The number of world's poorest families who received access to microcredit and other financial services declined for the first time in 2011 over the previous year and India accounted for almost all of the reduction, a report has said.
According to the state of the latest microcredit summit campaign report, in 2011, microfinance providers reached fewer people living in extreme poverty than they did in 2010.
This marks the first time since the campaign started recording Institutional Action Plans in 1998 that both the total number of clients and the number of poorest families reached declined from one year to the next, the report said.
India accounts for almost all of the reduction in clients worldwide, the report said. In 2011, there were 14 million fewer poorest clients in India than in 2010.
"Most of these reductions come from Andhra Pradesh, where fast growth led to overlending, cases of harsh collection practices, and heavy regulation from the state government.
Many MFIs and banks stopped lending to microfinance clients and self-help groups as a result," the report said.
Moreover, there is investor wariness as banks and other investors in India and other countries curtailed their investments in microfinance.
In order to be more effective, microlenders should tap the potential benefits of technology, which in turn is likely to cut costs, improve client privacy, bridge physical distance and improve quickness of loan disbursement.
A survey of more than 147 developing countries found that 1.7 billion people do not have a bank account but do have a mobile phone.
"If we want to provide financial services in a way that helps people move out of poverty, then we need to provide things that cannot be stolen. We need to provide products and services that help people living in poverty to address the many areas of vulnerability that they face, so that their hard-earned gains are not taken away by disaster and disease," the report said.
International microfinance investment vehicles however, continued to invest almost three-quarters of their funds in Eastern Europe and Latin America, regions with less outreach to the poorest.
There was an acceleration in sub-Saharan Africa which saw an addition of 1.4 million clients, the report said.