India’s SKS went public yesterday, and we’re all waiting to see what will happen. Initial public offerings (IPOs) have a rather infamous history in the microfinance industry. The Banco Compartamos IPO set off a flurry of controversy, and ended up casting a lasting pall over the industry. Will this IPO reignite the backlash over high interest rates and “profiting from the poor?” Only time will tell.

While we wait to see how this shakes out, we’ll first say that we believe that commercial capital – including IPOs – have an important role to play in increasing access to finance for low income people in the developing world. They are part of an equation. Certainly, the most commercially oriented microfinance institutions will probably not be the most socially-oriented, but when half the world is unbanked, it’s going to take all kinds of institutions to meet the demand. The data already shows that microfinance is not taking a single path – nor should it.

Red flags?
We have been fans of SKS, and are currently working with their foundation on an evaluation of their programs to reach the “ultra poor.” They have been growing at an incredible rate – something’s that’s necessary in a country like India, where the need is huge. Unfortunately, there are some signs that the early mingling of donor and investment capital that caused the Compartamos brouhaha could possibly re-emerge here.

The Unitus connection
For example, there may be cause for concern around SKS’s relationship to the recently closed Unitus. Hat tip to Tim Ogden at Philanthropy Action for this fantastic chart that spells out various for-profit investments and gifts Unitus channeled to SKS, and who stands to gain what.

Portfolio.com also pointed out this week that “The Unitus charity channeled about $6.6 million in donor cash and services to SKS. This support, which is separate from the private investment capital, provided operational funding, technical advice, and other help that Unitus says is now no longer needed."

All could be innocent, but it smells bad when you have charitable money being steered to subsidize an MFI (i.e., SKS) that appears to be owned (at least in part, via personal investments made through the Unitus Equity Fund) by the people (i.e., the leadership of Unitus non-profit) entrusted with running the charity.

And $6.6 million in subsidy seems like a lot – especially for an avowedly commercial enterprise. Not least when that enterprise appears to be netting the Unitus fund $60 million on a $10 million investment held for just a few years…

Until it all shakes out, we’ll watch and wait.