Trust deficit ; With its reputation at risk, its business model under a cloud, the microfinance sector is struggling to survive.

Runaway commercialisation and too rapid a growth, followed by aclampdown by the Andhra Pradesh government, has led to the mess theIndian microfinance sector currently finds itself in. A totaldisconnect between microfinance institutions, or MFIs, and theirborrowers, near absence of regulation to check fly by nightoperators and lack of product innovation, have added to the crisis.

"The sector needs fresh thinking and significant reorientation.There should be a clear focus on demand profile and proper designingof products," says Vijay Mahajan, founder of BASIX, a leadingmicrofinance and livelihood institution.

"Microfinance in India was appreciated for its …