SKS Microfinance Limited: A Funds Tank Study

Abstract

Microfinance institutions provide collateral free small value loans and other financial services to the weaker section of the society in order to improve their socio-economic status. In order to achieve this objective, the institutions must be financially sustainable and well capitalised. This paper studies the various sources of funds of SKS Microfinance Limited. The MFI under study is a RBI registered NBFC-MFI. The company is the only microfinance institution to be listed in Indian Stock Exchanges after its successful IPO in 2010. The major source of debt funds of the company is term loans from banks and financial institutions. Apart from its internal source of funds like retained earnings, the company taken cash credit from banks and issued commercial papers and non-convertible debentures from time to time to meet its capital requirement.SKS microfinance has issued equity shares through employee stock options, qualified institutional placements (QIP), preferential allotments and initial public offering (IPO).The rapid growth in the microfinance sector, especially of NBFC-MFIs has led to the search for innovative financial sources other than plain balance sheet borrowing to sustain the growth rate. Three forms of structured financial products have gained significance; these are: bilateral loan assignments, securitization and collateralized debt obligations (CDOs). The RBI has already allowed the NBFC-MFI to raise overseas funds through external commercial borrowing.