India’s Most Recent Microfinance Crisis: Theory, Empirics & Learnings

This paper presents a theoretical framework for understanding microfinance crises. The framework builds on Hyman Minsky’s 1977 work on financial instability and incorporates a cultural perspective that recognizes overlending and overborrowing as behaviors that can, at times, take hold in microfinance markets. The paper then provides evidence from the most recent crisis in support of this framework and concludes with a set of recommendations for policymakers.

The paper also includes an appendix containing reviewer comments and the authors’ responses. Readers seeking a deeper understanding of the core mechanisms underlying the theoretical framework may find this section particularly useful.