"An Initial Public offer(IPO) by SKS Microfinance Ltd. is likely to set the stage for more such offers in the world's largest microlending market, but it has also sparked the debate on the ethics of profiting from the poor.IPO has been expected to raise around $250-$350 million for SKS and private equity. It has drawn keen intrest from countries like Bangladesh, Mexico and South America but on the other hand Microfinance pioneer and Nobel Laureate, Dr. Mohd. Yunus had raised several concerns over the IPO. Many more Microfinance Instituitions(MFIs) will be following the same trend. So what is your opinion about this trend?.."
Answer should be within the limit of 350 words.send your opinions before 24th october,23:59:59, and give your voice a platform at Iopine.
Seeing the Marketing strategy of Microfinance institutes, they have excellently segmented their audience, targeted the ones who are in dire need of money at whichever cost it may come and positioned itself as a savior for them(instead of charging so much). But as they say we live in an open democratic economically growing society, progress and education is leading to information dissemination and this leads to healthy analysis of any issue. Same has happened with Microfinance institutes, initially neglected by banks and lending institutes and when the Government of India is planning to go ga-ga about inclusive growth, we analyze the progress made on this front. With this analysis we have come to individual liking/disliking of microfinance. In my view Microfinance as a principle stands good but how it is implemented across nation makes the real difference. India is growing capitalist + democratic nation, but this Microfinance execution in Indian states present an example of crony capitalism creeping in our nations. What Crony Capitalist do, they know the limitations of their segment and using that they try to derive maximum value for themselves. That is what Microfinance institutions have done, lending at an exorbitant rate of 26-28%. If we break up this 26% this is what microfinance institutes say that 8.5% is the cost of borrowing, 9% is the cost of delivery and 1% is put aside for hardship cases, as per RBI guidelines. Also, the corporate tax comes to around 3% and the company makes 4-5% margins. All the facts are presented in a way that it’s the systemic requirement of setting the lending rate too high. I disagree with this notion of theirs because their margins are already set implicitly in cost of borrowing and cost of delivery along with exclusive entity of margin. Then secondly using coercive forces to get the money back is not appreciable. Almost 27 suicides have happened in Andhra. State and Centre also share the blame of not providing the credit needs of underprivileged people till now, when nationalized bank have already operated for so many decades.
ReplyDeleteIs profit a derogatory term? Or is money? Then why are we doing a detailed 2 years study of business and revenue generation techniques, after all is it not the ultimate goal of any business and consequently business management studies? Coming to MFIs, they are run by a set of human beings, a bit more human, at the most. Money runs the world and so people.
ReplyDeleteOnly non-monetary business was done in barter system and just because the concept of money had not yet arose. The main purpose of an IPO is to raise capital for the corporation. MFIs are the corporations who work towards improving lives of low income groups and by IPOs they try to pour-in cash by affluent sections of society who also gain in the process but their gain is the by-product and not the product itself.
If unethical then why do banks charge interest on the loans they grant to (now used to) MFIs, don’t they profit by that? Why is that loan not interest free? Why should the point of gaining money by MFIs being unethical practice arise? Unethical practice will it indeed be if money raised through IPOs do not go to poverty eradication and rather to deep pockets within the system. If purpose is noble, method is legal and end result is pleasant to concerned parties then why should ethical/unethical issues arise?
MFIs till today was considered dull concept to people outside it. For the first time through IPOs they have captured imagination and interest of “we mean and talk business” people. While the show is on, pull maximum spectators who pay for it, put that money into villages/needy areas, build the nation bit by bit and move on rather than calculating who gained more and why.
Money flows faster than any fluid into nature so better not try to capture/block it, better not to think how to generate it for too long, longer than it takes to flows away further without touching where it is most needed. IPOs are just another of the ethical and convenient paths of money for MFIs.
The origin of SKS microfinance starts with not for profit (NFP) and gradually they moved to for profit (FP) just a few years back. The move from management of SKS after declaring themselves as is very strategic one by taking into consideration of 6.8 million members out of approximately 50 million rural people in India, a network of about 2029 branches, and a loan portfolio of USD 3200 million as of March 2010 (http://www.sksindia.com/).
ReplyDeleteOur Experience from the past has proved us that the reliable access to credit is more important to small farmers and other microentrepreneurs than interest rate for production and investment decisions. The expansion of SKS to target levels of outreach depends on two main issues: 1) the degree of focus on poor and 2) the extent of competitive pressure. For the customer oriented approach, the interest rate should be lucrative enough to beat the competition. Providing loans at relevant interest rate with keeping their growth smooth will be very difficult when you have number of MFIs in competition. The inclusion of financial corporation has become very prominent option for MFIs to fulfil their liquidity need. This led MFIs to take loans also from Regional Rural Banks (RRBs) and Nonbanking Financial Corporation (NBFC) for enabling them to reach to target level of outreach. However, this led another major issue on relying too much on bank and not submitting the repayment within given period of time. Recently, the government has drafted document on imposing an independent regulator for MFIs who will keep track on money side loan and repayment issues. So, the motive behind going in to public is of achieving the level of outreach with their optimistic figure of 50 million. This objective drive them to be more balance on financial issue of retaining margin to stay alive in volatile situation (like recession).It is one of the way to keep a company away from “over-indebtness” with growing competition. This is the main worrying buzzword in MFIs. The FP MFIs has to find ways to stay healthy for betterment for future with due regards to its negative implication.