Commercialisation of Microfinance in India: Is it all Bad?

MicroSave's India Focus Note No.43 examines the growth and consequences of the commercialization of microfinance in India.

The commercialization of Indian microfinance, which began in the 1990s and 2000s, saw the entry of high-risk private equity (PE) investors with a focus on quick profits. This move led to:

• Fundamental change in the nature of Indian microfinance;
• Nearly USD 234 million of PE investor funds placed in a handful of Indian MFIs;
• Ruthless commitment to rapid expansion and profitability;
• Most Indian MFIs with PE investors becoming financial bottom line organizations;
• MFIs losing sight of the ideals on which they had set-up their organizations;
• Rapid growth of larger MFIs;
• MFIs lagging behind on governance;
• Crowding out of social investors;
• Many of the southern states invoking the anti-moneylender legislation against MFIs;
• Reserve Bank of Indias move to moderate MFI interest rates.

The commercialization of Indian microfinance has allowed a massive increase in outreach and expansion of credit to the poor in India, but there are many that wish that the path to growth had been more moderate, controlled, and focused on the double bottom-line.