According to an article in the Financial Times, Hyderabad-based SKS Microfinance, India´s largest microfinance institution (MFI), is taking steps toward becoming the first microfinance institution (MFI) to be listed on Indian stock exchanges. The initial public offering (IPO) could come as early as the start of 2010. Investment firms Citigroup, Credit Suisse and Indian-based Kotak Mahindra Capital will manage the USD 200 to 250 million listing [1].
SKS was founded by Mr. Vikram Akula in 1998 as a non-profit, transforming to a for-profit company in 2004 (for more on Mr. Akula, see MicroCapital’s Who’s Who In Microfinance: Vikram Akula article). The company has 5.3 million women members across 19 states, a disbursement record of USD 2.05 billion and loans outstanding of USD 671 million. In 2008, SKS grew by nearly 170 percent, with an on-time repayment rate of 99 percent [2, 3, 4].
Other investors in SKS include Silicon Valley-based Sequoia, which became the first venture capital to invest in microfinance with its USD 11.5 million investment in SKS in 2007; US-based Sandstone Capital, which invested USD 75 million in SKS in 2008; and Bajaj Allianz Life Insurance with a USD 10 million investment [2].
SKS is not the first MFI to go public; Mexico’s Compartamos raised USD 400 million in its 2007 listing and Tanzania’s National Microfinance Bank raised USD 184 million in its listing on the Dar es Salaam Stock Exchange last year [1, 5].
The decision to list SKS has received some skepticism, however, with critics arguing that in seeking profit maximization, SKS is straying from its social focus of extending financial services to the poor to help lift them out of poverty. Dr. Muhammad Yunus, founder of Grameen Bank, the largest MFI in the world with 8 million borrowers, addresses this concern by stating, “Of course MFIs can serve the poor and make huge profit, but I would not support it… In going for IPO, if SKS does not make it clear that they will make absolutely sure that their interest rate will not exceed 10 points over the cost of fund, I will get very worried.” Dr. Yunus refers to Compartamos, a Mexican MFI whose IPO and microfinance model he denounced for its “excessively” high interest rates, which at times have exceeded 100 percent [2, 6]. Grameen Telecom, a company that Dr. Yunus established, holds a 32 percent stake in Grameenphone, a Bangladesh-based telecommunications company that recently released plans for its own IPO, expected to take place this November (click here for MicroCapital coverage on Grameenphone’s IPO).
Others, including Mr. Akula, believe that commercial capital and profit maximization are necessary to reach a large scale of the world´s poor. “We have to scale more rapidly,” claims Mr. Akula, “and only commercial capital will meet our huge funding requirements. The only way to get that is to be not only profitable but extremely profitable.”
According to Crisil Ratings, the local affiliate of Standard & Poor’s, India has one of the most active markets for microfinance, with USD 8.65 billion in loan disbursements over the past five years. Out of nearly 300 million people living in poverty, approximately 21 million have received microloans. With the additional capital from its IPO, SKS expects to reach 15 million customers by 2012 [7].
By: Stefanie Rubin, Research Assistant
Bibliography:
[1] Financial Times: “Landmark Indian Listing by SKS Set to Broaden Microfinance Horizons” by Joe Leshy, October 9, 2009.
[2] Forbes.com: “At the Crossroads” by Shloka Nath, September 27, 2009, http://www.forbes.com/2009/09/25/crossroads-vikram-akula-sks-microfinance-suresh-gurumani-forbes-india.html
[3] MicroCapital.org: WHO´S WHO IN MICROFINANCE: Vikram Akula: https://www.microcapital.org/whos-who-in-microfinance-vikram-akula/
[4] SKS Microfinance Background: http://www.sksindia.com/background.htm
[5] MICROCAPITAL.ORG STORY: National Microfinance Bank (NMB) of Tanzania Releases Results of Oversold Initial Public Offering: https://www.microcapital.org/microcapital-story-national-microfinance-bank-nmb-of-tanzania-releases-results-of-oversold-initial-public-offering/
[6] BusinessWeek: “Online Extra: Yunus Blasts Compartamos”, December 13, 2007, http://www.businessweek.com/magazine/content/07_52/b4064045920958.htm
[7] CIA The World Factbook India: https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
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