Chasing growth, MFIs seem to have piled into the same villages, lending to the same people.
The MFIs, however, are less abusive, as well as far cheaper, than traditional moneylenders.
Indeed, the MFIs' very success in AP is the source of their present troubles.
Many MFIs couple this with their own mechanisms to educate their clients, she says.
FORBES: Is The Microfinance Sector In India Headed For a Crash?
Partnerships with local NGOs and microfinance institutions (MFIs) has helped launch some microinsurance products.
In Bangladesh the government has capped the annual interest rate that microfinance institutions (MFIs) can charge at 27%.
Both the MFIs and the SHGs rely on the national financial system, not on local capital, to get started.
The family ran up 66, 000 rupees in debts from five MFIs to pay for the wedding of their elder daughter.
MFIs lend to small groups directly, and use social reinforcement (ie peer pressure) to ensure that each member pays back the loan.
For the MFIs, the government's groups offer too little credit, too late.
Ideologically, many in India worry that large MFIs have become for-profit firms.
What we are seeing now in the whole sector is that MFIs are still hybrids, but the order in which the two parts are mixed has been flipped.
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Despite charging what may seem high interest rates, MFIs typically have wafer-thin margins because of the high costs of making and collecting payments on millions of tiny loans.
It allows MFIs to determine the poverty levels of their clients and to track their movement out of poverty and fine tune the loan packages accordingly to client needs.
FORBES: Is The Microfinance Sector In India Headed For a Crash?
Take Accion Investments in Microfinance (AIM), a for-profit equity fund created in 2003 to provide capital to microfinance institutions (MFIs) working in challenging markets where such funding was typically unavailable.
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In Andhra Pradesh (AP), the Indian state with the most microfinance borrowers and the base for the biggest for-profit MFIs, local politicians have bullied the business to a virtual halt.
Among the MFIs' biggest critics is Budithi Rajsekhar, boss of the Society for Elimination of Rural Poverty, an arm of the state government formed in 2000 to run its own microcredit programme.
The current crisis started last month when the government of Andhra Pradesh came up with new, strict regulation on the basis of news that 30 people in the state had committed suicide in 45 days because of the coercive methods of MFIs.
FORBES: Is The Microfinance Sector In India Headed For a Crash?
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