SKS Microfinance plans to raise $350m in IPO

SKS Microfinance, India’s largest lender to the poor, aims to raise about $350m this month by selling a 21.6 per cent stake in an initial public offering expected to spark a wave of listings by equity-strapped Indian microfinance companies.

SKS will be one of the biggest microfinance companies to go public since the controversial 2008 share offering of Mexico’s Compartamos tore the close-knit world of global microfinance institutions apart with a soul-searching debate about the ethics of profiting from the poor.

Microfinance was born in the 1970s as an idealistic effort to provide small loans to the rural poor to save them from the clutches of traditional moneylenders.

Muhammad Yunus, the Nobel Peace Prize-winning founder of Bangladesh’s Grameen Bank – the world’s most famous microlender – has criticised the commercialisation of the industry, saying profit-oriented microlenders are little different to the loan sharks they once set out to replace.

However, Vikram Akula, the former McKinsey consultant who founded SKS, says Indian microfinance companies must go public if they are to meet the huge unmet demand for more affordable credit from the poor, a market he estimates to be worth about $50bn.

“The view of Professor Yunus is that microfinance should be a social business – no profit, no loss,” he said.

“We feel the only way to get $50bn is to go to the commercial capital markets and the only way to convince them to back you is not to be profitable, but very profitable.”

Mr Akula said SKS, which says it has 7m borrowers in 19 Indian States, also plans to boost its revenues through alliances with large companies to distribute their products – such as mobile phones and water purifiers – even as it provides rural consumers with the microloans needed to buy the items.

The microlender has already been running pilot projects with Nokia, the world’s largest handset maker, Unilever, the Anglo-Dutch consumer goods company, and Bajaj Allianz, the insurer, to distribute their goods and services, although Mr Akula said such lending represented a tiny fraction of its outstanding $960m loan portfolio.

“We have built a large distribution network in rural India,” said the SKS founder.

“We believe we can leverage this network to distribute financial products of other institutions to our members at a cost lower than other institutions”.