AP Microfinance Crisis & Its Impact on Microfinance Sector

Abstract

Microfinance is an economic development tool whose primary objective is to assist the poor to work their way out of poverty.  Microfinance loans are usually small, unsecured, given to low-income groups, mainly for income-generating activities and sometimes for consumption, housing and other purposes. The microfinance sector went through a difficult and challenging period during Andhra Pradesh Microfinance crisis. What started as a concern about the reported suicides by few harassed MFI borrowers soon grew into a major crisis that had threatened the entire microfinance sector. This could be mainly due to absence of regulatory body for microfinance sector and failure of Bank Linkage Programs. The RBI, accepted the recommendations of the Malegam Committee and brought NBFC-MFI under a separate regulatory framework, through NBFC-MFI Directions.

Key words: Microfinance; crisis; regulatory body; NBFC; Malegam Committee.