Shares in SKS Microfinance, India’s only listed microfinance company, rose 10 per cent on Tuesday to Rs143 ($2.86) as investors bet new regulations would help it build business.

But the price rise doesn’t do enough to recover steep losses over the past month, after a widely-distributed Associated Press story revived accusations of involvement of SKS employees in a wave of suicides among insolvent borrowers. And the shares are at barely more than a tenth of the Rs1,400 they hit on a wave of investor confidence that followed the company’s IPO in 2010. SKS said the AP story was “baseless”.

Investors have been looking for reasons to get back into SKS. The shares came back from a low of less than Rs90 in late January when the company raised Rs12bn. It is currently raising another Rs3.5bn to Rs5bn, which Dili Raj, financial director, told CNBC was going “very well”.

The simmering scandal over a rash of suicides among impoverished microfinance borrowers has soured the reputation of microfinance since 2010, when what had been a non-profit sector began to attract investors on the promise of financial return.

SKS suffered particularly badly in the backlash after the state of Andhra Pradesh - which is home to 6 per cent of India’s population but accounted for as much as 35 per cent of the money lent through microfinance – ordered microlenders to suspend operations in October 2010.

SKS told the Associated Press it was “neither the cause of nor responsible for any suicides in the state of Andhra Pradesh”. In a letter to the AP following publication it described the report as “baseless” and said it had appointed an ombudsman “to drive its customer protection policies”.

Raj told CNBC he was confident a microfinance bill likely to be presented during a special budgetary session of parliament starting this week would be passed quickly and allow SKS to resume operations in the state, where he said 9.2m borrowers were certified as defaulters.

Given New Delhi’s recent record of getting legislation through parliament, that sounds like a leap of faith. Perhaps investors are planning to buy on the rumour and sell on the fact – or lack of it.

Related reading:
AP IMPACT: Lender’s own probe links it to suicides, Associated Press
‘Yunus Was Right,’ SKS Microfinance Founder Says, India Ink, NYT
SKS in red after India’s microlender purge, FT

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