Indian micro lender to launch IPO next week

INDIA’S biggest lender to the poor, SKS Microfinance, announced yesterday plans to launch an IPO next week, joining a select group of microfinanciers globally that have sought share listings.
 
The initial public offering (IPO) by SKS, which has a fast-growing customer headcount and a near-zero default rate, is expected to raise around $300m (£195m).
 
SKS, which lends small sums to India’s neediest who are unable to get credit from mainstream banks, is selling a 22 per cent stake and will be the first Indian microfinance company to float its shares on the Mumbai stock exchange.
 
“We are bringing the poor to capital markets and capital markets to the poor,” SKS chief executive Suresh Gurumani told reporters in New Delhi.
 
The company, backed by private equity firms Sandstone Capital and Sequoia Capital, will announce a price range for the shares on Monday (July 20) ahead of the IPO’s launch two days later.
 
Founded in 2003 and based in Hyderabad, SKS has seven million borrowers and operates in 19 Indian states.
 
Like most microfinance lenders, it charges interest rates of up to 28 per cent annually on its loans, which some critics say is exorbitant.
 
It represents around double the rate at which it borrows.
 
But SKS says the rates reflect its high costs and are far lower than those charged by predatory moneylenders who ask for 36-72 per cent interest annually and to whom the poor would otherwise turn for loans.
 
Just a handful of microlenders globally have listed their shares.
 
In 2007, Mexican microlender Banco Compartamos – which means “let’s share” in Spanish – listed on the stock market, making large sums for its founders and sparking a public debate about the ethics of making profits from the poor.
 
The pioneer of microfinance, Nobel Prize winner Muhammad Yunus, believes the practice should focus on helping borrowers rather than on returns for investors.
 
He founded Bangladesh’s Grameen Bank in the 1970s, which has loaned small amounts of money to eight million borrowers.
 
But SKS – which stands for Swayam Krishi Sangam or self-help union – says it needs to raise the funds so it can increase its ability to lend to needy borrowers, most of whom are poor women in India’s rural hinterland.
 
It also has ambitious plans to provide insurance.
 
“We need lots more capital to fund demand,” Gurumani said.
 
The company, whose borrowers pay back their loans in weekly installments, has a 99-per cent repayment rate.
 
SKS cited research showing that the supply of funds for micro-loans in India stood at $4.3bn (£2.7bn) in 2008, while demand was $51.4bn (£33.4bn).
 
By 2011, demand was projected to reach $72bn (£47bn).
 
Some 60 per cent of the share issue, being managed by Kotak Mahindra Capital Company, Citigroup and Credit Suisse, is earmarked for institutional buyers.
 
SKS reported a profit for the year ended March 2009 of Rs802m ($17m/£11m).