SKS Microfinance may enter banking space

SKS Microfinance may enter banking space

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Mumbai: SKS Microfinance plans to enter the banking space and is awaiting Reserve Bank guidelines in this regard to seek the license.

According to a source, SKS Microfinance is likely to approach the Reserve Bank for a banking licence once the guidelines are issued. The interest to enter banking space for SKS Microfinance is prompted by the fact that it would help it reduce its cost of capital by half.

At present, the cost of capital for microfinance players stands 12-13 percent but once transformed into a bank, it will substantially decline to 6-6.5 percent. Talking to PTI, the source said that NBFCs have to borrow from the market directly at much higher rates than commercial banks. Consequently, the rates at which they lend are also higher.

After its IPO, SKS' net worth is likely to cross 1,500 crore. It is the first microfinance company in the country to attempt the IPO route to raise funds. The company is planning to raise 1,000-1,100 crore through the IPO for which, it is awaiting Sebi approval. It's IPO is likely to hit the market in June.

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Reader's comments(1)
1: I think turning SKS into a profit-turning business defeats the very spirit behind microfinance lenders. Village loan sharks are essentially going to be replaced by corporate loan sharks – both are motivated by pure greed & taking advantage of the poor.

I simply cannot believe any microfinance company that plans to turn a profit to satisfy investors will not do so to the detriment of the those very people they purport to help. The pioneer of microfinance & Nobel Prize winner Dr. Muhammad Yunus is against companies like SKS. I think the people behind the IPO of SKS should be ashamed of themselves.
Posted by:Dr. M Blake - 28 Apr, 2010