The Andhra Pradesh Crisis: What Should the Government Do?

This MicroSave India Focus Note recommends actions for the Reserve Bank of India (RBI) to manage the microfinance crisis in Andhra Pradesh.

The microfinance industry in India has grown rapidly. MFIs have expanded outreach, improving financial access across the country. The banking sector in India has also supported the growth of microfinance. The paper recommends that the government:

• Enforce transparency in the microfinance sector;
• Fix responsibility on banks that lend to MFIs;
• Use priority sector lending requirements to manage growth and encourage operations in remote areas;
• Develop union level legislation and exempt MFIs from state-specific money lending;
• Exempt MFIs from interest rate caps;
• Encourage banking correspondent model;
• Recognize, and hold accountable a credible, well resourced industry association;
• Review the self-help group model.

The note states that the RBI recognizes the role of MFIs in financial inclusion. It hopes that RBI continues to maintain its foresight so that the poor people in India do not have to pay for the aggression of a handful of players or political expediency.