Jun 16, 2009

Are banks and micro-finance responsible for farmer suicides?

Every time there is a discussion on farmer suicides, I find the blame would normally shift to private money-lenders. All fingers point at them. I have seen distinguished academicians, so-called grass-root activists and well-informed journalists and media personalities always agreeing that the private money-lender is the culprit. What emerges clearly and loudly from these conferences/seminars is that if the government was to extend the reach of banking credit to the poor and hapless farmers, they would be out of the grip of money-lenders and can be pulled out of the suicide trap.

Is it really so?

In my travels and interactions with farmers and others I increasingly realise that there is more than what meets the eye. There is more than what we want to see. It is not only the private money-lenders who are the culprits, the nationalised banks and the emerging class of organised money-lenders, better called as micro-finance, are equally responsible for the plight of the farming community.

At the height of the hunger crisis in Kalahandi in western Orissa sometimes around 1996-97, I remember meeting farmers who had taken loan from private money-lenders with an interest rate of 460 per cent. In the Palamu region of Jharkhand, it hovered around 280 per cent. In neighbouring Chhatisgarh, in the tribal belt, the rate of interest was roughly around 160 per cent. The more the poor you are the higher the rate of interest. And I am sure you will agree that if you and me were to pay the same rate of interest, we would never be out of the hunger trap, and would have probably ended our lives by now.

In the metros and the urban centres, we crib if the banks charge a high EMI for the home loan we have taken. There is a talk of an economic stimulus to banks to ensure that the home loan becomes cheaper to the urban middle class. In addition, we get cheaper loans for buying a car, and almost interest-free loans for buying gadgets like a refrigerator, TV and so on.

But to the poorest of the poor who avail micro-finance we are not ashamed in charging an interest rate which varies on an average between 20 to 48 per cent. Some micro-finance organisations have reduced the interest rate to less than 20, but still it is way above what we in the cities/towns pay. And when I ask these companies as to why are they charging such high interest rate, the answer is: we are empowering the poor.

What a way to empower the poor. The word loot in the dictionery surely has a new synomyn: empower.

No wonder, many of these micro-finance companies are listed on the stock exchange. It reminds me of the evil character Shylock that Shakespeare had created in Merchant of Venice. I have not forgotten that he always managed to get his pound of flesh from every borrower.

The banks normally lend for micro-finance through self-help groups (SHGs). On an average these banks charge 12 per cent from the SHGs (some say it has now been reduced to 9 per cent but I am not sure). This is perhaps the safest and the easiest of the lending that the banks indulge in. They know that this will never be defaulted. The SHGs have an inbuilt system where the village samaj recovers the pending amount from a defaulter. It is through social coercion.

In the cities, they give you a loan at a much lower rate of interest, and still they are not sure if the amount can be recovered. They apply all kinds of uncivilised means to make you cough out the amount, often agreeing for a one-time settlement.

And what about banks? Have we ever tried to ascertain their role in farmer suicides?

Kishor Tiwari's latest dispatch (taken from his blog) from the suicide-prone Vidharba belt in Maharashtra provides us the necessary insight. It is not even the tip of an iceberg, of what is wrong with the banking system when it comes to farmers and agriculture. There is a lot more that needs to be unearthed, investigated and studied in detail. I have pasted the blog as such so please pardon me for the typos.

I have always admired Kishor Tiwari and his Vidharba Jan Andolan Samiti for keeping the issue alive. It is not an easy task, and I must congratulate him for putting farmer suicides on the top of the political agenda.

Credit starved farmer commits suicide in Vidarbha : Due to bank apathy to start fresh crop loan farm suicide spiral will start in vidarbha

Nagpur, 15th June 2009

The first victim of vidarbha farm credit crisis has been reported today. One Lakhama Namdeo Tekam tribal farmer of village khusal-wagholi in yavatmal district of vidarbha committed suicide due debt trap and failed to get fresh crop loan from his coopretative bank. “Lakham was daily going to bank and he was also asking local money lender for handy loan to purchase the cotton seed and when his all attempts failed, he killed himself” informed Prem Rathode village sarpanch.

“Lakhama Tekam is not single case in isolation all farmers of that area have not received the fresh crop loan and bankers are asking us wait till 30th june as they have not received orders for crop loan disbursement” Prem Rathode added.

As per district administration reports now it’s official crop loan disbursement is less than 50% in comparison to last year disbursement . There is huge cry all vidarbha fresh crop loan to all illegible farmers after loan waiver but bankers are facing liquidity crunch due insufficient fund sanctioned by apex bank NABARD as agriculture credit has been reduced to 40% in comparison to agriculture credit to given to farmers in year 2006 after prime minister of India Dr.Man Mohan Singh visited vidarbha and announced to relief package of Rs.3750/- crore .

‘After the interest waiver of Rs.1080 crore in 2006 followed by complete loan waiver of Rs.71,000 crore in march 2008 added to maharashtra Govt.’s extended loan waiver of Rs.6208 crore in December 2008 ,it was told that in vidarbha at least 3 million farmers will get farm credit from financial institutes but non-professional attitude and non-cooperation of bankers the complete exercise of loan waiver has been failed ” Kishore tiwari of VJAS informed in press note.

“We want vidarbha farm suicide saga as part of history and we don’t want to count further farm suicide in vidarbha but corrupt officials and non-functional public leaders are not allowing us to do so .It’s very much humiliating and disturbing to count the farm suicide and then put it of international radar but in order to save dying farming community ,we will continue to do,” kishore tiwari added.



I am very much disturbed with credit and cost issue being not addressed with proper regulator and time bound solution ,I am sending your posting to all so called agararian or rural economy experts,
As VJAS ,we r indebted for your concern,
kishore tiwari

Anonymous said...

Why can't all the AID chapters allocate $1000 minimum for organic seed for Vidarbha widows and orphans - for food crops? That way, people won't starve and they might start their own seed growing and share the seeds - for free - to other areas. The widows and orphans would be helped and would help others, strengthening the communities.

AID could also allocate another $1000 for 1% loans for farmers in Maharashtra to be handled by Tiwari. Only requirements are the inputs be organic and the 1% could be fulfilled by bringing seed to Tiwari to give out to other farmers.


Anonymous said...

PSU banks provide rural credit to the tune of 7%. About 800 million people are supposed to avail this 7%. Pranab Dada proudly announces it will be stepped up by 16% this year. That is from 7% to 8%. What a quantum jump! Farmers are to furnish about 20 documents to get this loan. If a farmer applies for khrif crop, he may get it in rabi season provided the private moneylender allows him to live till such time.

Contrast this with the urban scene. 93% of PSU banks' credit is enjoyed by about 100 million lucky people. You just drop a hint to your office peon that you want to dispose off the old car and get a new one. Next day your mobile phone will never stop ringing. With zero initial payment and without even the documentation, new car will be delivered in your office on that day itself. If you need bank loan for BMW, there will be a law and order problem in front of your office. Your watchman will have a tough time to control the army of Bank officers, insurance agents, NBFCs etc.

Crops may wilt and farmers may commit suicide. But car loan cannot wait even for a day.

Free market stalwarts, merit champions and reform pundits claim India is on the march. The mute question is which India?

Jai kissan.