At the Crossroads: Microfinance in India

Money & Finance, Forthcoming

24 Pages Posted: 6 Jul 2011

See all articles by Rajesh Chakrabarti

Rajesh Chakrabarti

O. P. Jindal Global University

Shamika Ravi

Brookings Institution

Date Written: July 6, 2011


As of early 2011, the microfinance industry in India, one of the largest in the world, is facing a moment of reckoning. The recent developments in Andhra Pradesh, the cradle of microfinance in India, have stamped the future of the sector with a huge question mark. This paper sketches the background of the microfinance movement in India as well as its current geographical distribution and outreach; chief models and major players; and, finally, the economics of interest rates in the sector. It discusses the offerings made by Microfinance Institutions (MFIs) ranging from simply credit to other financial services to a plethora of social services packaged with microfinance and the effect this has on interest rates. It discusses briefly the tension between the twin objectives of profitability and development and how this is tackled differently in profit-oriented MFIs versus non-profits, and outlines the role of government in the microfinance movement in India. The recent events in Andhra Pradesh, their rationale, fallout and implications in the larger context, are discussed.

Keywords: microfinance, India, MFI

JEL Classification: G28, O16

Suggested Citation

Chakrabarti, Rajesh and Ravi, Shamika, At the Crossroads: Microfinance in India (July 6, 2011). Money & Finance, Forthcoming, Available at SSRN:

Rajesh Chakrabarti (Contact Author)

O. P. Jindal Global University ( email )

Sonepat Narela road
Sonepat, Haryana 131001

Shamika Ravi

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

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