Tuesday, July 20, 2010

SKS MICRO FINANCE - RESULTS - CAUSE, EFFECT AND SIDE EFFECTS, WHOSE CASH IT IS ANY WAY?

SKS Micro Finance earned profit before tax of Rs 267.70 crore on the total income of Rs 958.92cr for the FY 2010. The basic is EPS of Rs 33, much more than some of the large software companies. The country’s largest micro financier is exploiting the poorest of the poor in rural India in the name of providing credit access to them. The company charges interest between 27% -36% p.a. on money lent to the poor. On the one hand, the company says, that there is no scope for reducing the interest; on the other hand, the company is posting robust profits year after year. The so-called valuations they are trying to create for the company is to serve for their own selfish motives. That will benefit the handful of shareholders / promoters.

Nobel laureate Muhammad Yunus, speaking at the Fairmont Hotel, USA, on May 24, said he is increasingly wary of the direction the booming micro finance industry is taking.

“I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,” he said. Private investors and capital have increasingly moved into the realm of the grassroots micro finance industry, boosting its assets to more than $60 billion globally.

Yunus has called for standardizing the rates of interest in micro lending, which can range from 12 percent to more than 87 percent globally. His formula for determining interest rates calls for no more than 12-15 percent beyond the cost of raising the capital.

“Poor people should not be presented as an opportunity to make money. Then you move in the direction of loan shark,” said Yunus, who is on a several-city U.S. tour to promote his new book, “Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs,” released in May by Public Affairs Books.

“We started out with the idea of getting loan sharks out of people’s lives,” said Yunus, in his remarks to the sold-out audience in the Fairmont Hotel’s ornate Gold Room. “Now micro finance institutions are getting into the loan-sharking business,” he said. “If you’re making money out of poor people, then you’re loan-sharking.”
In a brief interview with India-West following his talk, Yunus expressed his aversion to the new trend of micro finance institutions undergoing initial public offerings.


During his hour-long talk, Yunus focused on his concept of “social business,” the subject of his new book. Social businesses, as defined by Yunus, are cause-driven businesses, targeting areas often neglected by companies that are more traditional. The aim of a social business is to achieve a social objective.

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