India Focus Note 58: The Andhra Pradesh Crisis: What Should The Government Do?

This note examines what the government should do in the wake of the Andhra Pradesh Crisis. It highlights that first and foremost, the government should recognise that the MFIs have provided valuable credit-led financial inclusion, and that the SHG movement is not a panacea. The note notes the importance of banking correspondence as the key to full, diversified financial inclusion. The note also recommends against interest rate caps, and suggests that caps on returns on equity, improved approaches to priority sector lending regulations and responsibility delegated to a combination of the banks financing the MFIs and an empowered industry association would better guide rather than suppress the market.

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