Sustainability of Indian Microfinance Institutions: Assessing the Impact of Andhra Crisis

India has achieved a considerable success in expanding the outreach of Micro Finance Institutions (MFIs) to promote socio-economic development of the poor sections of the society. However, a transition from social enterprise to commercial enterprise model in the early twenty-first century has led to a tidal wave of criticism centering round the microfinance sector across the globe. Aggressive competitions of MFIs provided the necessary impetus for the inevitable ‘microfinance bubble’ (Andhra Crisis and its spillover effect in the context of India), which ultimately raised a question on the sustainability of MFIs. Microfinance Information Exchange Database is extensively used in developing a pooled dataset of Indian MFIs to examine the impact of crisis on the sustainability of MFIs. In addition to crisis, this study examines the implications of other financial and operating performance in explaining sustainability of MFIs in the changing scenario. Results reveal a positive and significant influence of crisis, return on assets, return on equity, yield on gross portfolio and a negative and significant effect of financial expenses to assets and operating expenses to assets in explaining variation of sustainability score of selected MFIs.