Is Commercialization of Microfinance Responsible for Over-Indebtedness? The Case of Andhra Pradesh Crisis

Abstract

The main purpose of this theoretical study is to analyzes whether commercialization of microfinance institutions (MFIs) is responsible for over-indebting their poor borrowers taking into account the recent Andhra Pradesh (AP) incidence. Critics argue that massive influx of commercial capital cause exponential growth of loan portfolios of the MFIs that finally cause over-indebtedness. The diagnosis of AP incidence indicates that commercialization is not solely and directly responsible for over-indebting their clients. It is the outcome of internal inefficiencies, unethical operations and malpractices of MFIs. However, commercialization is indirectly responsible for over-indebtedness when ‘profit seeking’ MFIs start unethical practices to maximize their profit. This issue is important not only for India but also in some other developing countries to ensure sustainability of MFIs and to protect their poor clients.

Keywords: Microfinance; commercialization; over-indebtedness; AP crisis.