As confusion and uncertainty continue in the Indian microfinance sector, one thing is becoming clear: the truth lies somewhere in between.

While Opportunity does not operate in Andhra Pradesh, it does in neighboring Tamil Nadu. This post explores what can be learned from the current crisis and whether it’s expected to spread to other regions in India.

While Andhra Pradesh is not a unique situation, it’s most likely not a bellwether either. As has been widely discussed, microfinance in Andhra Pradesh is largely divided between two models: a long-standing, government-run group savings and lending program on one side, and a rapidly growing commercial microfinance sector (that is not allowed to take deposits) on the other. While aggressive for-profit growth leading to an overly saturated market is a significant concern, the extreme accusations, legal actions and counter suits, widely varying regulations, and politically volatile environment make it difficult to assess the situation from a purely microfinance-based perspective, much less consider it a “bellwether” for the entire industry, or for the rest of India. While Opportunity does not have operations in Andhra Pradesh, our locations in neighboring Tamil Nadu have been largely unaffected by the crisis.

Over-indebtedness is a serious concern, and industry leaders work hard to address it. Opportunity joins the many voices expressing concern about the reports of over-indebtedness, harsh treatment, and despair in Andhra Pradesh. While recent research challenges some of the claims being made about over-indebtedness in the region, the industry universally condemns the harassment and coercion being reported. Opportunity along with other industry leaders are committed to a core set of client protection principles and share best practices with one another through industry organizations such as CGAP, SEEP and the Smart Campaign. Together, we are committed to the following principles: avoidance of over-indebtedness; transparent and responsible pricing; appropriate collections practices; ethical staff behavior; mechanisms for redress of grievances; privacy of client data.

Profit-driven models can lead to negative outcomes, but the majority of institutions pursue a double bottom line. While rapid commercial expansion and aggressive lending certainly played a factor in Andhra Pradesh, it is unfair to judge an institution solely on the source of its capital or whether or not it operates as a for-profit entity. As a non-profit organization, Opportunity International works toward sustainability, not profitability, but microfinance organizations of all types have demonstrated their commitment to put their clients first. We are, however, concerned that a profit-maximizing model in microfinance could result in fewer providers reaching into rural areas, financing agriculture or piloting new programs. The risk the for-profit sector faces is that it may drift toward larger loan sizes and a more secure client base in order to meet shareholder demands.

Government oversight is necessary in the sector, but hastily implemented regulation can backfire. It is an entirely appropriate and welcome step for regulators to insist on transparency and client protections. One of the more contentious aspects in Andhra Pradesh is the manner in which new regulations have been implemented. Opportunity’s banks work closely with the central banking authority in each country to meet reporting and operational requirements. Moreover, we diligently pursue lower interest rates for our clients through streamlined business operations and the use of innovations in technology.

Loans by themselves are not a cure-all; Opportunity couldn’t agree more. Much of the recent coverage has focused on organizations offering “one-size-fits-all” loans and the negative consequences when they don’t fit. Opportunity has not only been an industry leader in promoting savings-based microfinance, we utilize a wide variety of client-centered products including short- and long-term savings, loans, insurance, training, and business-specific financing in areas such as agriculture and education.

Microfinance organizations in Andhra Pradesh are struggling, and most importantly, so are their clients. Somewhat missing in most of the coverage is a discussion of the impact the crisis is having on entrepreneurs who cannot currently access the financing they need to meet the day-to-day demands of their business, or what options they will be left with if the market dramatically contracts. Moreover, much of the coverage continues to perpetuate the false notion that people living in poverty are not good money managers, though the research, and our experience, would suggest otherwise. While providers take steps to comply with regulations, government officials clarify their intentions and India’s biggest banks calculate their exposure, the health of microfinance in India can’t be measured only in rupees, regulations and press coverage, but rather, it must be measured in the lives of our clients and their families.

Catherine Dailes, 37, with her one-year-old daughter, makes a withdrawal from her savings account at an Opportunity bank branch near her home in rural Malawi. She also uses Opportunity loans to build her business selling kitchenwares.

Over 75 percent of people in Africa lives on less than $2 per day. So when Opportunity looked at its expansion plan, Africa was the region that began to take priority.

In 2008 Opportunity launched an ambitious campaign to make significant impact on the world’s poorest people in sub-Saharan Africa by 2015. Building upon its 38 years of providing financial services to the poor, Opportunity International is developing a network of banks to address the capital infrastructure needs of poor communities in Africa isolated from the financial system.

This weekend, the Banking on Africa Campaign took center stage.

“Our aim is to reach five million clients in sub-Saharan Africa with financial services,” says former CEO and Board Member Kadita A.T. Tshibaka. He defines these services as “services that unlock hidden capital and create a financial infrastructure within poor communities, laying the foundation for vibrant local economies. When their families and employees are taken into account, some 30 million African lives will be impacted through our work.”

The theme of Banking on Africa was repeated throughout the weekend in plenary sessions, in conversations between participants and in various breakout sessions.

In one such breakout session, Opportunity Board chair Peter Thorrington expressed his own excitement for bank building in Africa.

He said, “The part that humbles me most is that if you look at the last two years, the savings of the poor in Malawi have matched the donations of the affluent in the US.” While he acknowledged that they are two different measures, as the savings of the poor can be accessed again, while the donations of the affluent are charitable, in terms of the ability of the bank to lend capital, they are the same thing. The combination of the two amounts allows for a double leverage effect.

When asked about the potential conflict of bank building versus fostering transformation, a smile spread across Peter’s face.

“It is the power of ‘and,’” he said. “We have got to build banks, and we also have to foster economic, social and spiritual transformation. It takes both to be successful.”