MICRO FINANCE IPOS – WHOM DO THEY BENEFIT - AVOID AT ALL COSTS.

SKS MICROFINANCE LIMITED is likely to hit the market shortly. Many others in this sector have lined up for IPOs. The bubble is growing bigger each day. These companies are similar to the finance and leasing companies that mushroomed in the late seventies and early eighties and disappeared into thin air subsequently. More over, Micro financing started as a social cause enterprise is turning out to be blood-sucking business. The poorest of the poor and hapless sections of the society are being exploited. More and more entrepreneurs and PE funds are eager to do business in this segment.

The Micro Finance Institutions, instead of providing credit at affordable interest rate, exploiting the situation and looking for a return on investments in excess of 30% p.a. Micro finance should not be viewed as a business venture where one can expect very high return on investments. The borrowers pay exorbitant rate of interest. Moreover, most of their income goes for servicing the debt with no savings. This kind of situation is no better than the one the poor borrowers had experienced with the traditional moneylenders. They also defeat the very purpose of establishing the Micro Finance Institutions. The ultimate goal of microfinance is to enable the poor to build assets, increase incomes, reduce vulnerability to shocks and economic stress and improve quality of life by enabling better access to education and healthcare. How can they do that with that kind of interest structure?

Micro finance should not be viewed as a business venture where one can expect very high return on investments. Governmental and statutory regulations, including the imposition of an interest-rate ceiling, are bound to happen. This will adversely affect the
operating results. More importantly, the sector, which sucks the blood of the poorest of the poor, does not deserve any support. AVOID ALL MICRO FINANCE COMPANIES IPOS.