MICROCAPITAL BRIEF: CGAP (Consultative Group to Assist the Poor) Labels IPO of Indian Microfinance Institution SKS "A Critical Transition"

A paper recently published by CGAP (Consultative Group to Assist the Poor) discusses how initial public offerings (IPOs) can shape the microfinance industry. In doing so, it highlights microfinance institution (MFI) SKS Microfinance, which has become the first in India to offer its shares through an IPO and the second pure MFI globally to do so, after Banco Compartamos of Mexico. The SKS IPO experienced success, having caught the attention of investors such as Morgan Stanley, JP Morgan, and George Soros’ Quantum Fund. The paper marks this move as “a critical transition” for the microfinance industry because it provides evidence that capital markets are a practical support system for the microfinance sector. Although the move by SKS has received applause from some circles, the founder of Grameen Bank, Muhammad Yunus, warns that capital market investors do not have the same interests as he argues microfinance institutions should have. SKS’s IPO was thirteen times oversubscribed and brought the company’s valuation to USD 1 billion, with the share price rising 42 percent after five weeks of trading. As of March 31, 2010, SKS Microfinance Private Limited reports to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, total assets of USD 897 million, a gross loan portfolio of USD 653 million, a return on assets of 4.96 percent, a return on equity of 21.56 percent and 5.79 million active borrowers [1].

About CGAP (Consultative Group to Assist the Poor): Housed at the World Bank Group, CGAP (Consultative Group to Assist the Poor) is an independent policy and research center dedicated to providing financial access for the world’s poor. CGAP is supported by over thirty development agencies and private foundations. Its mission is to provide market intelligence, to promote standards and to offer advisory services to governments, microfinance providers, donors and investors.

About SKS Microfinance: SKS Microfinance is a microfinance institution (MFI), launched in 1998, that delivers microfinance products through a group-lending model to impoverished women in India. It is a for-profit non-banking finance company, which converted to a public limited company in May 2009 and launched an initial public offering on July 28, 2010. Equity investors include Quantum Hedge Fund, Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus. As of March 31, 2010, SKS Microfinance Private Limited reports to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, total assets of USD 897 million, a gross loan portfolio of USD 653 million, a return on assets of 4.96 percent, a return on equity of 21.56 percent and 5.79 million active borrowers.

By Diana Baide, Research Assistant

[1] CGAP. “SKS IPO: A Critical Transition for Microfinance” 30 September 2010

http://www.cgap.org/p/site/c/template.rc/1.26.14254/

MicroCapital’s Microfinance Universe profile: CGAP

https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=CGAP+(Consultative+Group+to+Assist+the+Poor)

MicroCapital’s Microfinance Universe profile: SKS Microfinance

https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance

Browse the MicroCapital Universe and add your entry to the wiki at:

https://www.microcapital.org/microfinanceuniverse/tiki-index.php