Wednesday, July 21, 2010

TEN REASONS WHY ONE SHOULD NOT INVEST IN SKS MICRO FINANCE IPO



1. Unethical business: The Company is charging interest around 40% p.a. on money lent to the poor and down trodden.


2. Unsustainable business model: The business model will not sustain in the long -run.


3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.


4. Look at the salary of top executives :

Suresh Gurumani - Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.

Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a.
The irony is they are trying to eradicate poverty.

5. Mohd. Yunus says - “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,”


6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.

7. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment. This will make the business un- attractive.


8. Financial inclusion initiatives taken by the public sector banks will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.




9. The average cost of acquisition of shares by promoters is less than Rs50/-The Company has limited period of history and no dividend payment record.


10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.

7 comments:

  1. Finance companies shares are not good. do not buy.Good analysis.

    ReplyDelete
  2. 1. Get facts right...ROI is 28 per cent.
    2. the model is based on the grameen bank model. It is adopted by all MFIs across the globe (invariably). If it was not scalable or sustainable, the model would not have survived 30 yrs. Please dont have prejudice.
    3. The treeline deal is a cashless transaction. To be a promoted, Dr. Vikram had to convert his ESOPs to fully paid up shares. Hence the transaction. I am sure, a little degree of personal reasons is still ok. He has paid 14 crores as advanced tax. Check ET sometime in May.
    4. the model of SKS has made them the fastest growing MFI in the world and the largest in India. Given the unmet demand, it is important they have professionals stepping in to manage the business to take it to the next level. Good people come when you pay the money...else you know what we get. Also, the salary is surely not as high as other companies which pay more than 10 crs as annual salary.

    ReplyDelete
  3. 5. It took grameen bank 30 yrs to reach 7 million poor borrowers. It took SKS 5 yrs. Purely because of the availability of funds...thanks for it being not just profitable but extremely profitable. Raising funds trhu donations and other social mediums will not have helped SKS or any MFI to reach out to so many poor in just 5 yrs. Remember SKS was an NGO first for 6 or 7 yrs before they converted to an NBFC (for profit model) they reached 2,00,000 clients in the first 7 yrs and 7 million in the next 5 yrs. Professionals and the money made the difference. See paying decent salaries does help. So get facts right. Stop having prejudice.

    6. The borrowers who are poor surely dont have access to other sources of credit. Even if they have, it is surely higher than MFIs. the borrowers have surely grown out of their poverty in maximum of the cases. In some cases probably, wrong enterprise decision or other factors could have impacted them...doesnt mean you declare every one as failures. the exception case cannot be the main point of view. Look things with better perspective.

    7. It will be great if RBI regulates this segment. the microfinance bill is pending for so many years and it only covers the NGo microfinance companies and not the for profit ones. Why? The for profit ones cover 90 per cent of the industry.

    8. if the public sector banks were to marginalize microfinance institutions, it would have happened long time back. The entire concept of financial inclusion would not be happening after 60 yrs or independence. Microfinance if not the tool to eradicate poverty it is surely a tool to eradicate poverty. given the huge demand supply gap in credit supply to the poor, the government has to be serious about amazing schemes and more than that amazing delivery mechanism which will reach the poor. given our politicians...distant dream for sure...not something i see in the next 2 decades...financial inclusion can happen when the system works together. One SKS or the MFI industry alone cannot be the change...it can only help in the change to a great extent.

    9. Very baseless point for one to take decision on. Please elaborate on how this impacts. it has surely created wealth for its investors. I am sure all of them will have a happy walk to the bank. Its ok...the poor have more access to funds while investors profit from it...atleast it has helped the poor that extra fund. As an investor, i would not have put my money in charity...i would look at returns...sks has given that to sequioa or kismet or Narayan Murthy or Sores or vinod khosla...why would they invest otherwise...ask NM or vinod khosla if they would give put all their investment funds in to social / charitable funds...they dont run foundations :)

    10. Just because, a couple of MFIs have played dirty (predominantly small ones as they have pressure of collections) it is not fair to paint the entire industry with the same brush. If i were to take your case, i will have to suspect all stocks of software companies given the RAJU scam.

    WOW...you are a piece apart ...look at the positive side of the MFI industry...the moral policing would not help the poor to get access to credit. If i am not wrong, none of the promoters have quit in this IPO. All of them have sold a part and the remaining has been put on a 3 yr lock in...i am sure, the seriousness in the business does exist.

    ReplyDelete
  4. 5. It took grameen bank 30 yrs to reach 7 million poor borrowers. It took SKS 5 yrs. Purely because of the availability of funds...thanks for it being not just profitable but extremely profitable. Raising funds trhu donations and other social mediums will not have helped SKS or any MFI to reach out to so many poor in just 5 yrs. Remember SKS was an NGO first for 6 or 7 yrs before they converted to an NBFC (for profit model) they reached 2,00,000 clients in the first 7 yrs and 7 million in the next 5 yrs. Professionals and the money made the difference. See paying decent salaries does help. So get facts right. Stop having prejudice.

    6. The borrowers who are poor surely dont have access to other sources of credit. Even if they have, it is surely higher than MFIs. the borrowers have surely grown out of their poverty in maximum of the cases. In some cases probably, wrong enterprise decision or other factors could have impacted them...doesnt mean you declare every one as failures. the exception case cannot be the main point of view. Look things with better perspective.

    7. It will be great if RBI regulates this segment. the microfinance bill is pending for so many years and it only covers the NGo microfinance companies and not the for profit ones. Why? The for profit ones cover 90 per cent of the industry.

    8. if the public sector banks were to marginalize microfinance institutions, it would have happened long time back. The entire concept of financial inclusion would not be happening after 60 yrs or independence. Microfinance if not the tool to eradicate poverty it is surely a tool to eradicate poverty. given the huge demand supply gap in credit supply to the poor, the government has to be serious about amazing schemes and more than that amazing delivery mechanism which will reach the poor. given our politicians...distant dream for sure...not something i see in the next 2 decades...financial inclusion can happen when the system works together. One SKS or the MFI industry alone cannot be the change...it can only help in the change to a great extent.

    10.

    ReplyDelete
  5. 9. Very baseless point for one to take decision on. Please elaborate on how this impacts. it has surely created wealth for its investors. I am sure all of them will have a happy walk to the bank. Its ok...the poor have more access to funds while investors profit from it...atleast it has helped the poor that extra fund. As an investor, i would not have put my money in charity...i would look at returns...sks has given that to sequioa or kismet or Narayan Murthy or Sores or vinod khosla...why would they invest otherwise...ask NM or vinod khosla if they would give put all their investment funds in to social / charitable funds...they dont run foundations :)

    10. Just because, a couple of MFIs have played dirty (predominantly small ones as they have pressure of collections) it is not fair to paint the entire industry with the same brush. If i were to take your case, i will have to suspect all stocks of software companies given the RAJU scam.

    WOW...you are a piece apart ...look at the positive side of the MFI industry...the moral policing would not help the poor to get access to credit. If i am not wrong, none of the promoters have quit in this IPO. All of them have sold a part and the remaining has been put on a 3 yr lock in...i am sure, the seriousness in the business does exist.

    ReplyDelete
  6. Reply to facts right – 1. It is sin to charge even 28% interest on the money lent to the poor.
    2. Grameena bank model is different – there is no greed.
    3. The bottom line is promoters are interested in quick buck. MFI is only a mode for that.
    4. Growth % has nothing to do with ethics of business.
    5. It is possible to raise funds through NGO/donations to fund expansion. For that reason one need not be a loan shark.
    6. Yes agreed, borrowers are poor and have no access to credit. That does not mean that they are to be exploited.
    7.RBI/Government will intervene. That will happen sooner than most think. I reiterate, these MFIs will crumble.
    8.Yes that will happen. Do you know the number of branches opened by PSU banks in the last fiscal?
    9. That is the point I am stressing. There is no real love for the poor. Promoters are interested in maximizing their wealth. Nothing else.
    10.MFIs who charge interest in excess of 18% p.a.are following predatory practices.

    ReplyDelete
  7. I agree with the author/publisher

    ReplyDelete