A microfinance institution in India went public July 28 in a bid to boost its lending portfolio for the various small and medium-sized enterprises it supports. Industry experts have voiced varying opinions on the possible implications of MFIs going public on the poor people they assist.
“Scaling up can result in economies of scale, resulting in lower interest rates for clients. Indian MFIs only cover a small part of the demand, and many people are still not being served. In order to include them in the financial system, the microfinance sector needs to grow and develop. An IPO can help to achieve this,” said Anneloes Mullink-Bos, an investment officer at the Netherlands Development Finance Co., as quoted by Microfinance Gateway.
But some of the microfinance industry’s biggest names contradict this idea.
Mohammed Yunus, founder of Grameen, told The Associated Press that the commercialization of MFIs is not only a “mission drift” but that it endangers the whole mission of helping the poor start their own business. Yunus says there are other ways MFIs can generate more capital to fund their loans.
Other critics noted that the priorities of most publicly traded companies is to generate profits for its investors, Shweta Banerjee writes on the World Bank’s “End Poverty in South Asia” blog.
“An IPO provides access to the large public capital market,” Samit Ghosh, chief executive officer of Ujjivan Financial Services, explains in the Microfinance Gateway article. “Unfortunately, if it is perverted to achieve highly inflated valuations and to increase the personal wealth of promoters and top management through unprofessional and dubious means, then the label of ‘making money off the poor’ becomes credible.”
Banerjee notes that there are several experts who raised concern over the effectiveness of existing microfinance models themselves. One expert, the author writes, argued that it is not enough to provide small entrepreneurs with loans because they also need technical support and access to experts’ knowledge base.
Meanwhile, another industry expert said small entrepreneurs are better off receiving MFI loans than nothing at all.
Banerjee concludes: “A clear signal has been sent to big investors that lending to basket weavers, small farmers, and vegetable vendors can be profitable but it is still not clear how this IPO will help the borrowers. The jury is still out.”