the writing was on the wall for the same to happen
SKS Microfinance Limited created unprecedented demand for the share issue. Dr Vikram Akula a professor was at the right places at the right time and was going great guns. The issue was oversubscribe d13 times and received excellent response from all. This writer did not like the issue and in the article on the site mentioned key risks being political and the fact that the interest rates charged were extremely high.
The copy of the risks is being again reproduced here.
Risks
The biggest risk is political. We all know that farmers suicides and money lenders is always an issue. Secondly when it comes to elections anything to do with loans and weaker section of society is always an issue. This business has very high operating costs because of small ticket size. This also makes the interest rates extremely high and that can always bring out intervention from the government or regulators. I believe that post this issue the kind of hype that has been created intentionally or unintentionally will bring about lot of unnecessary attention to the industry and this company in particular. |
Let us go back to what has happened to SKS. The share listed on the 16th of August at the BSE and NSE. The share which was issued at a price of Rs 985 rose steadily to an all time high of Rs 1490.70 on the 28th of September and it has been a one way fall from there. The share on Friday the 20th of November made a low of Rs 601.05 and closed at Rs 675.75. If we talk statistically the high of the share at Rs 1490.70 was a gain of Rs 505.70 or 51.34%. The fall from Rs 1490.70 to Rs 601.05 means a fall of Rs 889.65 or 90% of the issue price. The fall has been unprecedented and the ratings agency Fitch has downgraded the share because of risks associated with the nature of business of lending to the unorganised sector.
Clearly the events and hype of this company have dealt a body blow to the company and more importantly to the entire Microfinance industry. This incident would hurt the growth of this sector and we as a country have suffered immensely.
