The Failings of Microfinance in India: Insights from a Randomized Evaluation of Spandana

The microfinance industry in India, on a revival path after the crisis of 2010, is increasingly showing an urban focus. Micro-lending in urban areas has its limitations, more so with the model adopted by some of the for-profit microfinance institutions. A randomized evaluation of the lending operations of Spandana in an urban slum gives valuable insights of the contradictions inherent in a model that does not put entrepreneurship as its prime objective. Most important, it breaks apart the notion that blanket lending in the name of microfinance can reduce poverty, enhance livelihood opportunities, or even cause improvement in social indicators.