On Dec 1, 2025, Dvara Research released a working paper on the most recent microfinance crisis in India. We also sent out the paper to several reviewers drawn from the diverse arenas of academia, policy and industry. We received very thoughtful comments from our reviewers, that caused us to reflect more deeply on the arguments in our paper, and helped to clarify our thinking. We have now augmented the paper with an Appendix section that discusses the reviewer comments and our responses to them. In light of some of the reviewer comments, we have also made some (relatively minor) changes to the main text of the paper.
In the paper, we lay out a theoretical frame for thinking about microfinance crises. The theoretical frame draws from Hyman Minsky’s 1977 work on financial instability, and layers over it a cultural reasoning that recognises overlending and overborrowing as cultural traits that sometimes takes hold of microfinance markets. The paper then presents evidence from the most recent crisis in support of the theory and ends with a set of recommendations for the policymaker. As noted above, the paper also features an Appendix containing comments received from reviewers and our responses to those comments – which we suggest that the reader go through if they wish to obtain a deeper understanding of some of the core mechanisms of the theoretical frame that we are using in the paper.
Read the full paper here.
