Andhra Pradesh 2010: Global Implications of the Crisis in Indian Microfinance
This CGAP Focus Note provides background and context on the Andhra Pradesh crisis, and discusses implications for global microfinance.
Presence of a large government-supported SHG program and five of India’s largest MFIs resulted in rapid proliferation of credit across the state of Andhra Pradesh. The note examines factors and events culminating in the 2010 crisis.
The global microfinance industry needs to implement a financial agenda including transparency on interest rates. Vulnerabilities such as high levels of indebtedness resulting from expansion of credit and loss of credit discipline, inadequacies due to growth that outpaces internal controls of MFIs and credit-only model of Indian microfinance that compromises on asset quality must be addressed. The note highlights key issues that the microfinance community must address at the institutional and market level. They include:
- Ensuring long-term viability of MFIs through incentives to shareholders, management and staff;
- Sustainability of specialized microcredit institution model;
- Role of institutions and investors in sustainable growth;
- Credit information sharing and codes of conduct in self-regulation;
- Support and security through market infrastructure;
- Role of regulators and policy-makers in credit crisis prevention.
