ABSTRACT
This chapter examines the dynamics at work in India using a lens provided by Hyman Minsky's financial instability framework. It offers a primer on Minsky's framework for explaining financial instability, followed by a section narrating the historical events and processes by which microfinance in India explosively grew and then collapsed. The chapter discusses four different interpretations of the Indian crisis: as a crisis of corporate governance, a crisis of political interference, a crisis of political economy, or a crisis of microfinance itself. It presents Minsky's framework, and applies it to the Indian case to reconcile these four interpretations, by showing how inherently unstable dynamics within microfinance were shaped by India's political economy, and this created the conditions for the lapses in corporate governance and political interference. As Wichterich (2012: 406) has observed, the Indian microfinance crisis was at least partly explicable from a market rationale of growth, the rapid commercialization of the sector, overheating and crash of a bubble.
