The microfinance mission: A case study of SKS Microfinance and the implications of its IPO

Abstract

"There is one and only one social responsibility of business - to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." (Friedman, 1962) The views about social businesses and their altruistic goals differ. Some might see in them the opportunity to increase societal welfare especially for those who are, for one reason or another, excluded from industrial and commercial activities. Others doubt their very effectiveness and, just like Milton Friedman in his quote above, ascribe only one goal to corporations, namely that of profit maximization. Markets would take care of the rest. The invention of the microfinance concept four decades ago has lead to the development of a whole new sector which could establish itself as one of the most respected approaches towards poverty reduction in the world. However, recent activities of the major players in the field indicate a possible shift of paradigms. A growing number of Microfinance Institutions (MFIs) transform from non-governmental organizations to non-banking financial companies or even to publically listed ones. In this paper we want to discuss in how far these developments are consistent with the sectors initial aim, to improve the livelihood of people. How will the changing ownership structures and the appearance of shareholders change the pressure on these institutions? How will this in turn affect the daily operations and long-term goals? In order to find answers to these questions, we focus on the case of SKS Microfinance, currently India´s biggest provider of microfinance services. In the following sections of this paper we will introduce the background of this MFI, outline the process of its Initial Public Offering and eventually discuss the implications.