The 2010 Microfinance Crisis in Andhra Pradesh, India and its Implications for Microfinance in India

Abstract

This paper looks at the trajectory followed by microfinance in India and specifically focuses on the state of Andhra Pradesh. In 2010 a law by the state government of Andhra Pradesh halted operations of private microfinance organizations in the state, adversely impacting their recovery and liquidity. This crisis, although not wholly unexpected, still shook the industry both in the state and across the country. This paper analyzes the impact of the crisis specifically on Andhra Pradesh and in general on the industry in India and provides recommendations for the way ahead, both for the government via the regulatory route and microfinance organizations in their operations. Once considered to be an ideal development strategy, microfinance has lost much of its sheen in recent years and is increasingly under fire.