What the father of microfinance Mohammad Yunus, convened to the world, is being contradicted by a few entrepreneurs now. An IPO is one such venture that is controversial for microfinance, as it also takes into consideration profits rather than morals when it comes to micro-lending. This means that lenders depend on donations, governments and International organizations like the World Bank, which makes it controversial to some.
Recently, SKS Microfinance Ltd., a large Microlender in India, had made its debut on the Bombay Stock Exchange. On the first day itself, shares surged by 18%. Vikram Akula founder of SKS, commented that going public is the only way to generate more capital that will help serve India’s poor. Contradicting this approach, Yunus, Nobel Peace Price winner for pioneering microfinance, says, “Microcredit should not be presented as a money-making opportunity. It is an opportunity to make an impact on poor people’s lives.”
Microlending is meant to lift the poor out of poverty. But now a new goal of growing profit has been attached to it. Public microlenders argue that they can pursue both morals and profits. SKS raises more capital by involving stockholders. This will provide more loans to the indigent population that eventually will bring down interest rates that are being charged to indigent borrowers. However, the borrowers have little to offer as collateral and people who have their own land, generally do not have titles proving it. This is where the economies of scale get lost. And this is what makes it hard to believe that interest rates can go down.
But what Akula has done is no small feat. He has successfully gained the backing of big investors like George Soro’s Quantum Ltd., N.R. Narayana Murthy’s Infosys Technologies, and Venture capitalist Vinod Khosla. Since, microlending is still a new concept, the model deserves testing and retesting by going the IPO route.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to