This paper gives the reader a tool to handle the current crisis faced by the microfinance industry in Andhra Pradesh, India. Microfinance has gained importance in the Indian and the global economy. This paper highlights the reason for this importance and its success while tracking the evolution of the industry. The paper highlights the global trend of the industry using region-specific parameters. It further analyzes the gradual growth of the Indian microfinance industry in a chronological manner. Finally, the paper highlights the role of technology, especially Decision Support System (DSS), in reducing the volatility of the decisions made by the Microfinance Institutions (MFIs).

All the institutions which share a commitment to serving clients with low-incomes that have been excluded from the formal banking sector are part of the microfinance industry (Morduch, 1999). The Consultative Group to Assist the Poorest (the apex association of international donors who support microfinance) regards microfinance as “a powerful tool to fight poverty” that can help poor people to “raise income, build their assets, and cushion themselves against external shocks” (Copestake, 2007).

Microfinance—financial services tailored to the poor (Despallier et al., 2011)— spans a range of financial instruments including credit, savings, insurance, mortgages and retirement plans, all of which denominated in small amounts (Khavul, 2010). Historically, efforts to deliver formal credit and financial services to the rural poor in developing countries have failed. The recent proliferation of innovative microfinance programs has been inspired largely by the belief that such programs reach the poor and have a positive impact (Coleman, 2006; and Mallick, 2012).

MFIs have reached well over 100 million clients and achieved impressive repayment rates on loans (Cull et al., 2011). Because of the increase in the scale of operations, the concept and practice of microfinance have changed dramatically over the last decade and microfinance is increasingly adopting a financial systems approach, either by operating on commercial lines or by systematically reducing reliance on interest rate subsidies and/or aid agency financial support (Imai et al., 2010). A few MFIs have implemented best business practices and made transition to fully regulated financial institutions. Many more are in the process of undertaking this transformation or at least considering it (Tucker, 2001). Some advocates of innovation say transformation from non-profit to commercial enterprises is the only way to go. It is further believed that this commercialization approach will increase MFIs’ operational efficiency, sustainability and the outreach, and decrease the dependency on the donor agencies (Hoque et al., 2011).

Management Research Journal, Microfinance Institutions (MFIs), Microfinance Industry, Effective Strategy, Microfinance Industry, Microfinance, Decision Support System (DSS), Role of DSS, Volatility.