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Microfinance: robbing the poor to feed the rich?

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by David Masters
Microfinance: robbing the poor to feed the rich?

India-based SKS Microfinance has announced an initial public offering (IPO) which is expected to raise $250-$350 million in shareholder investments.

The IPO is the first by an Indian microfinance company, and has sparked a debate around the ethics of profiting from the poor.

Some argue that the IPO is necessary after microfinance firms (MFIs) reach a certain size.

“For specific MFIs who have crossed a certain size an IPO becomes inevitable because you can’t raise [enough capital] from private equity in one shot,” said Vijay Mahahan, chairman of microfinance institution BASIX.

However, others argue that IPOs will result in too much pressure on MFIs to have high profit margins.

“The job of microfinance is to alleviate poverty, so the question to ask is: who’s going to benefit from the IPO?” said Olivia Donnelly, of UK-based nonprofit Shiva Microfinance.

“It’s OK to do an IPO because you need to scale up, or upgrade your IT systems, but is it correct to make millionaires out of shareholders when your borrowers are so poor?”

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News posted: April 9, 2010

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