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A Microfinance IPO in India


SKS, India's top lender to the poor, may trigger a spate of IPOs in microlending—though how much the poor would benefit is an open question

For years, advocates for the poor have promoted microfinance—small loans for entrepreneurs in the rural areas of Latin America, Africa, and Asia. In 2006, Muhammad Yunus and his Grameen Bank won the Nobel Peace Prize for popularizing the idea. Now businessman Vikram Akula is betting that microfinance is good for investors, too.

Akula, an ex-McKinsey & Co. consultant, is founder and chairman of SKS Microfinance, India's largest microlender. It recently filed to raise up to $250 million in an initial public offering to be listed on the Bombay Stock Exchange and the National Stock Exchange of India. SKS will be the first Indian microfinance lender to go public. Among its backers are venture capital firm Sequoia Capital and Catamaran Management Services, a fund run by N.R. Narayana Murthy, co-founder of outsourcing giant Infosys (INFY).

The prospectus reports that SKS earned $18 million in the fiscal year ending March 2009 on a loan portfolio of $320 million. For first-time borrowers, SKS lends amounts of $20 to $260 at annual interest rates of 26.7 percent to 31.4 percent. Akula declined to comment, citing the quiet period ahead of the IPO, which will be managed by Citigroup (C), Credit Suisse (CS), and local bank Kotak Mahindra.

In India, microlending grew at an estimated 45 percent clip in the year ended March 2010, according to Micro-Credit Ratings International in Gurgaon, India. The World Bank's International Finance Corp., which helps private companies, has invested a total of $1.3 billion in microfinance firms. "It's a big business," says Matthew Gamser, principal of IFC advisory services in Hong Kong.

Not everyone is happy about that. "There is soul-searching in the microfinance industry now," says Jennifer Meehan, Asia chief executive officer for the Grameen Foundation. "When the headline becomes 'Foreign Commercial Investors Making Money from the Poor,' that worries those of us who care about microfinance as a way to move people out of poverty." Critics point to Banco Compartamos, the Mexican microlender that raised $467 million in a 2007 IPO. The bank, which activists claim lends at excessively high interest rates, saw its stock price double over the past year and its market cap hit $2.5 billion. (A Compartamos spokesman says the bank has 1.5 million clients and $633 million in outstanding loans, which average $450. It charges average annual interest of 68%.)

SKS's IPO, expected this summer, has largely escaped criticism. Industry pioneers expect more such offerings if the IPO succeeds, and some worry the pressure to boost profits will push microlenders away from their traditional customers. Says David S. Gibbons, chairman of Cashpor, a microlender in Varanasi, India: "The danger is the poor will be left out."

The bottom line: SKS's IPO may trigger a spate of public offerings in microfinance. How much the poor will be helped is a subject of debate.

With Ruth David

Einhorn is Asia regional editor in Bloomberg Businessweek's Hong Kong bureau.

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