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Microfinance companies planning to take IPO route
Microfinance institutions that lend money to the poor are coming of age and are now tapping the equity market through initial public offerings or IPOs for their funding needs.

SKS Microfinance, the country's largest such institution, is the first to hit the market and hopes to raise over Rs 1,000 crore from the market.

Others players waiting in the wings are Spandana and Share Microfin, the second and third largest by size respectively.

Experts also see IPOs from other big firms such as Bandhan, BASIX and Equitas later on following the same path.

"For specific MFIs who have crossed a certain size an IPO becomes inevitable, because you can't raise Rs 300-400 crore from private equity in one shot," said Vijay Mahajan, chairman of BASIX, a microfinance institution.

But now with shareholders to answer to the tussle between the profit objective and social responsibilities becomes deeper, how will the MFI ensure that it makes big profits even as fulfills its objective of serving the needy?

"It is a call that the management will have to take about whether they will be comfortable," said Avinash Bajaj, MD & co-founder of Matrix India.

Companies are closely watching the fate of the SKS Microfinance issue to decide on their future course, say experts.

"A lot will depend on how the SKS IPO is going to be accepted by the market and subsequently if the IPO has been accepted well you will see a couple more," said Atreya Rayaprolu, vice president of Intellecap.

A word of caution though, say experts, in their quest for reach and scale. Several microfinance companies have not paid attention to asset quality and have lent money to those customers whose capacity to repay the loans is suspect.

So, an investor wanting to put money in a micro finance institution must look at the company's product profile.
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