MICROCAPITAL STORY: SKS Microfinance Raises $75.4m in Equity Capital in Transaction Led by Sandstone Capital

SKS Microfinance Pvt. Ltd. has announced the closing of a fourth round of equity financing in which it raised Rs 366 crore, approximately USD 75.4 million. The transaction was led by Sandstone Capital, a U.S. hedge fund based in Boston, MA. Also participating in the transaction were existing investors Kismet Capital and SVB India Capital Partners, an affiliate of Silicon Valley Bank. Edelweiss Capital was the investment banker to the issue.

“The fact that this investment has come during the global economic meltdown is proof of the confidence that investors have in SKS-and more importantly of the resilience and entrepreneurial abilities of the poor not only to survive in today’s economic crisis but actually to prosper because the poor are largely de-coupled from global trends,” stated Vikram Akula, Founder and CEO of SKS Microfinance.

Including the most recent transaction, SKS Microfinance has raised over USD 100 million in four equity capital raises since March 2006. In addition, as MicroCapital reported in February, SKS sold USD 44 million of its loan portfolio to Citigroup as another way to generate liquidity. The company has used the proceeds of these transactions to fund its rapid growth. As discussed in this June 2008 MicroCapital Story, SKS experienced exponential growth in 2007 as its loan portfolio grew 300 percent. In 2008, this trend has continued. As of March 31, 2008, total borrowers had grown year over year by 218 percent to 1.6 million. The loan portfolio grew 314 percent to USD 261.7 million over the same period. SKS has a presence in over 20,000 Indian villages across 15 states in India with an employee base of 5,800. The company is targeting 15,000 employees and 5 million borrowers by mid-2009. During a recent conference call, Mr. Akula said that SKS seeks to have USD 1.8 billion in loans outstanding by March 2011. Akula estimates that in order to accommodate this level of growth, the company would need to expand to 24,000 employees and 2,400 branches.

Sequoia Capital, Vinod Khosla, SIDBI, Unitus,and Columbia Ventures Corporation are among the existing equity partners of SKS Microfinance. SKS borrowers, represented by Mutual Benefit Trusts, are also one of the largest shareholder groups in the company. After the third equity transaction closed in January 2008, it was announced that Sequoia Capital’s investment included an exit clause which requires that within 3-5 years, SKS will either have an initial public offering (IPO) or be acquired. This would add SKS Microfinance to the very short list of microlenders that have completed IPOs. To date, three have occurred: Bank Rakyat Indonesia (BRI ) in 2003, Equity Bank Kenya in 2006, and Banco Compartamos in 2007. As discussed in this MicroCapital Story the Banco Compartamos IPO generated a significant amount of controversy over the balance between social and economic profit in the microfinance industry.

Established in 1998 as a non-profit organization, SKS was converted to a for profit Non-Banking Finance Company (NBFC) in January 2005. NBFCs are regulated by the Reserve Bank of India. The company operates on three inter-linked principles to scale microfinance: using a for-profit methodology to access capital, drawing on best practices from the business world to speed growth, and deploying technology to overcome high delivery costs.

Sandstone Capital is an India-focused hedge fund based in the U.S. No additional information could be found about Sandstone Capital.

By Iyanna Holmes, Research Assistant

Additional Resources:

CNBC: Sequoia Invests $11.5 Million in Microfinance Fund

Growth of Indian Microfinance: A Case-Study-Based Review of Trends and Challenges

The Financial Express: SKS Microfinance Raises $75mn

Forbes.com: Vinod Khosla

IndiaEarnings.com: SKS Microfinance Raises Rs 147cr in 3rd Round Funding

MICROCAPITAL STORY: May 1, 2007, Breaking the Mould: Mexican Banco Compartamos Drags Microfinance into a Controversial New Era Despite the Kicking and Screaming; February 2, 2008, SKS Microfinance Raises $37 Million in Equity Sale; June 18, 2008, Indian SKS Microfinance Plans to Raise $30m in Equity

Morningstar: Sandstone Capital Buys Stake for INR3.66 Billion in SKS Microfinance

SKS Press Release: January 30, 2008, SKS Microfinance Raises Rs 147 Crore in 3rd Round Funding

VC Circle: Sequoia Capital Invests $11.5 Million in SKS Microfinance; IPO In 3-5 Years