August 23, 2010; Source: Good | “The continued blending of the for profit and the nonprofit space is a good thing . . . except when its not.” Thus starts Joe Ippolito’s excellent column for Good analyzing the public offering made by SKS Microfinance, a move that netted the institution $350 million in new growth capital.
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SKS has been criticized for this move by Mohammed Yunus of Grameen Bank who likens the institution to loan sharks, saying that the IPO changes the basic proposition, offering their new stakeholders the exciting opportunity to make money off of poor people. SKS, which offers very small loans to villagers in India was originally a nonprofit that changed to a for-profit business in 2005. It has experienced a lot of growth, adding 50 branches since last year.
Says Ippolito, “Yunus has a point. While the IPO successfully raised needed funds, it made SKS ultimately accountable to its shareholders, rather than to the people it’s attempting to help. These shareholders, of course, will be looking for significant returns from the company. Theoretically, this could lead to SKS raising interest rates on its loans, avoiding making riskier loans, or otherwise enacting policies that run contrary to the spirit of microfinance in order to guarantee results for investors. Basically, to keep its shareholders happy, SKS may someday need to act like the sort of large bank it was originally designed to counter.”—Ruth McCambridge