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Andhra Pradesh MFI Crisis and its Impact on Clients

How has the Andhra Pradesh crisis affected microfinance clients?
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This joint report by IFMR - Centre for Micro Finance (CMF) and MicroSave discusses the impact of the microfinance crisis in Andhra Pradesh (AP), India on clients. The report highlights similar findings from a quantitative study conducted by CMF and a qualitative study conducted by MicroSave. It presents findings related to multiple borrowing, household indebtedness, loan purpose, and client perspectives on availability of financing. Both studies highlight the phenomenon of multiple loans that have led to an increase in household indebtedness. Microfinance clients prefer not to borrow from banks. Reasons include not having enough savings to open bank accounts, delays, cumbersome procedures, and complex documentation requirements. Conclusions include:

  • Respondents use loans for productive and non productive uses including consumption;
  • Difficulties in accessing credit after the AP crisis has led clients to reduce the scale of business;
  • MFIs have failed to design market led products and processes;
  • Clients are uncomfortable with inflexible repayments, interest rates, and behavior of MFI staff;
  • MFIs need to institutionalize market research, customer satisfaction monitoring, and product development systems so that they can offer market-led products.