The initial public offer (IPO) of the country's biggest lender to the poor, SKS Microfiance, was oversubscribed nearly 14 times as it became the country's first microfinancier to seek a stock listing, data showed on Monday.
The IPO, which aimed at raising at least $350 million, received strong demand from investors, who bet on its business model of lending to the poor.
“Investor response was very good, indicating confidence in the company's asset quality,” a source told AFP.
The microlender, based in Hyderabad, which lends small sums to the neediest, who are unable to get credit from mainstream banks, is selling a 22 per cent stake in the IPO.
The lender received about close to 190 million bids for the 13.7 million shares on offer — a 13.6 times oversubscription, stock exchange data showed.
SKS, which plans to use the capital raised to expand its lending operations, will join a select group of microfinancers globally to have shares listed. The shares will start trading in mid-August.
The IPO, managed by Kotak Mahindra Capital, Citigroup and Credit Suisse, was launched on Wednesday last.
SKS, which says its mission is to eradicate poverty, fixed the price band for its IPO at Rs. 850-985 ($18-21).
Most bids were at the top-end of the price band, indicating robust investor demand. Interest was strongest from institutional investors.
“Our feedback from institutions is that they are confident that the business model can be replicated as the company expands,” the source said.
SKS has served a total of seven million borrowers and operates more than 2,000 branches in 19 States.
It offers loans which average about Rs. 7,000 ($150).
Founded in 2003, SKS, whose borrowers pay back their loans in weekly instalments, has a 99-percent repayment rate.
SKS has cited research showing that the supply of funds for micro-loans in India stood at $4.3 billion in 2008 while demand was $51.4 billion.
Demand for small loans is expected to reach $72 billion by next year.
The offering could trigger a series of stock market listings by Indian microfinance firms hungry for equity to finance loans, analysts say. Like most microfinance lenders, SKS's interest rates are hefty. SKS's annual loan rate ranges up to 28 per cent, which, some critics say, is exorbitant.
But the lender says the rates reflect its costs and are far lower than those charged by predatory moneylenders who ask for up to 72 per cent interest annually and to whom India's poor would otherwise turn.
Less than half of India's 1.2 billion population has a bank account while fewer than 10 per cent have life insurance.
With the country posting 8.6-per cent expansion in the latest quarter, experts say improving the poor's access to financial services is crucial to ensure they can take advantage of robust growth.
Lack of availability of credit for the poor at an affordable cost is a stumbling block for growth and equitable development, which are essential for reducing poverty in Asia's third-largest economy, they say.
SKS is one of the biggest micro lenders to float since 2007 when Mexican microfinancier Banco Compartamos — which means “let's share” in Spanish — listed on the stock market, making large sums for its founders and sparking a public debate about the ethics of making profits from the poor.
