SKS Microfinance IPO: What Went Wrong?

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Case Details:

Case Code : LDEN075
Case Length : 26 Pages
Period : 2000-2011
Pub Date : 2011
Teaching Note : Available
Organization : SKS Microfinance
Industry : Microfinance
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Nothing excites investors more than growth, and in the financing business, this is as high growth as you can get…if a microfinance business can manage the risks inherent in scaling up, this is a fantastic opportunity."¹

- Apurva Shah, head of research at Prabhudas Lilladher Pvt. Ltd., in 2010

"The numbers also speak for themselves. For the investor side, this is a hugely profitable business. We deliberately structure that way because we want investors to continue to put more and more money into the hands of the poor"²

- Vikram Akula, Founder, SKS Microfinance, in 2010³ , in 2010

Introduction

In early 2011, the microfinance business was in the news for various reasons ranging from alleged adoption of unethical and illegal means to recover micro credits, to debtors‘ suicides, to rumors of government regulations on microfinance industry, to talks of reduction in lending interest rates and of profiteering by Micro Finance Institutions (MFIs). Amid all these reports in the media, another prominent issue of discussion was the loss which investors of India‘s leading MFI SKS Microfinance (SKS) had to suffer due to the plunging prices of its shares which were issued on July 28, 2010, and closed on July 30, 2010. The loss went to the tune of around 43%⁴4 of the issue price (as on December 20, 2010) in less than five months of the IPO‘s debut.

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Introduction cont.. - Next Page>>

1] "Ruth David and Paresh Jatakia, -SKS Microfinance Shares Surge as Investors Bet on Rising Credit in India, Bloomberg, August 16, 2010.
2] Sonia Alleyne, "Unduplicated Success," www.blackenterprise.com, February 1, 2010
3] Eric Bellman, -IPO Pits Profit Vs. Altruism, The Wall Street Journal, July 9, 2010.
4] Forbes is a business magazine published biweekly by Forbes, an American publishing and media company.

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