Would you like a soda with your small loan?
SKS Microfinance, India’s largest microfinance institution (MFI), aims to raise up to $353 million in a closely watched IPO that has already drawn top anchor investors.
As India’s largest MFI and the first to do an IPO, SKS is answering lots of questions: Should MFIs charge 28 percent interest on loans to the poor? Should MFIs operate as for-profits? Should they allow private equity firms to invest in them? Should they come to the capital market?
With a base of some 120 million unbanked homes with a potential microcredit demand of about $270 billion, there is enough work for the more than 400 active MFIs in India who are currently serving about 70 million poor people.
This is where SKS founder Vikram Akula’s consumer goods analogy comes in: he would like to make microcredit available within arm’s reach, like a bottle of Coca-Cola.
In fact, he would like to sell Coke, too.
While the primary function of SKS is to give small loans to groups of women so they can invest in an economic activity and pull themselves out of poverty, it should also improve the quality of life of its members, Akula says.
Right now, the rural poor in India have easier access to a sachet of shampoo or a pack of wafers than a bank.
SKS has sold some 12.5 million life insurance policies and nearly 3 million life endowment policies. It has disbursed more than 700 housing loans for India’s top mortgage lender HDFC.
And, it has tied up with Nokia and Unilever to give loans for phones and water filters.
So far, SKS has given more than 140,000 Nokia phone loans, 1,600 loans for solar lamps and nearly 12,000 loans for water filters. It also has a tie-up with German wholesaler Metro to supply members who run small shops.
SKS’ pan-rural network can be used as a distribution channel for getting products ranging from education loans to consumer goods to electronics to the bottom of the pyramid, Akula says.
Nokia, which also has a pilot with urban MFI Ujjiwan in Bangalore, says microfinance is an innovative payment option.
It also opens up a tremendous market opportunity in India’s vast hinterland.
But who’s to decide if India’s poor are in need of a loan to buy a cow or a colour TV? Dissenters are already warning of a subprime-like bubble in microfinance. It is a very slippery slope.