INTRODUCTION TO

MICROFINANCE
 Microfinance
is the provision of financial services to low-
income clients, including consumers and the
self-employed, who traditionally lack access to
banking and related services.
 Objective - a world in which as many poor as
possible have permanent access to an
appropriate range of high quality financial
services, including not just credit but also
savings, insurance, and fund transfers.
 MFI
 A microfinance institution (MFI) is an organization
that provides microfinance services, ranging from
small non-profit organizations to large
commercial banks.
 "The World Bank estimates that there are now
over 7000 microfinance institutions, serving some
16 million poor people in developing countries.
The total cash turnover of MFIs world-wide is
estimated at US$2.5 billion and the potential for
new growth is outstanding."
MICROFINANCE
 Why would poor people need financial
services?
 Why don't they just go to a bank?
 Why don't banks accommodate poor people?
 What are the effects of microfinance?
 Why are microcredit interest rates so high?
 MICROFINANCE
 "There are three kinds of costs the MFI has
to cover when it makes microloans. The first
two, the cost of the money that it lends and
the cost of loan defaults, are proportional to
the amount lent.
 The third type of cost, transaction costs, is not
proportional to the amount lent.
 SKS MICROFINANCE
 SKS stands for Swayam Krishi Sangam, which in
Hindi means “self-cultivation society.”
 Dr. Vikram Akula, Founder and Chairperson,
founded SKS in 1997 and launched operations in
1998 in Andhra Pradesh.
 In FY10 it has 6.8 million individuals as its
borrowers or some 20 per cent of all MFI clients
in India.
 SKS MICROFINANCE
 Mission- Purpose is to eradicate poverty, by
providing financial services to the poor and by
using channel to provide goods and services
that the poor need.
 Vision- Is to serve 50 million households
across India and other parts of the world and
also to create a commercial microfinance
model that delivers high value to the
customers.
 SKS MICROFINANCE
 SKS lends amounts of $44 to $260 (Rs 2,000 –
Rs 12,000) to poor women so they can start and
expand simple businesses and increase their
incomes at annual interest rates of on an
average 28%.
 SKS uses the group lending model where poor
women guarantee each other’s loans.
Borrowers undergo financial literacy training and
must pass a test before they are allowed to take
out loans.
 SKS IPO
 It aims to raise up to $354 million in an initial
public offering.
 It is now entering into initial public offer of 1.68
crore equity shares of face value of Rs 10 each
in the price range of Rs 850-985 per equity
shares($18.20 to $21.10) , valuing the company
up to $1.6 billion.
 A discount of Rs 50 per share was offered to
retail investors.
 MFI BOON OR BANE?
 In the short term, an IPO is about creating
value for shareholders and that poor people will
not benefit, however in the long run, MFIs will
gain a more diversified shareholder base which
will probably lower the interest rates for clients.
 A publicly traded company's traditional
obligation is to make money for its
shareholders, while the mission of microfinance
- loans typically under $200 for starting
businesses that banks won't make - is to lift
people out of poverty.
 Seeing good performance of SKS Microfinance
IPO, other big players in the sector are also
gearing up to explore the capital market.
 "This is pushing microfinance in the loan
sharking direction,"
 Hyderabad-based Spandana Sphoorty
Financial Ltd, which is ranked 6th in the world
and 2nd in India could be next in IPO trail from
Indian Microfinance sector.