Gregory Chen

With the SKS IPO slated to hit the street by the end of July, we will have an opportunity to learn more about where the microfinance industry is headed.  There will be some details which the IPO transaction itself will shed light on, but the most important questions about the microfinance industry will take some time.  We should not rush to judgement.

The IPO will finally tell us where the price and valuation settled.  A price at the low end might dampen investor enthusiasm.  On the other hand, a valuation perceived to be a the high end might bring accusations of supernatural profiteering.  Expectations about the price and valuation may drive the initial reaction.  It will be very interesting to read carefully the reaction from the general public, opinion makers or policymakers to gauge broader perceptions of a changing microfinance industry within India.  Microfinance may finally move in the public’s view from a development sector to a fully commercial enterprise.  Another key issue is how smoothly the transaction is executed.  If it moves through seamlessly with strong subscription this should be a sign that future IPOs for microfinance are possible.

But the most important and contentious issues about the IPO will take more time for us all to weigh carefully.  It will be particularly important to see how the proceeds of several Mutual Benefit Trusts are used given the philanthropic purpose for which these MBTs were first created. This is something we may not know for several months or possibly even longer.  Another feature that may take time to learn more about is how new transparency and governance standards applied to public companies affects SKS’s performance.  And we will have to wait and see how the IPO affects the growth trajectory, expectations, and valuations of the broader microfinance industry. 

Will the health of the microfinance industry be advanced?  This is something we will have to look beyond the transaction itself into the months and years ahead. 

Keep your eyes on the CGAP blog in August for a forthcoming breakdown of the IPO transaction.

Gregory Chen

In a Greek myth the character Icarus escapes from confinement on the ancient Island of Crete by flying to his freedom using wings made of an ingenious mixture of wax and feathers. In the euphoria of his own escape Icarus drifts too close to the sun melting the wax of his wings. He plummets to the sea. One wonders if microfinance at times flies too close to the sun too?

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Last week I was in Delhi to participate in the annual Microfinance India Summit. This excellent event organized by ACCESS Development Services fittingly focused on “Putting the Poor First”. The venue brought together leaders from across India’s microfinance industry and the one-on-one discussions (and excellent panel discussions) focused on how the forces of inflation, a tightening credit market, and rapidly growing Indian MFIs are affecting the industry.

It is too soon for anyone to be certain of the full impacts of the global economic slowdown, inflation and the global financial crisis on microfinance in India, but there are no signs of dramatic decreases in demand (for credit) or of large spikes in loan delinquency. Still MFIs and industry experts are cautious.

Nancy Barry of Enterprise Solutions to Poverty reminded everyone that MFIs shouldn’t assume that because borrowing continues to expand, microfinance clients are unaffected by global economic trends. The rising prices of basic staple foods and the ripple of the global slowdown could well make their way to the doors of the poor. Vikram Akula, the founder of SKS, had a different perspective. Akula argued that the lives of the poor are de-coupled from global markets with borrowers making their livelihoods in the more resilient parallel informal sector.

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