The microfinance industry has recently been criticized for their oppressive style of functioning which allegedly has caused hardships to credit seekers in some districts of Andhra Pradesh, where in some cases some of the clients even committed suicide. These resulted in speculations from various quarters, suggesting curbing of Microfinance Institutions' (MFIs') operational freedom which, MFIs contested, would force them out of the business. The main reason for such incidences was said to be the high rates of interest and the marketing (especially collection) tactics adopted by MFIs.

In turn, MFIs argued that they themselves get funds at a very high rate of interest, and when one adds the operating expenses of MFIs the final credit rate would come up to what MFIs are generally charging. And if they do not ensure repayment of their loans by their clients, the cost of funds will go even higher.

With this backdrop, this study has been carried out to find the actual reasons behind the hardships of MFIs' clients, reasons for the high cost of capital, causes of inefficiency in operations which have increased the cost of credit further, and problems with the current marketing strategy and other related areas. This study encompasses all aspects of microfinance as present in Andhra Pradesh (India) and suggests possible solutions.

High Cost of Finance in Microcredit Business, Microfinance Institutions, MFIs, Microfinance industry, Self-Help Groups , SHGs, National Bank for Agriculture and Rural Development, NABARD, Non Banking Financing Companies , NBFCs, Regional Rural Banks, RRB, District Central Cooperative Banks , DCCBs, Small Industries Development Bank of India , SIDBI.