Controversy Stirred Over SKS Microfinance's Multi-Million Dollar Stock Offering

SKS Microfinance, an Indian company with wealthy American backers, is poised to raise up to $350 million in a stock offering closely watched by philanthropists around the world, stirring controversy about the big profits that can be made from small loans to the world's poorest individuals, the New York Times reports.

SKS, one of the biggest players in the microfinance field, isn't the first microlender to go public. But its initial public offering is one of the biggest stock offerings to date in the still-nascent microfinance field and has raised eyebrows. There's no doubt that the company's 41-year-old Indian-American founder, Vikram Akula, and investors, including a number of prominent Silicon Valley venture capitalists, will profit from the IPO; Akula already has privately sold shares worth almost $13 million and holds options worth upward of $55 million. But whether investors in a company that exists to promote social good should be so handsomely rewarded remains an open question.

Two nonprofit microfinance groups that helped Akula put SKS on its feet and financed it through its early days stand to make a significant amount of money from the IPO, and it is unclear what they will do with the proceeds. Two board members associated with one of the groups — a collaboration of five Indian trusts that control the assets of the original nonprofit version of SKS — resigned in March over Akula's plan to support education, health, and other programs for SKS clients through the nonprofit SKS Society. The board members reportedly wanted to establish a grantmaking institution similar to a private foundation that could funnel the money to established social programs.

The other group ensnared in the controversy is Seattle-based Unitus, an international nonprofit organization that works to reduce global poverty by accelerating the growth of microfinance. In July, the organization, which holds a stake in SKS that will be worth millions after the IPO, shocked the nonprofit community when it announced it was laying off its forty-person staff and exiting the microfinance field to "seek out other transformative fields of endeavor." The announcement has led many in the microfinance field to question the motives of the organization's board members, at least four of whom had invested personally in SKS and stand to realize sizable profits from the IPO.

"If Unitus is closing down, that shows what is the real result of this IPO," said Muhammad Yunus, an economics professor who is considered the father of microfinance and has been critical of the SKS stock offering. "You are now encouraging the profit-maximizing part, and the nonprofits are closing down."

Stephanie Strom. "Rich I.P.O. Brings Controversy to SKS Microfinance." New York Times 07/29/2010.