Indian Microfinance Crisis of 2010: Turf War or a Battle of Intentions?

Social businesses like microfinance, due to their sensitive client base, need to walk a fine line to balance their
commercial interests with the social and moral expectations of a wide variety of stakeholders. The range of
stakeholders may include the State, investors, and the public at large, besides clients and regulators. Indian
microfinance institutions (MFIs) have done an admirable job of managing the commercial side of their
business; yet they have often struggled to manage the inherent contradictions of running such businesses at
scale while satisfying non-commercial stakeholders, and have often run afoul of the media and the
government. Recent allegations against MFIs by the media and the State include coercive practices, lack of
transparency, and “usurious” interest rates. These accusations have resulted in the passage of an Ordinance
by the State Government of Andhra Pradesh (AP). This white paper by Intellecap, an India-based social
business advisory firm, analyzes the buildup to the crisis in AP, attempts to revisit some fundamentals of the
business, and questions the effectiveness of radical approaches to multiple bottom-line business by the State
and the media.