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Controversy Surrounding SKS Microfinance

Are philanthropy and profit mutually exclusive ideals? The very successful initial public offering of one of the world’s biggest microfinance institutions is stirring a lot of controversy. Via the New York Times.

An Indian company with rich American backers is about to raise up to $350 million in a stock offering closely watched by philanthropists around the world, showing that big profits can be made from small helping-hand loans to poor cowherds and basket weavers…

[The] I.P.O. for SKS, one of the field’s biggest stock offerings yet, has caused its own type of controversy.The disputes involve two charitable microfinance organizations that helped Mr. Akula put SKS on its feet and financed it through its early days. It is not clear what will happen with the money those groups will make from the I.P.O.

At one of those groups — five Indian trusts that now hold the assets of Mr. Akula’s original nonprofit version of SKS — two board members resigned in March over his plan to steer funds toward his original nonprofit group rather than granting them to many charitable entities.

The other nonprofit ensnared in controversy is a Seattle-based group called Unitus, which holds a stake in SKS that will be worth millions after the I.P.O. The group’s board shocked the nonprofit community this month by saying that all of the organization’s 40-person staff would be laid off and that Unitus would no longer be involved in microfinance activities…

In charity circles, people wondered about the motives of the Unitus board members, at least four of whom had invested in SKS Microfinance themselves and thus would reap profits from the I.P.O.

“If Unitus is closing down, that shows what is the real result of this I.P.O.,” 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.”

New York Times – http://www.nytimes.com/2010/07/30/business/30micro.html?_r=1&ref=asia

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