70.67

Total Employee compensation cost pertaining to share based payment Rs 5,345,775

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b. The Company has provided various share-based payment schemes to its employees and directors. During the year ended March 31, 2009, the following schemes were in operation:

Particulars Plan I(a) Plan I (b) Plan I (c)

Date of grant Oct 15 , 2007 Nov 10, 2008 Dec 8, 2008

Date of Board approval July 31,2007 Oct 30, 2008 Oct 30, 2008

Date of shareholder’s approval Sept 8, 2007 Nov 8, 2008 Nov 8, 2008

Number of options granted 1,852,158 1,769,537 900,000

Method of settlement Equity Equity Equity

Vesting option Immediate Immediate 25% equally at the end of each year

Exercise period 48 months from the 60 months from the 48 months from the date of vesting date of vesting date of vesting

Vesting conditions ***None ***None ***None

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

* 1/3rd of the options can be exercised within first twelve months from grant date; another 1/3rd of the options can be exercised within twenty four months from grant date and the rest being exercised within thirty six months from grant date

** 1/2 of the options can be exercised within twenty four months from grant date; another 1/2 of the options can be exercised within thirty six months from grant date.

*** Option holders are required to hold the services being provided to SKSMF at the point of vesting.

Particulars Plan II(a) Plan II (b) Plan II (c)

Date of grant Feb 1, 2008 Feb 1, 2008 Nov 10, 2008

Date of Board approval Oct 15, 2007 Oct 15, 2007 Oct 15, 2007

Date of shareholder’s approval Jan 16, 2008 Jan 16, 2008 Jan 16, 2008

Number of options granted 30,000 15,000 6,000

Method of settlement Equity Equity Equity

Vesting option *Immediate **Immediate *Immediate

Exercise period 36 months from the 36 months from the 36 months from the date of vesting date of vesting date of vesting

Vesting conditions ***None ***None ***None

The details of Plan I (a) have been summarized below:

Particulars

As at March 31, 2009 As at March 31, 2008

Number of Weighted average Number of Weighted average options exercise price (Rs.) options exercise price (Rs.)

Outstanding at the beginning of the year 1,852,158 49.77 - -

Granted during the year - - 1,852,158 49.77

Forfeited during the year - - - -

Exercised during the year - - - -

Expired during the year - - - -

Outstanding at the end of the year 1,852,158 49.77 1,852,158 49.77

Exercisable at the end of the year 1,852,158 - 1,852,158 -

Weighted average remaining contractual life (in years) 2.6 - 3.6 -

Weighted average fair value of options granted - 7.28 - 7.28

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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The details of Plan I (c) have been summarized below:

Particulars

As at March 31, 2009 As at March 31, 2008 Number of options Weighted average Number of options Weighted average exercise price (Rs.) exercise price (Rs.)

Outstanding at the beginning of the year - - - -

Granted during the year 900,000 300.00 - -

Forfeited during the year - - - -

Expired during the year - - - -

Outstanding at the end of the year 900,000 300.00 - -

Exercisable at the end of the year - - - -

Weighted average remaining contractual life (in years) 3.6 - - -

Weighted average fair value of options granted - 1.81 - -

The details of Plan I (b) have been summarized below:

Particulars

As at March 31, 2009 As at March 31, 2008

Number of options Weighted average Number of options Weighted average exercise price (Rs.) exercise price (Rs.)

Outstanding at the beginning of the year - - - -

Granted during the year 1,769,537 300.00 - -

Forfeited during the year - - - -

Exercised during the year - - - -

Expired during the year - - - -

Outstanding at the end of the year 1,769,537 300.00 - -

Exercisable at the end of the year 1,769,537 - - -

Weighted average remaining contractual life (in years) 4.6 - - -

Weighted average fair value of options granted - 2.92 - -

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NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

The details of Plan II (a) have been summarized below:

Particulars

As at March 31, 2009 As at March 31, 2008

Number of options Weighted average Number of options Weighted average exercise price (Rs.) exercise price (Rs.)

Outstanding at the beginning of the year 30,000 70.67 - -

Granted during the year - - 30,000 70.67

Forfeited during the year - - - -

Exercised during the year - - - -

Expired during the year - - - -

Outstanding at the end of the year 30,000 70.67 30,000 70.67

Exercisable at the end of the year 20,000 - - -

Weighted average remaining contractual life 1.8 - 2.8 - (in years)

Weighted average fair value of options granted - 15.28 - 15.28

The details of Plan II (b) have been summarized below:

Particulars

As at March 31, 2009 As at March 31, 2008 Number of options Weighted average Number of options Weighted average

exercise price (Rs.) exercise price (Rs.)

Outstanding at the beginning of the year 15000 70.67 - -

Granted during the year - - 15,000 70.67

Forfeited during the year - - - -

Exercised during the year - - - -

Expired during the year - - - -

Outstanding at the end of the year 15,000 70.67 15,000 70.67

Exercisable at the end of the year 7,500 - - -

Weighted average remaining contractual life 1.8 - 2.8 - (in years)

Weighted average fair value of options granted 17.72 17.72

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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The details of Plan II (c) have been summarized below:

Particulars

As at March 31, 2009 As at March 31, 2008

Number of options Weighted average Number of options Weighted average exercise price (Rs.) exercise price (Rs.)

Outstanding at the beginning of the year - - - -

Granted during the year 6,000 70.67 - -

Forfeited during the year - - - -

Exercised during the year - - - -

Expired during the year - - - -

Outstanding at the end of the year 6,000 70.67 - -

Exercisable at the end of the year 2,000 - - -

Weighted average remaining contractual life 2.5 - - - (in years)

Weighted average fair value of options granted - 52.14 - -

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The details of exercise price for stock options outstanding at the end of the year March 31, 2009:

Series

Range of exercise Number of options Weighted average Weighted average prices outstanding remaining contractual exercise price life of options (in years)

Plan I (a)-2008 49.77 1,852,158 2.6 49.77

Plan I (b)-2009 300.00 1,769,537 4.6 300.00

Plan I (c)-2009 300.00 900,000 3.6 300.00

Plan II (a)-2008 70.67 30,000 1.8 70.67

Plan II (b)-2008 70.67 15,000 1.8 70.67

Plan II (c) -2009 70.67 6,000 2.6 70.67

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

Yr 1 Yr 2 Yr 3 Yr 4

Exercise price (Rs.) 49.77 49. 77 49. 77 49. 77

Expected volatility (%) 20 20 20 20

Historical volatility NA NA NA NA

Life of the options granted in years 1 2 3 4

Expected dividends per annum (Rs.) - - - -

Average risk-free interest rate (%) 7.34 7.38 7.42 7.45

Expected dividend rate (%) - - - -

Stock Options granted:

Plan I (a)

The weighted average fair value of stock options granted during the year was Rs.7.28. The Black-Scholes Model has been used for computing theweighted average fair value considering the following:

Plan I (b)

The weighted average fair value of stock options granted during the year was Rs.2.92.The Black-Scholes model has been used for computing theweighted average fair value considering the following:

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Exercise price (Rs.) 300.00 300.00 300.00 300.00 300.00

Expected volatility (%) 27.3 27.3 27.3 27.3 27.3

Historical volatility NA NA NA NA NA

Life of the options granted in years 1 2 3 4 5

Expected dividends per annum (Rs.) - - - - -

Average risk-free interest rate (%) 5.42 6.03 6.34 8.63 6.81

Expected dividend rate (%) - - - - -

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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Plan II (b)

The weighted average fair value of stock options granted during the year was Rs.17.72. The Black-Scholes Model has been used for computing the weighted average fair value considering the following:

Yr 1 Yr 2 Yr 3

Exercise price (Rs.) 70.67 70.67 70.67

Expected volatility (%) 20 20 20

Historical volatility NA NA NA

Life of the options granted in years 1 2 3

Expected dividends per annum (Rs.) - - -

Average risk-free interest rate (%) 7.34 7.38 7.42

Expected dividend rate (%) - - -

Yr 1 Yr 2 Yr 3

Exercise price (Rs.) 70.67 70.67 70.67

Expected volatility (%) 20 20 20

Historical volatility NA NA NA

Life of the options granted in years 1 2 3

Expected dividends per annum (Rs.) - - -

Average risk-free interest rate (%) 7.34 7.38 7.42

Expected dividend rate (%) - - -

Plan II (a)

The weighted average fair value of stock options granted during the year was Rs.15.28. The Black-Scholes Model has been used for computing theweighted average fair value considering the following:

Plan I (c)

The weighted average fair value of stock options granted during the year was Rs.1.81 The Black-Scholes model has been used for computing the weighted average fair value considering the following:

Yr 1 Yr 2 Yr 3 Yr 4

Exercise price (Rs.) 300.00 300.00 300.00 300.00

Expected volatility (%) 27.3 27.3 27.3 27.3

Historical volatility NA NA NA NA

Life of the options granted in years 1 2 3 4

Expected dividends per annum (Rs.) - - - -

Average risk-free interest rate (%) 5.42 6.03 6.34 8.63

Expected dividend rate (%) - - - -

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Plan II (c)

The weighted average fair value of stock options granted during the year was Rs.52.14. The Black-Scholes Model has been used for computing theweighted average fair value considering the following:

Yr 1 Yr 2 Yr 3

Exercise price (Rs.) 70.67 70.67 70.67

Expected volatility (%) 27.3 27.3 27.3

Historical volatility - - -

Life of the options granted in years 1 2 3

Expected dividends per annum (Rs.) - - -

Average risk-free interest rate (%) 5.42 6.03 6.34

Expected dividend rate (%) - - -

Expected Volatility - Since SKS Microfinance Private Limited is a private company, standard deviation as shown above is assumed based on thestock market returns over the last year.

Effect of the employee share-based payment plans on the Profit and Loss Account and on its financial position:

9. Retirement benefits

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service is eligible for gratuity on departure and it is computed at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarizes the components of net benefit expense recognized in the Profit and Loss Account and the funded status and amounts recognized in the Balance Sheet for the respective plans.

Particulars

For the Year Ended For the Year Ended 31-Mar-09 31-Mar-08

Total employee compensation cost pertaining to share-based payment plans 16,723,823 2,569,412

Deferred compensation cost as at the year end 2,023,279 11,643,068

Total liability for employee stock option outstanding as at year end 21,316,514 14,212,480

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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Balance Sheet

Details of provision for gratuity:

Particulars

Gratuity 31-Mar-09 31-Mar-08

Defined benefit obligation 19,642,037 5,480,291

Fair value of plan assets 17,822,480 5,398,173

(1,819,557) (82,118)

Less: Unrecognized past service cost - -

Plan liability (1,819,557) (82,118)

Profit and Loss Account

Net employees benefit expense:

Particulars

For the Year ended For the Year ended 31-Mar-09 31-Mar-08

Current service cost 4,312,962 1,473,057 Interest cost on benefit obligation 832,238 270,037 Expected return on plan assets (400,402) (121,223) Net actuarial (gain) / loss recognized in the year 8,585,222 2,005,587 Past service cost - - Net employee benefit expense 13,330,020 3,627,458 Actual return on plan assets 8,31,726 27,629

Changes in the present value of the defined benefit obligation are as follows:

Particulars

Gratuity

31-Mar-09 31-Mar-08

Opening defined benefit obligation 5,480,291 1,825,204

Interest cost 832,238 270,037

Current service cost 4,312,962 1,473,057

Benefits paid - -

Actuarial (gains) / losses on obligation 9,016,946 1,911,993

Closing defined benefit obligation 19,642,037 5,480,291

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The Company has contributed Rs.11,592,581 towards gratuity in 2008-09.

The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

Particulars Gratuity

31-Mar-09 31-Mar-08

Insurance Managed Fund 100% 100%

The overall expected rate of return on assets is determined based on the average long term rate of return expected on investment of the fund during the estimated term of the obligations.

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors.

The principal assumptions used in determining gratuity:

Particulars

Gratuity

31-Mar-09 31-Mar-08

Discount rate 7.90% 8.55%

Expected rate of return on assets 7.50% 7.50%

Salary escalation rate per annum 10% for the first four years 7.00% and 7% there after

Changes in the fair value of plan assets are as follows:

Particulars

Gratuity 31-Mar-09 31-Mar-08

Opening fair value of plan assets 5,398,173 1,591,392

Expected return 400,402 121,223

Contributions by employer 11,592,581 3,779,152

Benefits paid - -

Actuarial gains / (losses) 431,324 (93,594)

Closing fair value of plan assets 17,822,480 5,398,173

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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10. Managing Director’s Remuneration (On accrual basis)

Particulars

For the year ended For the year ended 31-Mar-09 31-Mar-08

Salaries and Incentives 20,171,247 13,205,000

Perquisites 1,200,000 875,000

Contribution to provident fund 265,043 -

Employee stock option scheme 11,153,559 2,511,958

Total 32,789,849 16,591,958

Note: As the future liability for gratuity and leave encashment is provided on an actuarial basis for the Company as a whole, the amount pertaining to the directors is not ascertainable and, therefore not included above.

11. Expenditure in foreign currency (On accrual basis)

Particulars For the year ended For the year ended 31-Mar-09 31-Mar-08

Salaries 5,674,863 3,372,115 Professional fees 4,668,429 407,200 Training and conference -- 465,767 Guarantee fees 1,419,187 2,071,125 Travelling expenses -- 1,395,124 Membership and subscriptions 103,770 -- Total 11,866,249 7,711,331

Amounts for the current and previous two periods are as follows:

Gratuity 31-Mar-09 31-Mar-08

Defined benefit obligation 19,642,037 5,480,291

Plan assets 17,822,480 5,398,173

Surplus / (deficit) (1,819,557) (82,118)

Experience adjustments on plan liabilities 5,137,920 2,213,180

Experience adjustments on plan assets 431,324 (93,594)

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12. Earnings in foreign currency (On accrual basis)

Particulars For the year ended For the year ended 31-Mar-09 31-Mar-08

Professional fees - 1,193,400

13. Earnings Per Share

Particulars For the year ended For the year ended 31-Mar-09 31-Mar-08

Net Profit as per Profit and Loss Account 802,244,544 166,463,630

Weighted average number of shares used in computing basic 44,692,320 30,114,632 earnings per share

Add: Equity shares for Nil consideration arising on grant of stock 2,715 847 options under Employee stock option plan

Add: Compulsorily Convertible Preference Share of Rs. 10 each 150,503 - compulsorily convertible on December 26, 2009 with an option to the holder to convert the holding at any time before that date.

Weighted average number of shares in calculating Diluted 44,845,538 30,115,479 Earning Per Share

Basic Earnings per Share 17.95 5.53

Diluted Earnings per Share 17.89 5.53

[Nominal value of shares Rs. 10 each (Previous Year : Rs. 10)]

14. Loan Portfolio & Provisions for Non Performing Assets:

Asset

Loan Outstanding (Gross) Provision for Non Performing Assets Loan Outstanding (Net)

Classification

As at As at As at

Additional Provision As at

As at As at 31-Mar-09 31-Mar-08

31-Mar-08 Provision Write back

31-Mar-09 31-Mar-09 31-Mar-08

Amount Amount

made during during the year Amount Amount the year

Standard 14,127,347,896 7,793,459,632 58,376,538 - 19,297,553 39,078,985 14,088,268,911 7,735,083,094 assets

Sub-standard 43,874,144 11,871,957 1,187,195 18,211,603 - 19,398,798 24,475,346 10,684,762 assets

Doubtful 3,525,292 3,272,365 1,636,183 126,463 - 1,762,646 1,762,646 1,636,182 assets

Loss assets 479,633 291,323 291,323 188,310 - 479,633 - -

Total 14,175,226,965 7,808,895,277 61,491,239 18,526,376 19,297,553 60,720,062 14,114,506,903 7,747,404,038

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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16. Investments activity

The Company has not made any investment during the year. The details of previous year activity are as follows:

Mutual Fund

For the Year Ended 31-Mar-08 Units Purchased Amount invested Units sold Sale proceeds during the year during the year

Reliance Floating Rate Fund 2,987,773 30,000,000 2,987,773 30,000,000

Reliance Liquid Fund 4,596,422 70,000,000 4,596,422 70,000,000

Total 7,584,195 100,000,000 7,584,195 100,000,000

Description 31-Mar-09 31-Mar-08

Operating lease payments recognized during the year 88,124,809 26,259,842

Minimum Lease Obligations

Not later than one year 40,935,845 -

Later than one year but not later than five years 145,911,053 -

Later than five years - -

17. Balances held with Non-scheduled banks in the current account and deposit account as at March 31, 2009 is as shown below:

Bank Name

Maximum Balance For the year Maximum Balance For the year outstanding during ended outstanding during ended the year ended 31-Mar-09 the year ended 31-Mar-08 31-Mar-09 31-Mar-08

Balances held in current account

Urban Coperative Bank 3,436,842 1,661,211 2,513,888 837,345

Buldhana Urban Credit Coperative Bank 1,804,980 305,575 - -

Total 1,966,786 837,345

Note: During the year there is a change in the estimate of provision on standard asset and non performing asset [Refer note 2 (r) above]. As a result of such change Provision for standard and non performing asset is lower by Rs. 83,091,748 and the loan write off is higher by Rs. 61,428,032, thus resulting net impact of Rs. 21,663,717 on the profit for the year.

15. Leases

Head office and the Branch office premises are obtained on operating lease. The Branch office premises are generally rented on cancelable term for less than twelve months with no escalation clause and renewable at the option of the Company. However, the Head office premise has been obtained on the non-cancelable lease term of 60 months and renewable with an escalation clause at the end of three years. There are no restrictions imposed by lease arrangements. There are no subleases. Lease payments during the year are charged to Profit and Loss Account.

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NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

18. The Company has given Interest free collateral free loan to an employee benefit trust under the Employee Stock Purchase Scheme to provide financial assistance to its employees to purchase equity shares of the Company under such scheme. The loan is repayable by the trust under a back to back arrangement by the trust with the employees of the Company. The year end balance for the total loan granted is Rs. 69,813,060 (Previous Year Rs. 33,826,023).

19. The Company has initiated the process of identification of suppliers registered under the Micro Small and Medium Enterprise Development Act, 2006 (the ‘MSMED’) by obtaining confirmation from all the suppliers. Based on the information currently available with the Company no amount is payable to the Micro, Small and Medium Enterprises as per the MSMED Act, 2006 as at March 31, 2009.

20. Components of cash and cash equivalents

Particulars 31-Mar-09 31-Mar-08

Cash and Bank balance (Refer schedule 6)

Cash on hand 12,041,234 106,787,608

Balance with scheduled bank

On Current accounts 1,565,288,217 1,483,111,733

On Deposit accounts 13,890,916,254 1,161,538,551

Balance with non scheduled bank

On Current accounts 1,966,786 837,345

Total 15,470,212,491 2,752,275,237

Less: Bank deposits not considered as cash and cash equivalent 2,283,095,393 136,897,979 Cash and Cash Equivalent as at the year end 13,187,117,098 2,615,377,258

21. Additional disclosures required by the Reserve Bank of India:

a. Capital to risk Ratio (‘CRAR’)

Item 31-Mar-09 31-Mar-08

i CRAR (%) 39.04% 24.77%

ii CRAR - Tier I Capital ( %) 38.49% 24.77%

iii CRAR - Tier II Capital ( %) 0.55% 0.00%

NOTES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT MARCH 31, 2009 AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

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22. Previous year’s figures have been regrouped where necessary to conform to this year’s classification.

For and on behalf of the Board of Directors of

SKS Microfinance Private Limited

SD/- SD/- SD/- SD/- Vikram Akula Suresh Gurumani S.Dilli Raj Manish Kumar Chairman Managing Director Chief Financial Officer Company Secretary

b. The Company has no exposures to Real Estate Sector directly or indirectly.

c. Asset Liability Management

Maturity pattern of certain items of assets and liabilities

1 day - Over Over Over Over Over Over Over Total 30/31 days 1 month 2 month to 3 month to 6 month to 1 year to 3 year 5 year (one Month ) to 2 months 3 months 6 months 1 year 3 years to 5 years

Liabilities

Borrowings from 50.76 38.39 141.02 175.12 354.33 727.51 6.39 - 1493.53 Banks

Assets

Advances 238.52 207.47 184.50 439.21 354.46 - 6.98 5.80 1436.94

Investments - - - - - - - - -

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Balance Sheet Abstract & Company’s General Business Profile as per Part IV of Schedule VI to the Companies Act, 1956

I Registration Details

Registration No : 041732 State Code: 1

Balance Sheet Date: 31.03.2009

II Capital Raised During The Year (Amount in Rs. Thousands)

Public Issue NIL Rights Issue NIL

Bonus Issue NIL Private Placement 127,250

III Position of Mobilization And Deployment of Funds (Amount in Rs. Thousands)

Total Liabilities 26,516,647 Total Assets 26,516,647

Sources of Funds

Paid-Up Capital 570,567 Reserves and Surplus 6,058,634

Stock Options Outstanding 19,293

Secured Loans 19,473,782 Unsecured Loans 394,372

Deferred Tax Liability (Net) NIL

Application of Funds

Net Fixed Assets 124,201 Net Intangible Assets 65,522

Investments NIL Deferred Tax Asset (Net) 42,403

Net Current Assets 26,284,520 Miscellaneous Expenditure NIL

Accumulated Losses NIL

IV Performance of Company (Amount in Rs. Thousands)

Turnover (Sales and other income) 5,540,000 Total Expenditure 4,299,429

Profit Before Tax 1,240,572 Profit After Tax 802,245

Earnings Per Share - Basic Rs. 17.95 Dividend Rate % NIL

V Generic names of principal products/services of the Company(As per monetary Terms)

Item Code No. (ITC Code) Not Applicable

Product Description Microfinance

Notice of Sixth Annual General MeetingNOTICE TO MEMBERS

Notice is hereby given that the Sixth Annual General Meeting of the Members of SKS Microfinance Limited will be held on Wednesday, 30th September, 2009, at 11:30 a.m. at the Company’s Registered Office at Maruti Mansion, Municipality No. 2-3-578/1, Kachi Colony, Nallagutta, Minister Road, Secunderabad - 500 003, A.P. (INDIA) to transact the following businesses:

ORDINARY BUSINESS

1. To receive, consider and adopt the Balance Sheet as at 31st March, 2009, the Profit and Loss Account for the year ended on that date and the Report of the Directors and the Auditors thereon.

2. To appoint a Director in place of Mr. Gurcharan Das, who retires by rotation and, being eligible offers himself for reappointment.

3. To appoint a Director in place of Mr. Sumir Chadha, who retires by rotation and, being eligible offers himself for reappointment.

4. To appoint a Director in place of Dr. Tarun Khanna, who retires by rotation and being eligible offers himself for reappointment.

5. To appoint Auditors to hold office from the conclusion of this Annual General Meeting until conclusion of next Annual General Meeting and to authorize the Board of Directors to fix their remuneration.

SPECIAL BUSINESS

6. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as an Ordinary Resolution:

“RESOLVED that Mr. Ashish Lakhanpal, who was appointed by the Board of Directors as an Additional Director of the Company to represent SKS Capital and Kismet SKS II as their “Investor Nominee Director” with effect from 10th November, 2008, and who holds office upto the date of this Annual General Meeting in terms of Section 260 of the Companies Act, 1956, and Article 18.15 of the Articles of Association of the Company, and in respect of whom the Company has received a notice in writing from a Member under Section 257 of the Companies Act, 1956, proposing his candidature for the office of Director of the Company, be and is hereby appointed as a Director of the Company to represent SKS Capital and Kismet SKS II as their “Investor Nominee Director”, whose period of office shall be liable for retirement by rotation.”

7. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as an Ordinary Resolution:

“RESOLVED that Mr. Suresh Gurumani, who was appointed by the Board of Directors as an Additional Director of the Company with effect from 8th December, 2008, and who holds office upto the date of this Annual General Meeting in terms of Section 260 of the Companies Act, 1956, and Article 18.15 of the Articles of Association of the Company, and in respect of whom the Company has received a notice in writing from a Member under Section 257 of the Act, proposing his candidature for the office of Director of the Company, be and is hereby appointed as a Director of the Company.”

8. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as an Ordinary Resolution:

“RESOLVED that Mr. Geoff Woolley, who was appointed by the Board of Directors as an Additional Director of the Company with effect from 6th May, 2009, and who holds office upto the date of this Annual General Meeting in terms of Section 260 of the Companies Act, 1956, and Article 18.15 of the Articles of Association of the Company, and in respect of whom the Company has received a notice in writing from a Member under Section 257 of the Act, proposing his candidature for the office of Director of the Company, be and is hereby appointed as a Director of the Company, whose period of office shall be liable for retirement by rotation.”

9. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as an Ordinary Resolution:

I. “RESOLVED that as per the recommendation of the Compensation Committee and approval of the Board of Directors, and pursuant toSKS

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the provisions of Sections 198, 269, 309, 310, and all other applicable provisions, if any, of the Companies Act, 1956, read with Schedule XIII to the said Act, and the Articles of Association of the Company, and subject to the approval of the Central Government and such other approvals, if any, as may be required, the consent of the Company be and is hereby accorded to the appointment of Mr. Vikram Akula as Executive Chairman of the Company and for him to take up employment in the US Liaison Office of the Company for a period of 5 (five) years with effect from 29th July, 2009, to 28th July, 2014, upon such terms and remuneration, including the salary and perquisites, as have been set out in the explanatory statement attached to the Notice convening this Annual General Meeting, a copy whereof initialed by the Chairman for the purpose of identification, is placed before the Meeting, with such modifications as may be required by any applicable law and as may be agreed to by the Board of Directors and Mr. Vikram Akula.”

II. “RESOLVED FURTHER that for the purpose of giving effect to the above Resolution, the Board be and is hereby authorized to do all such acts, deeds, matters and things and execute all such deeds, documents, instruments and writings, including making application to the Central Government, as it may in its absolute discretion deem necessary or desirable, and pay fees and commission and incur expenses in relation thereof.”

III. “RESOLVED FURTHER that the Board of Directors be and is hereby empowered to alter and vary the terms and conditions of the above appointment and/or remuneration to Mr. Vikram Akula so as not to exceed the limits prescribed under the Companies Act, 1956, including any statutory modification or re-enactment thereof, for the time being in force, or any amendment(s) and/or modification(s) that may hereafter be made thereto by the Central Government in that behalf from time to time.”

10. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as an Ordinary Resolution:

I. “RESOLVED that as per the recommendation of the Compensation Committee and approval of the Board of Directors, and pursuant to the provisions of Sections 198, 269, 309, 310, and all other applicable provisions, if any, of the Companies Act, 1956, read with Schedule XIII to the said Act, and the Articles of Association of the Company, and subject to such other approvals, if any, as may be required, the consent of the Company be and is hereby accorded to the appointment of Mr. Suresh Gurumani as Managing Director and Chief Executive Officer (CEO) of the Company for a period of 5 (five) years with effect from 1st April, 2009 to 31st March, 2014, upon such terms and remuneration, including the salary and perquisites, as have been set out in the explanatory statement attached to the Notice convening this Annual General Meeting, a copy whereof initialed by the Chairman for the purpose of identification, is placed before the Meeting, with such modifications as may be required by any applicable law and as may be agreed to by the Board of Directors and Mr. Suresh Gurumani and his increment is subject to review of Compensation Committee on annual basis.”

II. “RESOLVED FURTHER that for the purpose of giving effect to the above Resolution, the Board be and is hereby authorized to do all such acts, deeds, matters and things and execute all such deeds, documents, instruments and writings as it may in its absolute discretion deem necessary or desirable and pay fees and commission and incur expenses in relation thereof.”

III. “RESOLVED FURTHER that the Board of Directors be and is hereby empowered to alter and vary the terms and conditions of the above appointment and/or remuneration to Mr. Suresh Gurumani so as not to exceed the limits prescribed in Schedule XIII to the Companies Act, 1956, including any statutory modification or re-enactment thereof, for the time being in force, or any amendment(s) and/or modification(s) that may hereafter be made thereto by the Central Government in that behalf from time to time.”

11. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as an Ordinary Resolution:

I. “RESOLVED that pursuant to Section 94 and other applicable provisions, if any, of the Companies Act, 1956, the Authorized Share Capital of the Company be and is hereby increased from the existing Rs. 95,00,00,000/- (Rupees Ninety Five Crore only) divided into 8,20,00,000 (Eight Crore Twenty Lakh) Equity shares of Rs. 10/- (Rupees Ten only) each and 1,30,00,000 (One Crore Thirty Lakh) Preference shares of Rs. 10/- (Rupees Ten only) each, whether convertible or non-convertible, to Rs. 163,00,00,000/- (Rupees One Hundred Sixty Three Crore only) divided into 15,00,00,000 (Fifteen Crore) Equity shares of Rs. 10/- (Rupees Ten only) each and 1,30,00,000 (One Crore Thirty Lakh) Preference shares of Rs. 10/- (Rupees Ten only) each, whether convertible or non-convertible, by creation of 6,80,00,000 (Six Crore Eighty Lakh) equity shares of Rs. 10/- (Rupees Ten only) each and that the Memorandum of Association and the Articles of Association be altered accordingly.”

II. “RESOLVED FURTHER that pursuant to Section 16 and other applicable provisions, if any, of the Companies Act 1956, the existing Clause V of the Memorandum of Association of the Company be and is hereby altered by deleting of the same and substituting in place

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and stead thereof the following new Clause V:

(V) The authorized share capital of the Company is Rs. 163,00,00,000/- (Rupees One Hundred Sixty Three Crore only) divided into:

(a) 15,00,00,000 (Fifteen Crore) Equity shares of Rs. 10/- (Rupees Ten only) each; and (b) 1,30,00,000 (One Crore Thirty Lakh) Preference shares of Rs. 10/- (Rupees Ten only) each, whether convertible or non-convertible, with the rights, privileges and conditions attaching thereto as are provided by the Articles of Association of the Company for the time being, with power to increase or reduce the capital of the Company and to divide the shares in the capital for the time being into several classes and to attach thereto respectively such preferential, deferred, qualified or special rights, privileges or conditions as may be determined by or in accordance with the Articles of Association of the Company and to vary, modify or abrogate any such rights, privileges or conditions in such manner as may for the time being be provided by the Articles of Association of the Company.”

III. “RESOLVED FURTHER that the Board of Directors be and is hereby authorized to do all such acts, deeds, matters and things as may be considered necessary, desirable and expedient for giving effect to this resolution and/or otherwise considered by them in the best interest of the Company.”

12. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as a Special Resolution:

I. “RESOLVED that pursuant to Section 31 and other applicable provisions, if any, of the Companies Act, 1956, the existing Article 5.1 of the Articles of Association of the Company be and is hereby altered by deleting of the same and substituting in place and stead thereof the following new Article 5.1:

5.1 Authorized Capital: The authorized share capital of the Company is Rs. 163,00,00,000/- (Rupees One Hundred Sixty Three Crore only) divided into:

(a) 15,00,00,000 (Fifteen Crore) Equity shares of Rs. 10/- (Rupees Ten only) each; and

(b) 1,30,00,000 (One Crore Thirty Lakh) Preference shares of Rs. 10/- (Rupees Ten only) each, whether convertible or non- convertible.”

II. “RESOLVED FURTHER that the Board of Directors be and is hereby authorized to do all such acts, deeds, matters and things as may be considered necessary, desirable and expedient for giving effect to this resolution and/or otherwise considered by them in the best interest of the Company.”

13. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as a Special Resolution:

I. “RESOLVED that the Company be and is hereby entitled to dematerialize its existing shares, debentures and other securities, re- materialize its shares, debentures and other securities held in the depositories and/or to issue its fresh shares, debentures and other securities in a dematerialized form pursuant to the Depositories Act, 1996, and rules framed thereunder, if any.”

II. “RESOLVED FURTHER that all the securities held by a Depository shall be dematerialized and be in fungible form and the provisions relating to the progressive numbering shall not apply to the shares of the Company, which have been dematerialized.”

III. “RESOLVED FURTHER that notwithstanding anything to the contrary contained in the Act or the Articles of Association of the Company, Depository shall be deemed to be registered owner for the purposes of effecting transfer of ownership of security on behalf of the beneficial owner.”

IV. “RESOLVED FURTHER that nothing contained in the Act or the Articles of Association of the Company shall apply to transfer of securities affected by the transferor and the transferee both of whom are entered as beneficial owners in the records of a Depository.”

V. “RESOLVED FURTHER that in the case of transfer of securities where the Company has not issued any certificate and where such securities are being held in an electronic and fungible form, the provisions of Depositories Act, 1996, shall apply.”

VI. “RESOLVED FURTHER that the Register and Index of beneficial owners maintained by a depository under the Depositories Act, 1996 shall be deemed to be the Register and Index of Members and Security holders for the purpose of the Articles of Association of the Company.”

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VII. “RESOLVED FURTHER that every person holding securities of the Company and whose name is entered as the beneficial owner in the records of the Depository shall be deemed to be a member of the Company, and the beneficial owner of securities shall be entitled to all the rights and be subject to all liabilities in respect of his securities, which are held by a Depository.”

VIII. “RESOLVED FURTHER that pursuant to Section 31 and other applicable provisions, if any, of the Companies Act, 1956, and any other consents or approvals as may be necessary, the Articles of Association of the Company be and is hereby altered by inserting the following Articles:

1. The following definitions shall be inserted in Article 3 of Articles of Association

After the definition of ‘Auditors’, the following definition be inserted:

Beneficial Owner means the beneficial owner defined in clause (a) of sub-section (1) of Section 2 of the Depositories Act, 1996.

After the definition of ‘The Company’, the following definitions be inserted:

Depositories Act, 1996 shall include any statutory modifications or re-enactments thereof.

Depository shall mean a Depository as defined under clause (e) of sub-section (1) of Section 2 of the Depositories Act, 1996.

2. The following Article be inserted as 9A after Article 9 of Articles of Association:

9A Save as herein otherwise provided, the Company shall be entitled to treat the person whose name appears on the Register of members as the holder of any share(s) and whose name appears as the beneficial owner of shares in the records of the Depository, as the absolute owner thereof and accordingly, shall not (except as ordered by a Court of competent Jurisdiction or as by Law required) be bound to recognize any Benami Trust or Equity or Equitable contingent, future or partial interest, Lien, Pledge (except only as by these presents otherwise provided for) or other claim to or interest in such shares(s) on the part of any other person whether or not it shall have express or implied notice thereof.

3. The following Article be inserted as 10A after Article 10 of Articles of Association:

10A (1) Notwithstanding anything contained in the Articles of Association, the Company shall be entitled to dematerialize its shares, debentures and other securities, reconvert/rematerialize such shares, debentures and other securities held in electronic form to physical form and/or to offer its fresh shares in electronic form pursuant to the Depositories Act, 1996, and the rules framed thereunder, if any. The Company shall further be entitled to maintain a Register of members regarding shares held both in material and dematerialized form, in any media as permitted by law, including any form of electronic media.

(2) Notwithstanding anything contained in the Articles of Association, in the case of shares or other marketable securities where the Company has not issued any certificates and where such shares are being held in an electronic and fungible form, the provisions of the Depositories Act, 1996 shall apply.”

IX. “RESOLVED FURTHER that the Board of Directors be and is hereby authorized to do all such acts, deeds, matters and things as may be considered necessary, desirable and expedient for giving effect to this resolution and/or otherwise considered by them in the best interest of the Company.”

14. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as a Special Resolution:

I. “RESOLVED that pursuant to Section 81, 81(1A) and other applicable provisions, if any, of the Companies Act, 1956 (the “Act”) and in accordance with the provisions of the Memorandum and Articles of Association of the Company, the provisions of the Unlisted Public Companies (Preferential Allotment) Rules, 2003 (the “Rules”), and the provisions of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (the “Guidelines”) (including any statutory modification(s) or re-enactment of the Act, Rules or the Guidelines, for the time being in force) and subject to such approval(s), permission(s) and sanction(s) as may be required from time to time from any authority(ies) and subject to such condition(s) and modification(s) as may be prescribed or imposed while granting such approvals, permissions and sanctions which may be agreed to by the Board of Directors of the Company (the “Board”, which term shall be deemed to include the Compensation Committee or any other Committee thereof, for the time being authorized by the Board to exercise the powers conferred on the Board and/or such other persons who may be authorized by the Board/

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any Committee thereof in this regard), the consent of the Company be and is hereby accorded to the Board to create, issue, offer, allocate and allot at any time, subject to the applicable laws, to or for the benefit of such person(s) as may be in the permanent employment of the Company including Directors of the Company, whether working in India or outside India (hereinafter referred to as “Employees”), under a Scheme titled “SKS Microfinance Employee Stock Option Plan - 2009” (hereinafter referred to as the “ESOP- 2009” or the “Scheme-2009” or the “Plan-2009”), such number of equity stock options (“Options”), convertible into Equity Shares not exceeding in aggregate 5,27,750 (Five Lakh Twenty Seven Thousand Seven Hundred and Fifty only) Equity Shares of the Company at such price, and in one or more trenches and on such terms and conditions, as may be fixed or determined by the Board in accordance with the provisions of the law, as may be prevailing at that time, to the present and future Employees and other persons eligible to receive the same in terms of applicable laws under the Scheme-2009 on the terms and conditions as may be specified by the Board in its absolute discretion.”

II. “RESOLVED FURTHER that without prejudice to the generality of the above, but subject to the terms, as approved by the Members, the Board be and is hereby authorized to implement the ESOP-2009 in one or more trenches in such manner as the Board may determine.”

III. “RESOLVED FURTHER that for the purpose of giving effect to the above resolution, the Board be and is hereby authorized to do all such acts, deeds, matters and things and execute all such deeds, documents, instruments and writings as it may in its absolute discretion deem necessary or desirable and pay fees and commission and incur expenses in relation thereof.”

IV. “RESOLVED FURTHER that as is required, the Company shall confirm with the accounting policies as contained in the Guidelines or other applicable laws.”

V. “RESOLVED FURTHER that Mr. Vikram Akula, Chairman, Mr. Suresh Gurumani, Managing Director, Mr. Tushar Chudgar, Company Secretary and Mr. Manish Kumar, Deputy Company Secretary of the Company, be and are hereby severally authorized to settle all questions, difficulties or doubts that may arise in relation to the implementation of the Scheme (including to amend or modify any of the terms thereof) and to the shares issued herein without being required to seek any further consent or approval of the members or otherwise to the end and intent that the members shall be deemed to have given their approval thereto expressly by authority of this resolution.”

VI. “RESOLVED FURTHER that the Equity Shares to be issued as stated aforesaid shall rank pari-passu with all the existing equity shares of the Company for all purposes; except that they shall be entitled for dividend on pro-rata basis from the date of allotment till the end of the relevant financial year in which the new equity shares are allotted.”

VII. “RESOLVED FURTHER that for the purpose of giving effect to any creation, offer, issue, allotment or listing of the Equity Shares (if any), the Board be and is hereby authorized on behalf of the Company to evolve, decide upon and bring into effect the Scheme and make any modifications, changes, variations, alterations or revisions in the Scheme from time to time or to suspend, withdraw or revive the Scheme from time to time as may be specified by any statutory authority and to do all such acts, deeds, matters and things as it may in its absolute discretion deem fit or necessary or desirable for such purpose and with power on behalf of the Company to settle any questions, difficulties or doubts that may arise in this regard without requiring the Board to secure any further consent or approval of the members of the Company.”

15. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as a Special Resolution:

I. “RESOLVED that pursuant to Section 81, 81(1A) and other applicable provisions, if any, of the Companies Act, 1956 (the “Act”) and in accordance with the provisions of the Memorandum and Articles of Association of the Company, the provisions of the Unlisted Public Companies (Preferential Allotment) Rules, 2003 (the “Rules”), and the applicable provisions, if any, of the regulations/guidelines issued by the Securities and Exchange Board of India, (including any statutory modification(s) or re-enactment of the Act, Rules, Regulations or the Guidelines, for the time being in force) and subject to such approval(s), permission(s) and sanction(s) as may be required from time to time from any authority(ies) and subject to such condition(s) and modification(s) as may be prescribed or imposed while granting such approval(s), permission(s) and sanction(s), which may be agreed to by the Board of Directors of the Company (“the Board”, which term shall be deemed to include any Committee of the Board of Directors, for the time being authorized by the Board to exercise the powers conferred on the Board and/or such other persons who may be authorized by the Board/any Committee thereof in this regard), the consent of the Company be and is hereby accorded to the Board to issue, offer and allot, subject to the

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applicable laws, on a preferential basis upto 20,883 (Twenty Thousand Eight Hundred Eighty Three only) Equity Shares of the face value of Rs. 10/- (Rupees Ten only) each for cash at a premium of Rs. 290/- (Rupees Two Hundred and Ninety only) per share aggregating Rs. 62,64,900/- (Rupees Sixty Two Lakh Sixty Four Thousand Nine Hundred only) in one or more trenches, at such time or times, in such manner, form and numbers as may be prescribed while granting permission(s), sanction(s) and approval(s) by the aforesaid authorities and/or which the Board may at its absolute discretion consider proper, desirable and expedient by way of preferential allotment(s) to the senior employees/other persons, whether such allottees are shareholders of the Company or not, as mentioned in the table given herein below:

S No Employee Name Designation Department No. of Shares

1 Nilanjan Dey Regional Manager Member Services 333

2 Amaresh Sahu Regional Manager Member Services 333

3 Sandeep Borse Regional Manager Member Services 333

4 Basabdatta Roy Lead Manager - Insurance Member Services 200

5 Vivek Kashyap Lead Manager Member Services 100

6 L. Lakshmana Naidu Lead Manager Internal Audit 200

7 U L Srikanth Lead Manager - ERP Accounts & Finance 667

8 Sanjay Rekapalli Lead Manager Internal Audit 250

9 Pankaj Patni Lead Manager Legal & Secretarial 500

10 K. Nageswara Sarma Lead Manager Information Technology 167

11 Animesh Anand Sr. Lead Manager MS COO Office 2,000

12 Rajesh Tellakula Sr. Lead Manager Accounts & Finance 500

13 Bhanu Prakash Y Sr. Lead Manager Accounts & Finance 667

14 K Vinod Kumar AVP Member Services Member Services 2,000

15 Prasanna Lakshmi Lead Manager Legal & Secretarial 1,300

16 Ruchi Singh Sr. Lead Manager Business Development 500

17 Suresh Gurumani Managing Director & CEO 10,000

18 M. Pavana Regional Manager Member Services 333

19 Rajeev Ranjan Lead Manager Business Development 250

20 A. Gowri Sankar Rao Sr. Lead Manager Business Development 250

TOTAL 20,883

II. “RESOLVED FURTHER that the Equity Shares to be issued as stated aforesaid shall rank pari-passu in all respects with the existing equity shares of the Company.”

III. “RESOLVED FURTHER that for the purpose of giving effect to the above resolution, the Board be and is hereby authorized to do all such acts, deeds, matters and things and execute all such deeds, documents, instruments and writings as it may in its absolute discretion deem necessary or desirable and pay fees and commission and incur expenses in relation thereof.”

IV. “RESOLVED FURTHER that Mr. Vikram Akula, Chairman, Mr. Suresh Gurumani, Managing Director, Mr. Tushar Chudgar, Company Secretary and Mr. Manish Kumar, Deputy Company Secretary of the Company, be and are hereby severally authorized to settle all questions, difficulties or doubts that may arise in relation to the implementation of the Scheme (including to amend or modify any of the terms thereof) and to the

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shares issued herein without being required to seek any further consent or approval of the members or otherwise to the end and intent that the members shall be deemed to have given their approval thereto expressly by authority of this resolution.”

16. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as a Special Resolution:

I. “RESOLVED that pursuant to the provisions of Section 205(3) and other applicable provisions, if any, of the Companies Act, 1956, and the provisions of Article 17A.1 and 17A.4 and other applicable provisions, if any, of the Articles of Association of the Company, and subject to such approvals, consents, permissions and sanctions, if any, of the Reserve Bank of India and any other approval, as may be necessary from any authorities, the consent of the Company be and is hereby accorded to the capitalization of a sum of Rs. 67,54,09,700/- (Rupees Sixty Seven Crore Fifty Four Lakh Nine Thousand Seven Hundred only) out of sum standing to the credit of the Securities Premium Account as on 31st March, 2009 and accordingly, the Board of Directors (or a committee of the Board of Directors) be and is hereby authorized to appropriate and apply the said sum for distribution to and amongst the Equity Shareholders of the Company, by issue of 6,75,40,970 (Six Crore Seventy Five Lakh Forty Thousand Nine Hundred and Seventy) Equity Shares (“Bonus Shares”) of Rs. 10/- (Rupees Ten only) each credited as fully paid-up to the Equity Shareholders in the proportion of 1 (One) Equity Share of Rs. 10/- (Rupees Ten only) fully paid-up for every 1 (One) Equity Share of Rs. 10/- (Rupees Ten only) fully paid-up held by them as on the “Record date” as may be declared by the Board of Directors and that such new shares as and when issued and fully paid, shall rank pari passu with the existing Equity Shares.”

II. “RESOLVED FURTHER that pursuant to the existing SKS Microfinance Employee Stock Option Plan - 2007, SKS Microfinance Employee Stock Option Plan - 2008 and SKS Microfinance Stock Option Plan - 2008, as approved by the Members vide Resolutions dated 8th

September, 2007, 8th November, 2008 and 16th January, 2008 respectively and the SKS Microfinance Employee Stock Option Plan- 2009 being approved by the Members at this Meeting as Item No.14 in the Notice, the Compensation Committee (as constituted for supervision and administration of ESOP Plans of the Company) and/or the Board of Directors of the Company be and are hereby severally authorized, inter-alia, to adjust the Options that are granted or to be granted to the Employees or Directors of the Company under the above said plans as of the ‘Record Date’ as may be declared by the Board of Directors, at its discretion as to the number, price of Options and Shares, the time period of vesting or exercise as the case may be in equal or appropriate proportion to the ratio of bonus shares to be issued to the members of the Company.

III. “RESOLVED FURTHER that no letters of allotment shall be issued to the allottees for Bonus Shares and for the shareholders who hold their shares in electronic form, if any, as on the date of issue, Bonus Shares shall be credited to their respective demat accounts and for the shareholders who hold their Equity Shares in physical form, the share certificates for the Bonus Shares shall be prepared and dispatched within three months from the date of allotment thereof.”

IV. “RESOLVED FURTHER that the issue and allotment of the said Bonus Shares to the extent they relate to Non Residents (NRs), Non- Resident Indians (NRIs), Persons of Indian Origin (PIO) and other Foreign Investors of the Company will be subject to the applicable guidelines and such other approvals, from the concerned authorities as may be required.”

V. “RESOLVED FURTHER that for the purpose of giving effect to the above Resolutions, Mr. Vikram Akula, Chairman, Mr. Suresh Gurumani, Managing Director, Mr. Tushar Chudgar, Company Secretary and Mr. Manish Kumar, Deputy Company Secretary of the Company, be and are hereby severally authorized on behalf of the Company, to do all such acts, deeds, matters and things and to take all necessary steps and to give such directions at their discretion as they deem necessary or desirable for such purposes and to settle any question or difficulty whatsoever that may rise, including without limitation, filing of necessary documents with the Registrar of Companies (through the Ministry of Corporate Affairs), the Reserve Bank of India and other authority(ies), as may be required.”

By order of the Board of Directors, For SKS Microfinance Limited

SD/-Place : Secunderabad Manish KumarDate : 29th July 2009 Dy Company Secretary

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NOTES:

1. In accordance with the provisions of Section 173 of the Companies Act, 1956, an explanatory statement in respect of item numbers 6 to 16, being items of special business, is annexed.

2. A MEMBER ENTITLED TO ATTEND AND VOTE IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF/HERSELF AND THE PROXY NEED NOT BE A MEMBER. Proxies in order to be effective must be deposited at the registered office of the Company not less than forty-eight (48) hours before the time appointed for holding the Annual General Meeting.

3. All documents referred to in the accompanying notice and explanatory statements are open for inspection at the Registered Office of the Company on all working days between 10:00 a.m. and 12.00 noon.

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EXPLANATORY STATEMENT PURSUANT TO SECTION 173(2) OF THE COMPANIES ACT, 1956.

ITEM NO. 6:

The Board of Directors of the Company had appointed Mr. Ashish Lakhanpal as an Additional Director of the Company with effect from 10th

November, 2008, pursuant to Section 260 of the Companies Act, 1956, and as per the relevant provisions of the Articles of Association of theCompany to represent SKS Capital and Kismet SKS II as their “Investor Nominee Director” on the Board of the Company. Under Section 260 of theabove Act, Mr. Ashish Lakhanpal ceases to hold office at the ensuing Annual General Meeting and being eligible, offers himself for appointment asa Director. A notice under Section 257 of the said act has been received from a Member signifying his intention to propose the appointment of Mr.Ashish Lakhanpal as a Director.

Mr. Ashish Lakhanpal has received an MBA from Harvard Business School and a Bachelor of Arts, Summa Cum Laude, from GeorgetownUniversity. He is the Founder and Managing Director of Kismet Capital, LLC, a private equity investment firm focused on growth and specialsituation opportunities in India and ASEAN countries. Since its founding in 2004, Kismet and its affiliates have invested over $100 MM acrossindustries including real estate, energy, financial services, hospitality, and energy services. Prior to Kismet’s founding, Mr. Ashish Lakhanpal wasthe Managing Director of Think Capital, LLC, a New York-based Family Office with diverse interests in areas such as contract manufacturing, energy, real estate, software, and IT enabled services. Prior to Think, Mr. Ashish Lakhanpal has experience at Goldman Sachs & Co. as well as McKinsey &Co.

The Board considers it desirable to appoint Mr. Ashish Lakhanpal as Director of the Company and accordingly, commends the Resolution at ItemNo. 6 for approval by the Members.

Except Mr. Ashish Lakhanpal, who is interested in his appointment, no other Director of your Company is concerned or interested in the saidResolution.

ITEM NO. 7:

The Board of Directors of the Company had appointed Mr. Suresh Gurumani as an Additional Director of the Company with effect from 8th

December, 2008 pursuant to Section 260 of the Companies Act, 1956, and as per the relevant provisions of the Articles of Association of theCompany. Under Section 260 of the above Act, Mr. Suresh Gurumani ceases to hold office at the ensuing Annual General Meeting but is eligiblefor appointment as a Director. A notice under Section 257 of the said Act has been received from a Member signifying his intention to proposeappointment of Mr. Suresh Gurumani as a Director.

The Board considers it desirable to appoint Mr. Suresh Gurumani as a Director of the Company and accordingly, commends the Resolution at ItemNo. 7 for the approval by the Members.

Except Mr. Suresh Gurumani, who is interested in his appointment, no other Director of your Company is concerned or interested in this resolution.

ITEM NO. 8:

The Board of Directors of the Company had appointed Mr. Geoff Woolley as an Additional Director of the Company with effect from 6th May, 2009,pursuant to Section 260 of the Companies Act, 1956, and as per the relevant provisions of the Articles of Association of the Company in thecategory of Independent Director on the Board of the Company. Under Section 260 of the above Act, Mr. Geoff Woolley ceases to hold office atthe ensuing Annual General Meeting but is eligible for appointment as a Director. A notice under Section 257 of the Act has been received from aMember signifying his intention to propose the appointment of Mr. Geoff Woolley as a Director.

Mr. Geoff Woolley holds a B.S. in Business Management from Brigham Young University and an M.B.A from the University of Utah. He is thefounding partner of Dominion Ventures, Inc., which he founded in 1985, Chairman of European Venture Partners and Chairman of MACC PrivateEquity. For over 25 years, Mr. Geoff Woolley has been involved in financing more than 300 emerging growth companies, including Ceina, Coinstar,Hotmail and Human Genome Science while managing more than $1.5 billion in cumulative assets. His non-profit experience includes being thefounding chairman of the NAMES Project Foundation, (the AIDS Memorial Quilt) and working with foundations to empower the less fortunate. Hefounded and chairs the University Venture Fund at the University of Utah, the nation’s largest and most successful student led venture fund.

The Board considers it desirable to appoint Mr. Geoff Woolley as Director of the Company and accordingly, commends the Resolution at Item No. 8for approval by the Members.

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Except Mr. Geoff Woolley, who is interested in his appointment, no other Director of your Company is concerned or interested in this resolution.

ITEM NO. 9:

The Shareholders of the Company are informed that Mr. Vikram Akula was the Non-Executive Chairman and Founder of the Company. It has beenproposed by your Board that Mr. Vikram Akula be employed as a Chairperson in the Company’s liaison office in USA. The Company has alreadyreceived approval from Reserve Bank of India to open “Liaison/Representative Office” in Palatine, Illinois, USA. As regards to the Company’sproposal to employ Mr. Vikram Akula in the Liaison office in USA, his current status will change and he will be considered as an ExecutiveChairman. Mr. Vikram Akula is a Non-Resident Indian and so, in terms of the provisions of the Companies Act, 1956, his appointment will besubject to the approval of the Central Government. The Board of Directors of the Company, upon the recommendation of Compensation Committeeat its meeting held on 29th July 2009 approved the above proposal subject to the approval of the Shareholders and Central Government asstated above and recommended to the Shareholders for consideration and approval. An application shall be made by the Company to the CentralGovernment after obtaining the approval of the Shareholders in this regard.

The payment of remuneration/salary to Mr. Vikram Akula will be within the limits prescribed under the Companies Act, 1956, and approved by theCentral Government, where required. The aggregate of the remuneration and perquisites/benefits, including contributions towards provident fund,etc., payable to all Executive Directors of the Company taken together shall not exceed 10% of the profits of the Company calculated in accordancewith the provisions of Sections 198 and 309 of the Companies Act, 1956.

The term of office of Mr. Vikram Akula is for a period of 5 (Five) years with effect from 29th July, 2009 to 28th July, 2014, at a remuneration of Rs.1,10,00,000/- per annum and a performance bonus of Rs. 8,00,000/- per annum, with annual increments (which in accordance with the rules ofthe Company is 1st April of every year) upto maximum of 100% with liberty to the Board of Directors to sanction any further increase over andabove the 100% as it may in its absolute discretion determine and the perquisites as per the policy of the Company. The remuneration to be paid toMr. Vikram Akula will be in US$ and shall be subject to such approval as may be required under applicable laws.

Mr. Vikram Akula is the Founder of the Company. He holds a B.A. from Tufts, an M.A. from Yale, and has a Ph.D. from the University of Chicago.His Ph.D. dissertation focused on the impact of microfinance. He has received several awards for his work with SKS, including the Echoing GreenPublic Service Entrepreneur Fellowship, Ernst & Young’s Entrepreneur of the Year Award in the Startup category (2006), and the Social Entrepreneurof the Year Award (2006) from the Schwab and Khemka Foundations. Mr. Vikram Akula has also been profiled in numerous publications, includingthe front page of the Wall Street Journal. He was named by TIME Magazine as one of the “People Who Shape Our World” in 2006, the annual list ofthe world’s 100 most influential people. He was a management consultant with McKinsey & Company. He has over a decade of work and researchexperience in microfinance. He was a Fulbright Scholar in India, during which he coordinated an action-research project on providing micro-creditto farmers. He was also researcher with the Worldwatch Institute, where he wrote articles focused on poverty and development, and has worked as a community organizer with the Deccan Development Society in India.

He has made several significant contributions to the Company’s growth and implementation of investment plans and business strategies. Hiscontributions have been invaluable. In recognition of his accomplishments, the Board of Directors has appointed him as the Chairperson in theCompany’s liaison office in USA, subject to approval of the shareholders and the Central Government. Your Directors consider that it would beappropriate and desirable to appoint him as his rich experience will be beneficial to the Company.

The Board of Directors of the Company recommends the Resolution set out in the Item No.9 of the Notice for approval of the Shareholders.

Except Mr. Vikram Akula, who is interested in his appointment and the remuneration payable to him, no other Director of your Company isconcerned or interested in the said Resolution.

The contents of this explanatory statement may be treated as memorandum of abstract as stipulated under pursuant to Section 302 of theCompanies Act, 1956.

ITEM NO. 10:

Mr. Suresh Gurumani, was appointed as an Additional Director, Managing Director and CEO of the Company with effect from 8th December, 2008.At the ensuing Annual General Meeting of the Company, it is proposed to re-appoint Mr. Suresh Gurumani as the Managing Director of the Company for a period of 5 (Five) years with effect from 1st April, 2009. The remuneration of Mr. Suresh Gurumani has been revised with effect from 1st April,2009. The Board of Directors of the Company, upon the recommendation of Compensation Committee at its meeting held on 29th July, 2009, has

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approved the above re-appointment and remuneration and recommended to the Shareholders for consideration and approval. The Remunerationdetails are as follows:

I. Salary: Consolidated Salary inclusive of Employer’s Contribution to provident fund: Rs. 15,000,000/- per annum and performance bonus of Rs. 1,500,000/- per annum with annual increments (which in accordance with the Rules of the Company is 1st April of every year) up to maximum of 100% with liberty to the Board of Directors to sanction any further increase over and above the 100% as it may in its absolute discretion determine.

II. Perquisites: a. Allowances like Medical Reimbursement/Allowance for self and family, Leave Encashment, Leave Travel Concession, Admission and Personal Accident Insurance and Health Insurance etc. are in accordance with the rules of the Company. b. Free use of the Company’s car and Free Communication Facilities for official purposes. c. Reimbursement of expenses actually incurred by him for the business of the Company.

Mr. Suresh Gurumani will not be entitled to any sitting fees for attending the Meetings of the Board or of any Committee thereof.

The aforesaid reappointment and remuneration payable to Mr. Suresh Gurumani may be further varied, altered or modified as may be agreed to by the Board of Directors and Mr. Suresh Gurumani, in the light of any amendment/modification of the Companies Act, 1956, or any re- enactment thereof within the limits provided under the Companies Act, 1956.

Mr. Suresh Gurumani is a Chartered Accountant and has exposure and experience in various divisions/functions of your Company with varied professional expertise. Mr. Suresh Gurumani is a banking veteran with 22 years of valuable experience. He has a keen understanding of pan- India consumer market, emerging opportunities and profitability models. At Barclays, he launched retail banking and in less than a year’s time Barclay’s retail banking achieved leadership position in personal and business loans, mobile banking for mass segment and NRI services. He was also instrumental in launching Barclays Finance, an NBFC with 120 branches across 40 cities to create alternate distribution channels. Your Directors consider that it would be appropriate and desirable to appoint him as his rich experience will be beneficial to the Company.

The Board of Directors of the Company recommends the Ordinary Resolution set out in the Item No. 10 of the Notice for approval of the Shareholders.

Except Mr. Suresh Gurumani, who is interested in his appointment, no other Director of your Company is concerned or interested in the said Resolution,

This may be treated as an abstract of the Agreement between the Company and Mr. Suresh Gurumani, pursuant to Section 302 of the Act.

ITEMS NOS. 11 AND 12:

The current Authorized Share Capital of the Company is Rs. 95,00,00,000/- (Rupees Ninety Five Crore only) divided into 8,20,00,000 (Eight CroreTwenty Lakh) equity shares of Rs. 10/- (Rupees Ten Only) each, and 1,30,00,000 (One Crore Thirty Lakh) Preference shares of Rs. 10/- (RupeesTen) each, whether convertible or non-convertible.

Your Company is proposing to capitalize its Securities Premium Account by issue of Bonus Shares. To accommodate the issue of the BonusShares, it is necessary for the Company to increase its current Authorized Share Capital from existing Rs. 95,00,00,000/- (Rupees Ninety FiveCrore only) divided into 8,20,00,000 (Eight Crore Twenty Lakh) equity shares of Rs. 10/- (Rupees Ten only) each and 1,30,00,000 (One CroreThirty Lakh) Preference shares of Rs. 10/- (Rupees Ten only) each, whether convertible or non-convertible, to Rs. 163,00,00,000/- (Rupees OneHundred Sixty Three Crore only) divided into 15,00,00,000 (Fifteen Crore) Equity shares of Rs. 10/- (Rupees Ten only) each and 1,30,00,000 (OneCrore Thirty Lakh) Preference shares of Rs. 10/- (Rupees Ten only) each, whether convertible or non-convertible..

The Board of Directors at their meeting held on 29th July, 2009, approved the proposal for increase in the Authorized Share Capital of the Companyand consequential amendments to the Memorandum and Articles of Association of the Company.

Increase in Authorized Share Capital would necessitate amendment to the Clause V of the Memorandum of Association and Article 5.1 of theArticles of Association of the Company and the said increase of Authorized Share Capital and amendments to Memorandum and Articles requireapproval of Shareholders by way of an Ordinary Resolutions and Special Resolution respectively.

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The Board of Directors of the Company recommends the Resolutions set out in the Item Nos. 11 and 12 of the Notice for approval of theShareholders.

The draft of the altered set of the Memorandum and Articles of Association is available at the Registered Office of the Company for inspection ofmembers during business hours on all working days.

None of the Directors of your Company is concerned or interested in the said Resolution.

ITEM NO. 13:

Considering the advantages of issuing/converting the shares of the Company in electronic form, the Company proposes to dematerialize the sharesof the Company by inserting enabling provisions in the Articles of Association of the Company. Pursuant to provisions of Section 31 and otherapplicable provisions of the Companies Act, 1956, amendment to the Articles of Association necessitates approval of Shareholders of the Company by way of a Special Resolution.

The Board of Directors of the Company recommends the Resolution set out in the Item No.13 of the Notice for approval of the Shareholders.

The draft of the altered set of the Articles of Association is available at the Registered Office of the Company for inspection of members duringbusiness hours on all working days.

None of the Directors of your Company is concerned or interested in the said Resolution.

ITEM NO. 14:

In order to attract qualified and skilled professionals in the field of microfinance, to motivate the employees of the Company with incentives andreward to create a sense of ownership and participation amongst the Senior Employees of the Company and as an appreciation of their contribution and for continuous support to the Company, and also to retain existing professional(s), it is proposed to introduce the Employee Stock Option Plan(ESOP) 2009 (“ESOP-2009”) subject to the provisions of applicable law, rules, regulations and guidelines for the time being in force.

The details as required under Rule 6 of the Unlisted Public Companies (Preferential Allotment) Rules, 2003 (the “Rules”) are as follows:

a) The price or price band at which the allotment is proposed: The exercise price at which the equity shares will be issued against the Options granted under the ESOP-2009 will be determined by the Board/Compensation Committee as per the ESOP-2009 and in accordance with the applicable laws but it shall not be lower than the face value of the equity shares to be issued.

b) The relevant date on the basis of which price will be arrived at will be determined by the Board/Compensation Committee.

c) The object/s of the issue through preferential offer: In order to attract qualified and skilled professionals in the field of microfinance, to motivate the employees of the Company with incentives and reward, to create a sense of ownership and participation amongst the senior employees of the Company and as an appreciation of their contribution and for continuous support to the Company, and also to retain existing professionals.

d) The class or classes of persons to whom the grant/allotment is proposed to be made: Employees in permanent employment of the Company, including, Directors of the Company, whether working in India or outside India

e) Intention of promoters/directors/key management persons to subscribe to the offer: The promoters/directors/key management persons do intend to participate in the ESOP-2009.

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Category No. of Shares Percentage (%)

Promoter(s) & Investors 55,721,521 96.79

Employees & Employee Welfare Trust 1,849,750 3.21

Total 57,571,271 100.00

After the Offer (and assuming exercise of all the Options under ESOP-2009):

Category No. of Shares Percentage (%)

Promoter(s) & Investors 55,721,521 95.91

Employees & Employee Welfare Trust 2,377,500 4.09

Total 58,099,021 100.00

PREFERENCE SHAREHOLDING PATTERN

Before and after the Offer (there will be no change in the preference share capital):

Category No. of Shares Percentage (%)

Promoter(s) & Investors 9,155,625 100.00

Employees Employee Welfare Trust NIL NIL

Total 9,155,625 100.00

f) Shareholding pattern of promoters and others classes of shares before and after the offer:

EQUITY SHAREHOLDING PATTERN

Before the Offer:

g) Proposed time within which the allotment shall be completed: The Compensation Committee may, from time to time, but within 12 (Twelve) months from the passing of the special resolution, make Grants to one or more Employees (including directors, whether a whole-time director or not), which shall include recurring grants to the same Employees.

h) Whether a change in control is intended or expected: No change in control is intended or expected through the ESOP-2009.

The main features of ESOP-2009 and Information as required under clause 6.2 of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are given below:

a) Total number of Options to be granted:

Options for up to 5,27,750 (Five Lakh Twenty Seven Thousand Seven Hundred and Fifty only) Equity Shares of Rs. 10/- each would be available for being granted to eligible employees (including, Directors of the Company, whether working in India or outside India) of the Company and its future subsidiaries under ESOP-2009. Each option when exercised would be converted into 1 (One) Equity Share of Rs. 10/- each fully paid up.

Vested Options that lapse due to non-exercise or unvested Options that get cancelled due to resignation of the employees or otherwise, would be available for being re-granted at a future date.

SEBI Guidelines require that in case of any corporate action(s) or change in capital structure such as rights issues, bonus issues, sub-division or consolidation of the nominal value of shares, merger and sale of division and others, a fair and reasonable adjustment needs to be made to the Options granted. Accordingly, if any additional Equity Shares are required to be issued for making such fair and reasonable adjustment,

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the ceiling of 5,27,750 (Five Lakh Twenty Seven Thousand Seven Hundred and Fifty only) Equity Shares shall be deemed to be increased to the extent of such additional equity shares issued/to be issued. Further the Board and/or Compensation Committee shall in such cases also have the power to make appropriate adjustments to the number of shares to be allotted pursuant to the exercise of the Options, the Exercise price and other rights and obligation under the Options granted.

b) Identification of classes of employees entitled to participate in the ESOP-2009: All permanent employees of the Company and its subsidiary companies, including the Directors thereof, whether in whole time employment or not and whether working in India or outside India, but excluding the Promoters of the Company or persons belonging to the Promoter Group, as may be decided by the Board/Compensation Committee from time to time, would be entitled to be granted Options under the ESOP-2009.

c) Transferability of employee stock options: The stock options granted to an employee will not be transferable to any person and shall not be pledged, hypothecated, mortgaged or otherwise alienated in any manner. However, in the event of the death or permanent disability of an employee stock option holder while in employment, the right to exercise all the Options granted to him till such date shall be transferred to his nominees/legal heirs.

d) Requirements of vesting and maximum period under which Options can be vested: The Options granted shall vest so long as the employee continues to be in the employment of the Company. The Compensation Committee may, at its discretion, lay down the period of time and/or specify certain performance metrics on the achievement of which the granted Options may vest (subject to the minimum vesting period as specified below). The vesting of the Options may also happen in trenches in accordance with the above-mentioned conditions.

The Options would vest not earlier than 1 (One) year but not later than 5 (Five) years from the date of grant of Options. The exact proportion in which and the exact period over which the Options would vest would be determined by the Board/Compensation Committee, subject to the minimum vesting period of 1 (One) year from the date of grant of Options and may be customized for individual employees.

e) Exercise Price or Pricing Formula: The exercise price shall be decided by the Board of Directors and/or Compensation Committee which shall be in accordance with the SEBI Guidelines and other applicable laws, as applicable, and which shall not be less than the face value of the Shares to be issued upon exercise of the Options.

The Company shall be entitled to recover from the employee any tax that may be levied upon or in relation to the Options.

f) Exercise Period and the process of Exercise:

The Exercise period would commence from the date of vesting and will expire on completion of a period of up to 5 (Five) years from the date of grant of the Options. The Options shall become exercisable in part or in full within the overall exercise period permitted under the ESOP- 2009.

The Options will be exercisable by the Employees by a written application to the Company to exercise the Options in such manner, and on execution of such documents, as may be prescribed by the Board/Compensation Committee from time to time. The Options will lapse if not exercised within the specified exercise period and would be available for being re-granted in future.

g) Appraisal Process for determining the eligibility of the employees to ESOP: The appraisal process for determining the eligibility of the employee will be specified by the Board/Compensation Committee, and will be based on criteria such as role/designation of the employee, length of service with the Company, past performance record, future potential of the employee and/or such other criteria that may be determined by the Compensation Committee at its sole discretion.

h) Maximum number of Options to be issued per employee and in aggregate: The aggregate number of Options/underlying Shares that may be granted under the ESOP-2009 shall not exceed 5,27,750 (Five Lakh Twenty Seven Thousand Seven Hundred and Fifty only) Equity Shares. Further, Options under each Grant to an Employee shall not exceed 0.5% of the total issued and paid-up equity capital of the Company in any year provided that the aggregate number of Options granted per employee under the total tenure of the plan in any case shall not exceed 1% of the total issued and paid-up equity capital at the time of grant of Options.

i) Maximum number of Options to be granted to non-executive Directors (including independent directors) in any financial year and in aggregate:

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The number of Options that may be granted to any non-executive Director (including any independent director) in any financial year under ESOP-2009 shall not exceed 0.5% of the issued and paid-up capital and in aggregate under the total tenure of the plan shall not exceed 1% of the total issued and paid up capital of the Company at the time of grant of Options.

j) Accounting Policies: The Company shall comply with the disclosure and the accounting policies as specified in Schedule I referred to in clause 13.1 of SEBI Guidelines.

k) Method of option valuation: To calculate the employee compensation cost, the Company shall use the Intrinsic Value Method for valuation of the Options granted.

In case the Company calculates the employee compensation cost using the Intrinsic Value of the stock options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the Fair Value of the Options, shall be disclosed in the Directors’ Report and also the impact of this difference on profits and on EPS of the Company shall also be disclosed in the Directors’ Report.

The certificate issued by M/s. Ravi & Subramanyam, practicing Company Secretaries, in accordance with the above Rules is available at the Registered Office of the Company for inspection of members during business hours on all working days.

The proposed offer, issue and allotment of Options/Shares to the Employees of the Company under the ESOP-2009 shall be effective subject to the approval of the Shareholders of the Company by way of a special resolution in accordance with the provisions of Sections 81 and 81(1A) of the Companies Act, 1956 read with the Unlisted Public Companies (Preferential Allotment) Rules, 2003 and the provisions of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.

The draft of the ESOP-2009 is available at the Registered Office of the Company for inspection of members during business hours on all working days.

The Board of Directors of the Company recommends the Resolutions set out in the Item No. 14 of the Notice for approval of the Shareholders.

Save and except the Directors, who would be offered ESOP-2009, none of the other Directors are concerned or interested in the said Resolution.

ITEM NO. 15:

The Company proposes to make preferential issue of 20,883 (Twenty Thousand Eight Hundred Eighty Three only) Equity Shares of the face value ofRs. 10/- (Rupees Ten only) each for cash at a premium of Rs. 290/- (Rupees Two Hundred and Ninety only) per share aggregating Rs. 62,64,900/-(Rupees Sixty Two Lakh Sixty Four Thousand Nine Hundred only).

The details as required under Rule 6 of the Unlisted Public Companies (Preferential Allotment) Rules, 2003 (the “Rules”) are as follows:

a) The price or price band at which the allotment is proposed: The allotment of equity shares of face value of Rs. 10/- each is proposed to be made at a price of Rs. 300/- per share (including premium of Rs. 290/- per share).

The relevant date on the basis of which price has been arrived at is 29th July 2009.

b) The object/s of the issue through preferential offer: The object of the preferential issue is to motivate the employees of the Company with incentives, to create a sense of ownership and participation amongst the senior employees of the Company, and to appreciate their contribution to the growth of the Company.

c) The class or classes of persons to whom the grant/allotment is proposed to be made: Employees in permanent employment of the Company, including the Managing Director and CEO of the Company are proposed to be allotted the shares under the preferential issue.

d) Intention of promoters/directors/key management persons to subscribe to the offer: The senior employees and the Managing Director and CEO of the Company do intend to subscribe to the offer.

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e) Shareholding pattern of promoters and others classes of shares before and after the offer:

EQUITY SHAREHOLDING PATTERN Before the Offer:

f) Proposed time within which the allotment shall be completed: The allotment will be completed within 12 (Twelve) months from the passing of the special resolution.

g) Whether a change in control is intended or expected: No change in control is intended or expected through the proposed preferential issue of equity shares.

The certificate issued by M/s. Ravi & Subramanyam, practicing Company Secretaries, in accordance with the above Rules is available at the Registered Office of the Company for inspection of members during business hours on all working days.

The proposed offer, issue and allotment of equity shares will require approval of the Shareholders of the Company by way of a special resolution in accordance with the provisions of Sections 81 and 81(1A) of the Companies Act, 1956, read with the Unlisted Public Companies (Preferential Allotment) Rules, 2003.

The Board of Directors of the Company recommends the Resolutions set out in the Item No. 15 of the Notice for approval of the Shareholders.

Category No. of Shares Percentage (%)

Promoter(s) & Investors 55,721,521 96.79

Employees & Employee Welfare Trust 1,849,750 3.21

Total 57,571,271 100.00

After the Offer (without considering the conversion of Options granted under ESOP-2009 into equity shares):

Category No. of Shares Percentage (%)

Promoter(s) & Investors 55,721,521 96.75

Employees & Employee Welfare Trust 1,870,633 3.25

Total 57,592,154 100.00

After the Offer (and assuming exercise of all the Options granted under ESOP-2009 into equity shares)

Category No. of Shares Percentage (%)

Promoter(s) & Investors 55,721,521 95.87

Employees & Employee Welfare Trust 2,398,383 4.13

Total 58,119,904 100.00

PREFERENCE SHAREHOLDING PATTERN

Before and after the Offer (there will be no change in the preference share capital):

Category No. of Shares Percentage (%)

Promoter(s) & Investors 9,155,625 100.00

Employees & Employee Welfare Trust NIL NIL

Total 9,155,625 100.00

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Save and except Mr. Suresh Gurumani, Managing Director and CEO of the Company, who is one of the proposed allottees, none of the other Directors are concerned or interested in the said Resolution.

ITEM NO.16:

The current level of Reserves & Surplus as appearing in the Books of the Company as at 31st March, 2009 is nearly 11.06 times of the paid- upequity capital of the Company. Considering this position of Reserves & Surplus, to capitalize the Reserves of the Company and in order to bring thepaid-up capital of the Company more in line with the capital employed, the Board of Directors at its meeting held on 29th July, 2009, recommendedan issue of Bonus Shares in the proportion of 1 (One) new Equity Share of the Company of Rs. 10/- each for every 1 (One) existing Equity Share ofthe Company of Rs. 10/- each held by the Members on the Record date to be fixed by the Board, by capitalizing a part of the Securities PremiumAccount.

It has been proposed to Issue Bonus Shares in proportion of 1 (One) equity shares for every 1 (One) equity share held by the Members on a Record date to be fixed by the Board of Directors, by capitalizing such sum standing to the credit of the Company’s Securities Premium account anddistribution of the sum so capitalized.

The existing SKS Microfinance Employee Stock Option Plan - 2007, SKS Microfinance Employee Stock Option Plan - 2008 and SKS MicrofinanceStock Option Plan - 2008, have been approved by the Members vide Resolutions dated 8th September, 2007, 8th November, 2008 and 16th January,2008 respectively and the SKS Microfinance Employee Stock Option Plan - 2009 being approved by the Members at this Meeting as Item No. 14 inthis Notice. The Compensation Committee (as constituted for supervision and administration of ESOP Plans of the Company) and/or the Board ofDirectors of the Company be and are hereby severally authorized, inter-alia, to adjust the Options that are granted or to be granted to the Employeesor Directors of the Company under the above said plans up to the ‘Record Date’ as may be declared by the Board of Directors, at its discretion as to the number, price of Options or Shares, the time period of vesting or exercise as the case may be in equal or appropriate proportion to the ratio ofbonus shares to be issued to the members of the Company. The Compensation Committee/Board may, if deems fit, make fair and reasonableadjustments to the number of options granted and their exercise price, subject to the approval of the Members.

In order to facilitate the capitalization of reserves as set out in the Resolution at Item No. 16, the Board of Directors of the Company recommendsthe Resolution for approval of the Shareholders.

Excepting to the extent of their respective shareholdings, if any, none of the Directors of your Company is concerned or interested in the said Resolution.

By order of the Board of Directors, For SKS Microfinance Limited

SD/-Place : Secunderabad Manish KumarDate : 29th July 2009 Dy. Company Secretary

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SKS MICROFINANCE LIMITEDRegd. Office: “Maruti Mansion”, Municipal No. 2-3-578/1, Kachi Colony, Nallagutta, Minister Road, Secunderabad - 500 003

ATTENDANCE SLIP

PLEASE COMPLETE THIS ATTENDANCE SLIP AND HAND OVER AT THE ENTRANCE OF THE MEETING VENUE (Folio No./No. of Shares, name andaddress of the member/joint holder(s) in BLOCK LETTERS to be furnished below):

I hereby record my presence at the Sixth Annual General Meeting of the Company held on Wednesday, 30th September 2009, at 11:30 a.m. at“Maruti Mansion” Municipality No.2-3-578/1, Kachi Colony, Nallagutta, Minister Road, Secunderabad - 500 003.

____________________ Signature of the Member / ProxyNote: I. Member(s)/Proxy(ies) are requested to bring the Attendance Slip duly signed and filled in at the Meeting and hand it over at the gate. II. Members attending the Meeting are requested to carry their copy of the Annual Report.

SKS MICROFINANCE LIMITEDRegd. Office: “Maruti Mansion”, Municipal No. 2-3-578/1, Kachi Colony, Nallagutta, Minister Road, Secunderabad - 500 003

PROXY FORM

(Folio No., name and address of the member/joint holder(s) in BLOCK LETTERS to be furnished below):

I/We (Name/s) _______________________________________________________________________________ of (Address) __________

___________________________________________________ being a Member/Members of SKS Microfinance Limited hereby appoint (Name)

__________________________________________________________ of (Address) ___________________________________________

_________________________ or failing him/her (Name) __________________________________ of (Address) ______________________

________________________ as my/our proxy to vote for me/us and on my/our behalf at the Sixth Annual General Meeting of the Company held

on Wednesday, 30th September 2009, at 11:30 a.m. and at any adjournment thereof.

Signed this _________day of _____________________2009.

Signed by the said proxy _________________________________

Note : The proxy form should be deposited at the Registered Office of the Company not less than 48 hours before the time for holding the Meeting.

Affix Revenue Stamp ofRs. 1 and

sign across

FOLIO NO : NO. OF SHARES :

NAME OF MEMBER / PROXY :

ADDRESS :

FOLIO NO : NO. OF SHARES :

NAME OF MEMBER / PROXY :

ADDRESS :

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Crafting her FutureMamatha is a resident of the little toy town of Nirmal in Adilabad district, in Andhra Pradesh state. When she married a toy maker, Mamatha learnt how to shape wood into colorful birds, animals, fruits and dolls. Using tamarind seeds, saw dust, gum, paint and varnish, Mamatha creates these bright, alluring toys that are popular even overseas. She first borrowed money from SKS in 2003 and has steadily proven her artistic and business skills. Today she supplies to stores in Karimnagar, Hyderabad and Warangal and earns between Rs.8,000 to Rs.10,000 per month.