The Andhra Pradesh Crisis: What Should MFIs Do?

Improving transparency of interest rates, governance and operations
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This Microsave India Focus Note examines how Indian MFIs should respond to the current crisis in microfinance.

The Note states that MFIs can no longer deny the crisis. It suggests that they need to:

  • Respond to the accusation that their pricing is not transparent, establish a standard pricing method and help clients understand the real costs of their loans;
  • Establish outstanding levels of transparency and governance in all aspects of their business;
  • Conduct social performance analysis on the basis of client satisfaction and loyalty, and act on results;
  • Pay more attention to the basics of their business and mission;
  • Push for establishment of a credit bureau;
  • Follow stricter client protection policies;
  • Offer a range of high-quality, client-centric and flexible financial products in a manner that is suitable to clients.

MFIs need to provide a suite of products to their clients to reduce vulnerability and enhance their income-earning abilities. They can do this by moving to individual-based lending and banking correspondent models.