In 2007, when Mexico-based microfinance institution (MFI) Banco Compartamos announced plans to go public, its critics were unforgiving. Some like Mohammad Yunus, the Nobel prize-winning founder of Bangaldesh’s Grammen Bank, blasted it for chasing profits at the cost of its social objectives.
As SKS Microfinance, India’s largest MFI, looks to sell shares to the public, its critics have been as unforgiving. But Vikram Akula, founder-chairman of SKS is unfazed.
“Professor Yunus’ view is that microfinance should be a social business — no profit no loss. We have a different view. My view is that if you are trying to raise $50 billion in the Indian market, even if you have the charisma that Yunus has, you still can’t raise that kind of capital from social investors. The only way is through commercial capital markets and for that you need to be not just profitable but highly profitable,” says Akula.
SKS started out in 1997 as Swayam Krishi Sangam, a public society based in Andhra Pradesh. After operating for seven years as an NGO, SKS decided to shed its not-for-profit tag and created a private company, SKS Microfinance Private Limited in 2003, which became a Non-Banking Financial Company (NBFC) in 2005.
SKS Microfinance plans to sell 16.79 million shares in its initial public offering (IPO) thereby diluting 12-13 per cent of its share capital. The firm plans to issue 7.44 million fresh shares while the rest will be sold by existing stakeholders Sequoia Capital, SKS Capital, Mauritius Unitas Corporation (MUC) and Mutual Benefit Trusts.
The firm plans to do the issue in July, subject to regulatory approval.
The last large transaction in SKS shares was in February, when Vikram Akula sold a part of his stake to Tree Line Asia at Rs 637 per share.
So how will SKS balance the profit expectations of shareholders with its social objective?
“We don’t think there is a conflict in terms of the way we run our business. Our customers are the poorest people in India and our view is that we are getting that person out of poverty and that is our primary objective. We think, incidentally, that it results in huge profits,” says Akula.
A frequent criticism of MFIs is that the interest rates they charge customers are too high. But Akula is opposed to either self-imposed or external caps on interest rates.
“We ourselves have dropped interest rats twice since we became an NBFC. We fundamentally disagree with a cap — whether a cap from the state or self-imposed. The best way to lower the price is to have competition and nto to do it artificially. Having said that we are within 10 per cent over our cost of operations, but we reject that framework,” says Akula.
