SKS Microfinance

Mar 19, 2020

Aug. 16, 2010 MUMBAI, India — The first microfinance company to sell stock to the public in India got a strong endorsement from investors on Monday when its shares closed up 10.5 percent on the first day of trading. The strong showing for the company, SKS Microfinance, is expected to encourage other lenders to the poor to prepare initial public offerings, analysts said. The offering is also likely to stoke an already fierce debate about whether microfinance companies, many of which like SKS started as nonprofit organizations, should earn substantial profits by making high-interest loans to the poor. SKS, which makes loans to women in rural India, raised more than $350 million in its public offering, one of the most successful in the country this year. It sold 16.8 million shares at 985 rupees ($21) earlier this month; the shares closed Monday at 1,088.65 rupees on the National Stock Exchange of India. “There was a lot of demand for the stock because of its novelty value,” said Pankaj Agarwal, an analyst at the securities firm Execution Noble. “There is no doubt about it: the success of this I.P.O. will bring more I.P.O.’s.” Analysts say a handful of fast-growing Indian microfinance companies like Spandana Sphoorty Financial and Share Microfin could quickly follow SKS in selling shares to the public. Image SKS Microfinance lends to rural women, like this bangle vendor, to help them earn money.Credit...Adeel Halim/Bloomberg News Globally, SKS is one of five microfinance companies and banks to have publicly listed shares. The other four are Bank Rykat of Indonesia, BRAC Bank of Bangladesh, Compartamos Banco of Mexico and Equity Bank of Kenya. India has been a particularly fertile ground for microfinance loans because its formal banking system does not reach much of its population. A study a few years ago found that just 40 percent of the country’s households have a bank or postal savings account. Furthermore, Indian banking rules require that 40 percent of every bank’s loan portfolio be in “priority sectors” — a requirement that banks can meet in part by lending money to and buying loans from microfinance companies like SKS. That has made it relatively easy for Indian microfinance companies to raise the money they need to make loans. SKS, which became a for-profit company in 2003, has grown at an incredible pace since 2006. As of March, it had $634 million in loans outstanding, up from $306 million just 12 months earlier. Moreover, the company said less than 1 percent of its loans were delinquent. Several prominent investors like Vinod Khosla, George Soros and Sequoia Ventures have invested in SKS over the years, attracted by its mission of eradicating poverty in India, strong growth and enviable profit margins — 18 percent in its last fiscal year. But the lender has also been dogged by controversy , including questions about how the two nonprofit groups that provided money to help establish the for-profit SKS would spend the wealth that they earned from shares they sold in the public offering and shares they still own. Mr. Agarwal and other analysts are also concerned about how well SKS and other microfinance companies will maintain their low delinquency rates and high growth rates. Some analysts and researchers worry that intense competition among lenders could lead to substantially higher defaults. Advertisement