Microfight

The Economist examines the potential trade-offs that socially-motivated microfinance institutions must weigh as they consider an initial public offering — and what these trade-offs might mean for impact investors in these institutions.

From original article:

The loans that microfinance companies make may be tiny but their ambitions can be vaulting. Take SKS Microfinance. Already India's biggest microlender, with 6.8m clients and 5.8m active borrowers in the year ending on March 31st (see chart), it intends to become the world's largest by 2012, with 15m clients. To fund this growth, it hopes to raise nearly $350m by selling a 21.6% stake in an initial public offering (IPO) which got under way this week.

According to the Consultative Group to Assist the Poor (CGAP), a think-tank housed at the World Bank, the IPO is only the second by a pure microfinance institution, after the offer by Mexico's Compartamos Bank in 2007. More may follow. CGAP reckons that SKS's move "should set the stage for future IPOs in the sector." The omens are good. On July 27th SKS announced that it had raised $64m from anchor investors, including JPMorgan Chase, Morgan Stanley, and India's ICICI Prudential and Reliance Mutual Fund, at the top end of the expected price range.

Commercialisation appals some. Muhammad Yunus, the head of Bangladesh's Grameen Bank and the industry's founding figure, has described Vikram Akula, SKS's founder, as a "capable young man [who] took a wrong turn when he decided to use microcredit for making money." But Mr Akula points out that the amount lent by Indian microlenders in 2008 was less than 10% of estimated demand. He reckons that SKS should be doing more microfinance and doing it fast. That means making enough profit to attract capital.