SKS Microfinance IPO: What Went Wrong?

Abstract:

Microfinance, a flourishing sector in India, was witnessing phenomenal success in terms of expansion as well as profitability in the latter half of the first decade of the 2000s. The industry leader in this market, SKS Microfinance, with its mission to serve 50 million Indian households and a vision to eradicate poverty from the country, ,came up in July 2010 with the very first Initial Public Offering (IPO) for its equity shares to raise funds and thus fulfill its ambitions to grow at a rapid pace. The IPO, the first by any company in the microfinance sector in India, was a huge success. However, critics opined that for a Microfinance Institution (MFI) to take the profit driven capital market route to grow quick and big

would lead to compromising on the basic principles under which an MFI is expected to provide funds to the poor. SKS’s shares showed good initial performance. However, this proved to be short-lived and in the following weeks, they witnessed a sharp decline. Analysts wondered whether the dramatic loss of investors’ faith stemmed from the fact that the SKS CEO had exited the company, or from attempts to regulate the industry, or from arguments against the idea of an IPO in the microfinance industry. Investors were clueless, wondering what had gone wrong. Much of the disaster was associated with some suicides by farmers which allegedly exposed the dark side of microfinance according to some experts. The industry’s image was to a great extent tarnished by the fact that some farmers who were associated with MFIs had committed suicide, allegedly due to the wrongful practices of some microfinance industry players, particularly of their agents. Reports of rampant disbursement of micro loans and coercive collection of debt by MFI agents were thought to be major reasons for the debtors’ plight, evoking strong reactions against the MFIs from almost all sections and the government. The industry, which till then, had enjoyed an enviable reputation, suddenly found a shadow cast over it. The SKS stocks had been touted as one of the best investment opportunities, enjoying a unique position in the capital market in which it had no close competitor. It had the best performance track record to bank upon over the year in a market which was estimated to be one of the biggest in the world for microfinance growth. But the company was now struggling to sustain the trust of investors, which it had earned over the years.

Issues:

» This case study is most suitable for courses in Micro Finance, Social Entrepreneurship, Ethics, Management Information System, and courses involving Business Environment of the micro finance industry in a developing country.
» This is also suitable for delivering the idea of issues in managing growth as well as for introducing participants to the role of socio-economic risk factors in the valuation of a unique investment opportunity.
»This case juxtaposes the firm’s objectives with the investor’s objective, bringing to light the inherent contradiction when it comes to serving the client’s objective and asks for a technological solution which could hold good for sustainable benefit of all. It also underlines the significance of ethical practices and the interdependence among sustainable returns to investors, sustainable growth of the firm, and welfare of its clients.

Contents:

Keywords:

Leadership, Leadership style, Servant leadership, Intrepreneurship, General Management, Management Style, Strategy, Change management, Glass ceiling, Vision, Communication, Power, Culture, Turnaround, Xerox

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