The Indian Microfinance Crisis 2010 – Lessons for China (English Version)
This paper is in English. Click here to download the Chinese version >>
This paper, published by the Working Group on Inclusive Finance in China, and led by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Graduate School of The People's Bank of China, and World Microfinance Forum Geneva, analyzes the Indian microfinance crisis and its relevance for China.
India's microfinance industry experienced a crisis in the State of Andhra Pradesh (AP) in 2010. The AP government identified several issues against the microfinance industry. It issued an ordinance requiring MFIs to fulfill various criteria. An investigation committee under Y.H. Malegam, issued a set of recommendations for the microfinance industry.
The paper states that China could eventually experience a similar crisis, because it may, in the future, contain some of the conditions that caused the Indian crisis. They include:
- Expansion of debt funding options for microfinance providers, domination of their governance structures by commercial interests and lack of supervision;
- Explosive growth of Micro Credit Companies, Village and Township banks, and Peer to Peer providers, which may encourage overly competitive practices.
The paper recommends that China should take note of the good parts of the AP ordinance, Malegam Committee recommendations and recommendations made by MFIs and investors.
