Paper

M-CRIL Microfinance Review 2011: Anatomy of a Crisis (Executive Summary)

Reviewing the microfinance crisis in India
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This is the executive summary of M-CRIL'’s Microfinance Review 2011. The review examines the factors that contributed to the microfinance crisis in October 2010 such as loan size, multiple lending, over-indebtedness, client retention and client protection, staff working conditions, and the early effects of the crisis on the performance of Indian MFIs.

The report is based on analysis of financial data from 59 leading MFIs in India, and 49 MFIs that have submitted outreach to the MIX Social Reporting platform and 32 MFIs that have submitted social performance data. Conclusions include:

  • Microfinance is now established as a significant component of the financial system in the country and its contribution to financial inclusion continues to rival the rural banking system;
  • Efficacy of this contribution is under threat due to internal factors (over-indebtedness) and external factors (policy actions of the Andhra Pradesh government);
  • MFI contribution to the economic lives of low income families has actually reduced by around one-third over the past ten years;
  • Crisis has led to a decline in cost efficiency, returns to MFIs and funding from commercial banks;
  • Principle of responsibility in the provision of microfinance is now taking hold.