An Idea Which Went Wrong

The Indian microfinance industry was once the darling of global investors and bankers. Offering small loans to better the lives of the poor was both a noble and profitable goal. In hindsight, it may have been too profitable. Overzealous industry commercialization and an obsession with profits transformed an inclusive financial system, with potential to succeed, into all-out profiteering, with tragic results.

Just how tragic became clear in 2010, when the government of Andhra Pradesh, the "microfinance capital of India," reported that fifty-four people committed suicide in response to strong-arm MFI loan recovery tactics, especially in the context of rampant over indebtedness. The announcement ruined the international reputation of MFIs, leading one stakeholder to famously announce "microfinance in India has become a macro-mess."

In "An Idea Which Went Wrong," microfinance expert Ramesh S. Arunachalam chronicles the regression of Indian microfinance from philanthropic and pragmatic idealism to profiteering at any cost, revealing the events leading up to the 2010 Andhra Pradesh crisis.

Equally important, he discusses the future of Indian and global microfinance. Many believe legislation and distrust have effectively killed the microfinance industry, especially in India. Arunachalam argues this is not the case, laying out a framework of practical remedial measures necessary to restore microfinance to its original purpose: serving the needs of the poor, disadvantaged, and excluded people-albeit, in a sustainable manner.