ABSTRACT

Microfinance Institutions (MFIs) established for the purpose of bringing sustainable development to the poor are now themselves struggling with the perils of their own sustainability. The success or failure of an enterprise depends upon its ethical business performance and MFIs are not an exception to this rule. The Microfinance crisis in Andhra Pradesh was an eye-opener for Indian MFIs making them ask very pertinent questions about their existence, sustainability and functionality of operations. The already existing literature on this subject has highlighted several issues contributing to the Microfinance crisis. This study is an endeavor to evaluate the indicators that negatively impact MFIs’ sustainability. In some cases, borrowers of the funds provided by MFIs improperly use the finance made available to them in non-economic, household and personal activities that ultimately make them defaulters for non-repayment of loan. Cumulatively, this results in MFIs suffering significant losses due to the formation of bad debts and Non-Performing Assets (NPAs) thus making them resort to coercive means and malpractices for loan recoveries. This dissuades many from lending at all to the impoverished and thus with no means for economic upliftment, the poor remain poor. The MFIs also exercise discretion while choosing the category of their borrowers. Through this analytical paper, the basic causal relations are diagnosed and focus is set on sustainable development of MFIs to enable them to act as catalysts for achieving poverty alleviation.

Keywords: Microfinance Institutions (MFIs), Sustainability, Ethical issues, Social Performance, Profitability, Andhra Pradesh crisis.