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Microfinance Industry in India
Introduction
In October 2010, the government of the southern Indian state of Andhra Pradesh passed a new ordinance, to severely restrict the operations of Microfinance Institutions operating in the state. The government's action came in response to allegations that the aggressive recovery practices followed by the MFIs had resulted in many of their borrowers committing suicide. Since Andhra Pradesh had a major share in the business operations of MFIs, the ordinance increased the non recovery of loans given by the MFIs.... Many big MFIs stopped operations in the state, while some of the smaller ones closed down completely. The crisis also made it difficult for MFIs to secure loans from banks and other financial institutions.While one policy decision by the government led to the crisis, another helped the Microfinance industry recover from it. In December 2011, the Reserve Bank of India (RBI) issued a new set of guidelines for the Microfinance industry which made it possible for MFIs to again get loans.... |
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Some MFIs started getting loans from banks and expanding their operations slowly. The MFIs also followed a lot of innovative strategies to overcome the crisis. They started expanding in some other Indian states like West Bengal where there were no restrictions on their operations. Many MFIs, both big and small, diversified into other areas of finance like loans to farmers for buying tractors, gold loans, housing loans, and loans to small traders. The MFIs also started raising more money through novel means like securitization deals and Qualified Institutional Placements (QIP) to further expand their operations.
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