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Literature Review: The Sustainability Debate

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Sustainability of Indian Microfinance Institutions

Part of the book series: India Studies in Business and Economics ((ISBE))

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Abstract

In this chapter the author portrays the research problem addressed in this book, against the larger canvas of microfinance literature. The existing debates in literature, pertaining to the challenges and issues associated with the sustainability of microfinance institutions (MFIs), are surveyed in detail in this chapter. Based on the inferences drawn from this review, the author identifies the relevant research gaps in microfinance literature. The research objectives formulated to address these gaps are revisited in this chapter, in the light of its associated literature. Thus by undertaking this review process, the author explains ‘what we know’ and ‘what we probably are yet to know’ about the sustainability of Indian MFIs. This enables the author to discuss the relevance of the phenomenon under study and the rationale for conducting this research. The author concludes this chapter by enumerating the value additions that this research is expected to bring to Indian microfinance literature.

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Notes

  1. 1.

    Return on Asset (ROA) is also used a metric for sustainability assessment. But since literature does not clearly demarcate the level of ROA, at which an MFI can be assumed to be sustainable, it is used less in relative sustainability assessments.

  2. 2.

    Adverse selection risk arises when the lender has poor information about the borrowers while negotiating the credit-lending transaction. With the limited information on the poor borrowers, the lender cannot screen the riskier borrowers from safer ones. Therefore, there is an adverse selection risk of lending to the more risky borrowers.

  3. 3.

    Moral hazard risk arises because the lender has difficulty in monitoring the behaviour of the poor borrowers once the loans are disbursed. Therefore, the lender does not know whether the loan is being used optimally for the intended purpose for which it is sanctioned. The lender lacks information about the performance of the credit-lending transaction and the probability for the loans disbursed to be misused, which results in the risk of moral hazard.

  4. 4.

    Costly audit and enforcement risks arise because it becomes too costly for the lender to audit and enforce payments on the small loans disbursed to the poor, which lack collateral support.

  5. 5.

    Studies undertaken in other nations are reviewed in Chap. 5.

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  1. School of Management & Labour Studies, Tata Institute of Social Sciences Centre for Social Entrepreneurship, Mumbai, Maharashtra, India

    Nadiya Marakkath

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Marakkath, N. (2014). Literature Review: The Sustainability Debate. In: Sustainability of Indian Microfinance Institutions. India Studies in Business and Economics. Springer, New Delhi. https://doi.org/10.1007/978-81-322-1629-2_2

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