Rich I.P.O. Brings Controversy to SKS Microfinance

Friday, July 30, 2010

An Indian company with rich American backers is about to raise up to $350 million in a stock offering closely watched by philanthropists around the world, showing that big profits can be made from small helping-hand loans to poor cowherds and basket weavers.

The company, SKS Microfinance, is one of the biggest players in the field known as microfinance, which involves loans, often as small as $20, that banks might consider too tiny and risky to bother with.

SKS was set up as what philanthropists call a “social enterprise” – a business based on the concept of doing well by doing good.

And there is no question that the company’s 41-year-old Indian-American founder, Vikram Akula, and investors who include prominent Silicon Valley venture capitalists will do very well indeed from the I.P.O. Mr. Akula has already privately sold shares worth almost $13 million, and he still holds stock options potentially worth $55 million.

The question is whether the social good will be as amply rewarded.

SKS Microfinance is not the first microlender to go public, and there has long been debate over whether social enterprises should be turned into giant commercial operations. Proponents of commercial microfinancing say the money raised can provide even more loans to the needy than relying only on charitable donations.

But the I.P.O. for SKS, one of the field’s biggest stock offerings yet, has caused its own type of controversy.

Source: New York Times (link opens in a new window)