- While the industry flourished in those years it started getting into unfair practices ,excessive lending by MFIs in the state of Andhra Pradesh lead to over‐indebtedness which caused distress to low income microfinance borrowers
- More than 200 poor, debt-ridden residents of Andhra Pradesh killed themselves in late 2010, according to media reports compiled by the State government
- Coercive behavior by MFI staff in collecting from these over‐indebted borrowers suffering from the stress of keeping up with their repayment obligations
- One woman drank pesticide and died a day after an SKS loan agent told her to prostitute her daughters to pay off her debt. She had been given Rs 1.5 lakh in loans but only made Rs 600 a week.
- Originally developed as a non-profit effort to lift society's most downtrodden, microfinance increasingly became a for-profit enterprise that serves investors as well as the poor. As India's market leader, SKS has pioneered a business model that many others hoped to emulate.
- From a PAR of 0.67 in 2010 the PAR has increased to 29.5 % in the state of Andhra Pradesh, this makes it extremely risky portfolio which will act as a deterrent to any institutional lending to the sector
- Operating efficiency has been adversely affected as portfolio management issues and client protection compliance expenses have increased OER
- Cost per borrower has risen sharply as MFIs first pursued growth at all costs and now have to put considerable effort into client protection measures and follow up of repayments
It is apparent that the heavy handed October 2010 ordinance of the Government of Andhra Pradesh has resulted in a delinquency crisis of huge proportions. All banks and capital market participants have immediately stopped or reduced extending any funding to non-bank finance companies on a nationwide basis
During 2011‐12, the private sector banks were in full flight from the microfinance sector, dismayed at the prospect of huge losses on the AP portfolio.
y end‐March 2012, institutional lending to MFIs had declined to Rs 15,136 crores ($2.97 billion), down by over 20% from the estimated peak of around Rs 18,000 crores in October 2010.
The resolution of the current crisis now awaits the restoration of confidence of the commercial banks and other investors in the microfinance industry