MICROCAPITAL BRIEF: India-based Microfinance Institution (MFI) SKS Microfinance Plans to Apply for Commercial Banking License

SKS Microfinance, an Indian microfinance institution (MFI) registered as a non-banking financial company (NBFC), reportedly has plans to apply for a commercial banking license. An unnamed source told Indian news agency, Press Trust of India, that “SKS Microfinance is likely to approach the Reserve Bank [of India] for a banking license once the guidelines are issued.”

SKS Microfinance would like to make the transition to a commercial banking entity because it would then be entitled to borrow at lower interest rates. The Press Trust of India article indicated that “the cost of capital for microfinance players stands 12 to 13 percent” as opposed to the cost of capital for commercial banks of “six to six and a half percent”, which would enable NBFCs to lower the interest rates offered to borrowers from an industry “average of 28 percent to about 21 to 22 percent”.

SKS Microfinance intends to raise INR 11 billion (USD 250 million) in an initial public offering, which MicroCapital covered most recently on March 29, 2010. According to the MIX Market, the microfinance information clearinghouse, as of March 31, 2009, the MFI’s total assets were USD 596 million with 3.5 million active borrowers.

By: Christine Chang, Research Associate

About SKS Microfinance:

SKS Microfinance is a microfinance institution (MFI), launched in 1998, that caters to women clients in India. In 2005, it transformed into a for-profit non-banking financial company (NBFC). As of September 2009, SKS had 1,676 branches, compared with 771 branches in March of 2008. According to the MIX Market, the microfinance information clearinghouse, its total assets, as of March 31, 2009, were USD 596 million with 3.5 million active borrowers, and it reported return on assets of 3.68 percent and return on equity of 18.72 percent. SKS Microfinance products include: income generating loans, mid-term loans, individual loans, loan cover insurance and health insurance.

Additional Resources:

Business Standard website: SKS Microfinance eyes banking foray, April 18, 2010: http://www.business-standard.com/india/news/sks-microfinance-eyes-banking-foray/91601/on

MICROCAPITAL BRIEF: SKS Microfinance Limited, Microfinance Institution (MFI) in India, Files to Raise $250m in Initial Public Offering (IPO), March 29, 2010: https://www.microcapital.org/microcapital-brief-sks-microfinance-limited-microfinance-institution-mfi-in-india-files-to-raise-250m-in-initial-public-offering-ipo/

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

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