SKS Microfinance – Why I am not investing

A “Social Enterprise” – that’s what SKS Microfinance was when it started operations.

But reading the media articles on the manner in which SKS Microfinance has managed its affairs in the run up to the IPO clearly makes a case for non-investment. Unfortunately, the only sources are the media and the IPO documentation. Neither provide a totally objective view of the situation, but I am feeling compelled to ignore this IPO for the following reasons :

First, I was appalled to learn that SKS offers loans with interest rates ranging from 26.7% to 31.4% to poor people in need of micro-loans (poor old folks such as farmers, basket weavers, shepherds, women workers in hazardous industries, rural folks who do not have access to bank loans). I really felt bad that SKS and similar microfinancing institutions (which is what they should be – “institutions” and not huge money making operations) are profiteering from the poor status of the borrowers and taking them for such a solid ride in an unsupervised and unregulated market. What is the RBI doing ? What is the government doing ? This is an usurious practice, which harks back to the days of money lenders, who exploited the poor people in need of urgent cash.

Secondly, the “non-profit” nature of the original set-up of SKS has been diluted and there is confusion about the role of the trusts who were the original investors. The manner in which some of the current investors have behaved in the run up to the IPO shows that greediness is back when it comes to profiteering from what is essentially a social enterprise.

Thirdly, I am not sure that SKS will be enduringly successful as an enterprise, unless the original founder and an impartial independent Board of Directors are in charge of the operation. This is not the case as the IPO filing document shows only one director who is from IIM Ahmedabad but nevertheless an old friend of the original founder. Again, a strong reason for loss of confidence by the investor community. Where is the IPO money going to flow – to the pockets of various individuals ? What about the future role of the trusts that were involved ? What are they going to do with the money which they will get from the IPO proceeds ?

Lastly, the price range fixed for the IPO launch is a reflection of the greediness. SKS Microfinance, in my opinion, is not worth that much for a share, notwithstanding the fact that it is probably the largest such micro-credit operation in the entire world.

And what does the Father of Microfinance have to say about the SKS Microfinance IPO ? Muhammad Yunus says “You are now encouraging the profit-maximising part, and the nonprofits are closing down”.

Well, there you have it. It does not matter to me whether SKS Microfinance’s IPO is over-subscribed so many number of times. It just is not the correct entity in this space to invest one’s hard-earned money. Period.

Have a relaxed weekend, folks.


Vijay Srinivasan
01 August 2010

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