Indian Microfinance Goes Public: The SKS Initial Public Offering

This paper discusses details and implications of the initial public offering (IPO) through which SKS, India's largest MFI, became the first microfinance organization in the country to go public. The paper is based on information from market data, press reports and the data submitted by SKS to SEBI as part of the IPO process.

The paper gives an overview of the Indian microfinance sector and outlines the history, business model and financial model of SKS. It explores the pros and cons of creating Mutual Benefit Trusts (MBTs) which became SKS initial shareholders, and analyzes the success of the IPO. The deal was 13 times oversubscribed, and attracted leading investment groups such as Morgan Stanley, JP Morgan and George Soros Quantum Fund.

The paper reflects on the relatively high valuation of the IPO. It also lists possible future implications of the IPO, especially on the poor. They include:

• More Indian MFIs pushing for IPOs;
• Acceleration in growth of microfinance market;
• Changes in market structure;
• Drop in interest rates;
• Changes in policies and regulations;
• Need for transparency and new corporate governance requirements.