Wednesday, October 27, 2010

Why Micro Finance?Why not Banks and some other arguments...

There has been huge noise generated over the management changes in SKS Microfinance started by Mr Vikram Akula.Does it deserve all the attention - from the media as well as investors?

Sadly I think this business model would be great as a non profit venture as envisioned by Mohammad Yunus who fructified the concept through his Grameen Bank which means the Village Bank.The moment profit comes into the picture all kinds of sharks(and Gordon gekkos) get into that " picture" which then goes from something of a Rembrandt to a bad copy of Dali.Some other Micro Fin cos that are eyeing an IPO are Ujjivan Finance founded by another ex-Citibanker.

As an investor I would rather prefer Banks who have a track record,starting from the mammoth State Bank of India,ICICI Bank to the smallcaps - Dhanlaxmi,Vijaya,Karnataka Bank.

We know the business they are in and they dont lend so that someone can buy a goat and pay interest on that!

It is sad that even today approx  84% of Indians still burn wood or coal for their cooking needs.In the coming years with the lesser dependence on fossill fuel a change to LPG or other cleaner fuels will become mandatory.Everest Kanto Cyclinders(EKC),CMP:133,P/E:34,EPS:3.9(as of 31/03/2010) and a market cap of Rupees 14 million is well poised and is a BUY at current levels with target price of 200 by April 2011.One can hold it in the long term portfolio if required.

Micro finance as a sector is critical for the rural poor of India to come out of their financial dependence,BUT Micro Finance Companies that simply look at the bottomline are not required!

Having travelled and lived in villages I know the importance of a single goat,I have seen tigers and leopards being beaten to death by enraged villagers when their cattle were attacked(but thats another story),its economic value is significant and I hope that our systems allow funding to percolate down to all levels of Indian Society.

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