Apr 21, 2010

The Barbaric Ways of Micro-finance

The ugly face of micro-finance was never in doubt. But now even the dark underbelly is coming out in the open. I wonder how much more evidence is required to put a stop to this barbaric activity that goes on unchecked in the name of empowering the poorest of the poor.

Yes, most MFIs operate in an inhuman and barbaric way. In fact, as you have read in these columns the entire concept of micro-finance is based on exploitation.

As a Hyderabad dateline news report in The Hindu (April 19, 2010) states: "Some Collectors sent reports about the harassment of borrowers, intimidation, manhandling, abusing and outraging the modesty of women and extreme punishment like making defaulters stand in the hot sun, tying them to trees and making them run in open grounds."

What more evidence is required.

We call these poor 'beneficiaries'. They fit into the classic model of exploitation that the late C K Prahalad envisioned. They are the "fortune at the bottom of the pyramid" which Prahalad very cleverly camouflaged in the guise of 'eradicating poverty' but actually provided a recipe for making huge profits. There may be some sensible suggestions that he gave, but rest of it was simply on how to exploit the poor and make money. No wonder, the crooks in business and trade have always held him in high esteem.

These poor have been earlier victims in the hands of private money lenders and now the organised class of highly educated (often hailing from the prestigious management schools) money lenders. They have suffered silently for years, and are now being subjected to all kinds of physical and mental torture by the MFIs. They live in perpetual mental agony, always under pressure to repay (on a weekly basis) the heavy compound interest on petty loans. As the report below states, 15 per cent flat interest rate at which the poor borrow, results in an effective rate of 33 per cent per annum on a declining balance.

What do you expect these poor people to do?

I will not be surprised if many of them eventually join the ranks of Maoists.

Here is the disturbing news report, under the seemingly less damaging headline: Andhra Pradesh -- State for de-recognition of MFIs. It says that the MFIs are accused of forcibly enrolling poor women in the rural areas. Some Collectors' reports cite intimidation, manhandling, and outraging modesty of women

Andhra Pradesh -- State for de-recognition of MFIs.
http://www.hindu.com/2010/04/19/stories/2010041960410600.htm

by Ravi Reddy

HYDERABAD: As the spectre of coercive recovery practices, lack of transparency and questionable acts of some micro finance institutions (MFIs) looms large once again after a gap of four years, the Andhra Pradesh government plans to approach the Reserve Bank of India (RBI) seeking their de-recognition.

Following reports of objectionable practices of MFIs in harassing borrowers in rural areas of in Khammam, Mahabubnagar, Warangal and several Coastal Andhra districts, the government has drafted a letter to the RBI seeking de-recognition of the erring MFIs, which will be despatched in a day or two.

The 40 MFIs operating in the State with total finance portfolio of Rs. 3,000 crore are accused of forcibly enrolling poor women in the rural areas even though a majority of them are already part of the carefully nurtured Self Help Groups (SHGs) under the banner of Indira Kranti Patham.

Principal Secretary, Rural Development, R. Subramanyam told The Hindu on Saturday that the MFIs were back to their old tricks forcing the government to act fast. “They (MFIs) are violating norms by enrolling SHG members and claiming them as their own. They are not disclosing the list of members and resorting to coercive recovery practices,” he said.

Some Collectors sent reports about the harassment of borrowers, intimidation, manhandling, abusing and outraging the modesty of women and extreme punishment like making defaulters stand in the hot sun, tying them to trees and making them run in open grounds.

The State had witnessed a similar situation in 2005-06, when borrowers, caught in the debt trap, ended their lives. This forced the YSR Government to appoint a one man committee headed by a senior IAS officer V.P.Jauhari. He had recommended the government to crack the whip on the MFIs for grossly violating the human rights of borrowers in the name of loan recovery and enactment of Money Lenders Act to rein in the MFIs.

Strange modus operandi

The modus operandi is to lure SHG members into taking loans ranging from Rs. 3,000 to Rs. 25,000 at 15 per cent flat interest rate, which results in an effective rate of 33 per cent per annum on a declining balance. There is no loan appraisal or analysis of the borrower's source of income and repayment capacity. Lending institutions are least bothered about pre-existing loans taken from banks, SHGs, other MFIs and unregistered moneylenders.

Mr. Subramanyam said the government had set up district-level task force headed by the Collector to look into each case of coercion. “Harassed borrowers can call up 24X7 Call Centre (number 155321) to report their woes,” he added. Apart from this, the government plans to identify at least three mandal level SHG federations and ten Village Organisations in each district for bulk loaning to provide relief to the poor women.

1 comment:

SUNIL said...

Devinder,
Your thoughts are sound and quite valid from the delivery point. But one has to clearly differentiate between microfinance as a service (product) and the different strategies/approaches being adopted to its delivery. The point you have raised relates to the latter. Yes, we do need more sound, transparent and customer (pooor)-friendly rules and regulations for microfinance. But as a concept,and if delivered with true mission spirity, I believe microfinance can make change in the life chances of millions of people.
regs
sunil