I’ve written in this space before asking why my BlackBerry stayed on the grid in a remote mountain village where basic banking was missing. A few years earlier I had argued for a model that would make financial services as ubiquitous as paan masala, glucose biscuits and shampoo sachets in remote rural India. So now when this comes to pass in the form of an initial public offering (IPO) from a microfinance firm that has made capital available to hundreds of thousands of poor Indians, what’s the discomfort? The SKS Microfinance Ltd public issue opens on Wednesday for subscription. The lender is offering 16.7 million Rs10 face value equity shares in a price band of Rs850 to Rs985 apiece. And the debate has just begun in the marketplace: Is it justifiable for a firm focused on social goals to make supernormal profits?
Also Read Monika Halan’s earlier columns
Intellectual honesty demands that I weigh in with SKS. After all the Coca-Cola analogy (SKS promoter Vikram Akula, it seems, jumps onto the stage with a Coke can in hand to demonstrate that SKS will do what the fast-moving consumer goods, or FMCG, industry has managed to do—attain mass outreach in a replicable model) is what I have been writing about as well—getting rural financial products FMCGized.
So what’s the issue. Why this discomfort? If capital markets are an efficient way to move money to their best use, why baulk at the SKS issue? Does that mean that hospitals must not list, or educational institutes or media? This logic can take us all back to hundis in a minute.
One thread of argument is from those simply envious of what SKS has achieved—taking capital to the poor on a giant scale and making themselves millions in the process. This group will include traditional bankers (Hey, where did the money come from? How come we did not see it? There must be something wrong with the model), development workers who may have tried to achieve similar goals but could not do so in the same scale SKS has, and others in the development space. A little bit of the carping is sheer envy—that Akula and friends found a mother lode of gold where others had seen only dust.
Still, filter out the noise and the one argument that emerges from those against the SKS IPO is this: Is it ethically justifiable that costs are borne by the poor that these firms say they are trying to help? If you are in the business of providing capital to the poor, how can you justify supernormal profits? The rate of returns that you earn point to the fact that your interest rates must be lower than they are today.
The arguments in favour of the IPO talk about the inability of the present government-sponsored banking and subsidy system to crack the problems of the rural poor and of capital markets-funded money being the one way to scale up what has been achieved till now. In 2009, about 80 million people were covered by microfinance and self-help group lending. Given that the reach of formal branch banking is yet at just 200 million, could this model not challenge the status quo? If we oppose SKS, are we telling the poor rural Indian to go back to the money lender who not only charges rates of over 100% but has all sorts of other social leverage over the poor family? Should they be left to the nexus of political doles and the rural bank branch system rotting under the weight of corruption and dysfunction?
That, though, isn’t my main grouse. What some of us, who believe in markets, are worried about is this: Will the need for the huge doses of capital to push a large swathe of Indians out of generations of poverty and despair also open them up for the Wall Street to dig its suckers in? My own worry is that the eye of the Wall Street is on the profits at the bottom of the pyramid—two Wall Street majors have already launched microfinance units in emerging markets. When journalist Matt Taibbi described Goldman Sachs in particular, and the Wall Street in general, as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”, not many disagreed.
Possibly SKS is neither a giant squid nor a devta, but just a business. Possibly that’s where the intellectual problem is: Social goals cannot be just a business. It must be more. But then, isn’t that true of all businesses—isn’t that what corporate governance, corporate social responsibility is all about? For once I don’t know where I stand on the debate—the learning is still on. The minimum that the SKS IPO will achieve is to allow each of us, busy with this part of work in the transformation of India, to examine where we stand.
Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money.