SKS Microfinance continues to dominate the news, and as usual none of it is positive. Last week analysts even began recommending shorting the stock.

The year began on an optimistic note for SKS, hoping to continue to distance themselves from the grisly suicides of borrowers in Andhra Pradesh in 2010. They have been publicly blamed for harassing borrowers for repayment and practicing usury. While the company has desperately tried to remove themselves from the state over the past year, new reports provide a rather damning insight into the interactions of SKS agents and those ill-fated borrowers.

As if that wasn’t enough heat to deal with, Muhammad Yunus recently blamed the entire collapse of the microfinance industry in Andhra Pradesh squarely on the shoulders of SKS.

I think it’s safe to say that SKS has effectively shown how not to take a MFI public. While I’m not fully convinced it is impossible to take an MFI public (case in point: Banco Compartamos), SKS has shown the difficulty of doing business at the Bottom of the Pyramid.

So is this problem bigger than SKS?

Tamal Bandyopadhyay from LiveMint argues that the bottoming out of microfinance in Andhra Pradesh has caused the industry in India to shrink by half. How can this possibly be remedied?

According to Vijay Mahajan, founder and chairman of Basix social enterprises group, India’s oldest MFI, who also took part in the discussion, MFIs should be allowed to sell other financial products such as insurance and mutual funds.

Besides, they need access to small deposits. Currently, MFIs only give money to borrowers but they are not allowed to raise deposits. Unless and until they are allowed access to small deposits, their cost of money will remain high as banks and they will not be able to bring down the cost of tiny loans that they offer to poor people.

But [the senior most deputy governor of the Reserve Bank of India (RBI)] is firm that MFIs cannot sell every financial product available in the market without being overseen by the respective regulators. He is also categorical that MFIs will never be allowed to accept deposits—if they want to do so, they must convert themselves into banks.

The cost of money being what it is, it is becoming increasingly difficult to remain profitable as a MFI in India. This is where an organization like Kiva would provide a huge value proposition to Indian MFIs. Kiva provides the loans at 0% interest to the MFI, thereby saving them the cost of borrowing.

This instant savings can truly add up…if only India would allow Kiva in. Despite attempts for the past 4 years, Kiva still does not have a license to partner with Indian MFIs. As the situation gets more dire, the government may be forced to revisit their position on organizations like Kiva. The status quo is not sustainable.

Is Kiva the breath of fresh air that could save Indian Microfinance? We’ll see…but something must be done, as MFIs need help. Fast.

- Chris