As SKS Microfinance surges again, experts question the accelerated pace of MFIs

The share price of SKS Microfinance, India's only listed microfinance company, hit a 52-week high of Rs 573.85 on the Bombay Stock Exchange (BSE) on Thursday before closing at Rs 565.1. It is arguably a welcome relief for a sector that has faced an uphill task of trying to make a comeback after the state clampdown in Andhra Pradesh in 2010 with far reaching impact.

Those at SKS point to many drivers contributing to its growth in business and pick-up on the bourses. First, its gross loan portfolio, excluding the states of Andhra Pradesh and Telangana, grew 15 per cent on a quarter-on-quarter basis to Rs 4,797 crore in the first quarter of 2015/16. Second, the company has also seen an upsurge in non-loan revenue such as facilitation fee and treasury income. Third, the cost of borrowing and operating cost has come down. For instance, the cost of borrowing during 2014/15 was around 12.8 per cent but in the first quarter of this fiscal, it is said to be down to 11.9 per cent.

While many experts see the SKS results as huge positive for the sector, they also point out that the sector on the whole has been seeing a pick-up, but not all of it may be good news.

"The microfinance sector has hit the accelerator again and I personally have grave concerns about where it is heading," says Sanjay Sinha, Managing Director, Micro-Credit Ratings International Limited (M-CRIL), a company involved in ratings of microfinance institutions (MFIs). "If large MFIs grow at 25-35 per cent per annum, then I don't have any concern. But again, I am seeing large MFIs growing at 80-100 per cent per annum and that is where the concern comes from," he says.

But why should this be a concern? "Because then they are not able to control their processes, their portfolio quality deteriorates, their loan officers get busy chasing targets and, as a result, all kinds of malpractices in the field start to appear and that is what led to the crisis of 2010," says Sinha.

SKS Microfinance was trading at Rs 567.90 at 12.06 pm on Friday.