What mistake did SKS Microfinance do?

This is my first blog after almost 3 years. I was pondering on how to start my second innings as a blogger. After quite a bit of thinking on having a ‘dhamaal’ intro...I felt like this blog should not be like a Star Kid’s debut film whose only aim is to show all his skills and potential as future Super-star with least regard to the movie as a whole.

While I was straining me grey matter on what to write, I get the news of SKS Microfinance dipping almost 20% on a single day!!!!!!!! I began to wonder how Microfinance institutions (MFI), in a country like India, can be left to the whims and fancies of traders and investors. Aren’t these institutes’ main aim is to serve the poor? Let us be clear of one point: any person buying stock/shares of a particular entity is doing for the sole purpose of earning profits.

To give a better picture, let me explain some of the dynamics. Micro Finance Institutions lend money at low interest rates to the poor or Self Help Groups (SHG). These Self Help Groups must use these funds as an investment in areas like small scale industries or for setting up shops or some other business. So, MFIs basically serve as a medium to encourage rural entrepreneurs. As with any other entrepreneurial venture, there will be many inherent risks involved. But what makes this process more complicated and delicate is the fact that rural poor is using these funds. Profit making must be a secondary aspect for these MFIs. Their main aim must be of social welfare. Each loan disbursement and repayment steps with each and every SHG must be self sustaining. By self sustenance, I mean that MFI must be able to absorb the cyclical shocks of profit and Losses generated by the SHGs which will indirectly effect the loan repayments to the MFIs.

But by making these MFIs as a public listed company and selling shares to people whose only aim is to earn profits, we are putting the future of the rural poor in the hands of profit seeking individuals.Once the stock is listed in an exchange, its share price swings for a lot of ‘only God knows’ reasons. The reasons can be as varied as a Non executive Board member of the MFI getting sacked for some criminal case to some Court summoning the CEO for some explanation. The basic idea of trying to earn profits from the poor who just want to make their ends meet seems to be repulsive and conflicting.

The model adopted by SKS Microfinance might have been with a good intention but I think it is ahead of its times in a country like India. I sincerely wish SKS Microfinance comes out of this situation and continues to do the good work it has been doing till now and a learning to be a bit extra cautious in the future.