The Commercial Approach and the SKS IPO
The SKS Microfinance IPO (Initial Public Offering) has been big news in India and in the microfinance community. SKS is the first Microfinance Institution (MFI) to go public in India. News of this IPO brings up good questions about the profitability of microfinance and the commercial model.
Microfinance isn’t a panacea; it won’t solve poverty on its own. But used as a tool along with other poverty alleviation strategies microfinance is very powerful. It gives people the much needed opportunity to better their station in life through the use of financial services. But just as microfinance is only one avenue to alleviate poverty there are different approaches within the field too.
The approach that ACCION takes, and the one that I believe in, is commercial microfinance. The commercial approach is one way to expand access to credit and financial services to microentrepenuers. The infusion of private capital allows MFIs to reach more people and provide better and more efficient services at lower interest rates than philanthropy would alone. At least that’s the idea.
Now SKS and a US based nonprofit, Unitus, are ensnarled in a bit of controversy over the recent IPO and the validity of the commercial model. Last month before the IPO opened Unitus closed up shop and announced that microfinance will not be the focus of any future activities by the organization.
I think that it’s a shame to see Unitus go. Microfinance needs the voices of nonprofits to protect the consumers and keep the focus on the double bottom line (social responsibility and profitability). That’s why I’m glad ACCION is still in the game promoting client protection through the Center for Financial Inclusion’s (CFI) Smart Campaign.
The Smart Campaign addresses how financial services can cater to the needs of poor people in an efficient and affordable manner. The CFI aims to make it easy for MFIs to protect clients and be transparent financial organizations. This is increasingly important as the industry matures and naturally comes under more scrutiny.
I truly believe that access to credit and financial services should be a right in this day and age. Naturally, financial services aren’t as essential as access to clean drinking water or housing, but each improves life for the recipients. Yet microfinance (and the commercial model) has the capacity to improve lives so much further because it is a sustainable approach to alleviating global poverty.
For more about the SKS/Unitus controversy please read this article published by the New York Times last week. And for more about the Smart Campaign please go to www.smartcampaign.org. If you’ve enjoyed this blog you may want to check out the CFI’s blog too.