The Evolution of India's Microfinance Market – Just a Crack in the Glass Ceiling?

Analyzing the Andhra Pradesh microfinance crisis

This article presents an overview of the Andhra Pradesh microfinance crisis and analyzes factors that contributed to the crisis.

Major events leading up to the crisis were suicides of poor farmers and the public listing of SKS microfinance. Other trends in microfinance that contributed to the crisis include:

  • Indian MFIs are credit-driven, while comparative effectiveness studies indicate that MFIs offering credit and savings perform better;
  • Quest for going public causes MFIs to grow exponentially and indulge in bad operational practices, leading to over-indebtedness of customers;
  • Bad practices encourage tactics such as threatening and illegal repossession of collateral, which could contribute to suicides;
  • Indian regulatory framework prohibits MFIs from mobilizing savings and offers limited options for expansion and diversification;
  • Political intervention often affects MFI decision-making.

MFIs need to reinvent themselves to reach more households with more relevant products, and engage regulators intensively.

About this Publication

By Schmidt, O.