The Allahabad High Court has yesterday termed an interest rate of 10 per cent that is being charged from defaulting farmers in Uttar Pradesh as 'cruelty' and has described it as similar to the case of 'a dying person being physically beaten.' This news comes in the wake of the leading money lender SKS Microfinance cutting down its interest rate from 24.55 to 24 per cent. This is the second time in a month when the SKS has reduced its lending rate after much hue and cry.
I wonder how come 10 per cent interest being charged from a farmer becomes 'cruelty' whereas 24 per cent rate being charged from his wife in the name of micro finance goes under the category of 'humanitarian' support?
It is therefore quite obvious that micro finance is designed to exploit the poor, and draw every ounce of blood from the hapless poor. And yet, Vijay Mahajan, the CEO of another big money lending firm Basix, has the audacity to say: "There is a need for a study on the suicides by independent social scientists. If the suicides are proved to be due to the activities of MFIs, we will compensate the family and take punitive action against the erring staff."
Why only the erring staff? Why not you, Mr Vijay Mahajan?
And this also reminds me of what the apathatic government officials invariably say whenever news reports of starvation deaths come out. Every time I remember they would contest the news reports by saying that these deaths are not due to starvation but some chronic diseases. Vijay Mahajan is no different.
Business Standard (Nov 10, 2010) quotes K Venkatanarayana of Kakatiya University, who has been studying MFI sector in Andhra Pradesh. He says borrowers are forced to commit suicide. “During training sessions, MFIs say a loan will be waived if the person who had taken it dies. This could be working in a negative manner," he explains.
Wasn't I right? The MFIs are designed to kill. And yet, the killers are roaming free. Why is Andhra Pradesh government not filing FIRs against them? Just look at the four case studies that are pasted below. Why should these widows not get justice? Why shouldn't the MFIs responsible for the deaths of their near and dear be held for murder?
Meanwhile, here is the Business Standard report:
AP suicides raise questions on MFI model
Warangal November 10, 2010
Ban multiple lending, bring about greater transparency, slash interest rates. Only that can salvage the sector, say activists
As the high-rises of Hyderabad fade away, verdant greenery and a cool breeze take over. Early morning, we are travelling through beautiful terrain on our way to Warangal. Once there, however, nature is no solace.
A deafening calm greets us at Venkatadripet near Ghanpur station. In the past couple of months, several residents of this hamlet have faced the alleged coercive methods of micro finance institutions (MFIs) for defaulting on repayments. Their only recourse: taking their own lives.
With the death toll climbing, the government had to finally step in. But heart-wrenching stories of the victims’ families still hang heavy in the air. Warangal district is the worst hit, with 17 suicides reported from the area. Andhra Pradesh reportedly has 57 cases of harassment, including suicides.
R Subrahmanyam, principal secretary, rural development, Andhra Pradesh, minces no words. He says MFIs are raking in hyper-profits at the cost of the rural poor. “MFIs are also resorting to multiple lending without conducting due diligence.”
K Venkatanarayana of Kakatiya University, who has been studying MFI sector in the state closely, says borrowers are forced to commit suicide. “During training sessions, MFIs say a loan will be waived if the person who had taken it dies. This could be working in a negative manner,” he explains.
MFIs charge an interest rate of 26-32 per cent. “This is exorbitant,” says Venkatanarayana. “MFIs have deviated from their path of serving the poor. They are just pushing the poor into a debt trap by multiple lending and lending beyond the capacity of borrowers. There are many MFIs operating in the same area and function on joint legal liability. The model is based on pure profit.”
However, MFIs counter accusations of usury, claiming the interest on a loan includes the cost of finding customers in remote places, appraising them and selecting the creditworthy, disbursing money and collecting repayments for over 50 weeks, administration and raising funds.
“Banks don’t go to the doorstep to offer loans. We ensure that a borrower does not lose a single day’s earnings,” says P Kishore Kumar, managing director, Trident Microfinance, adding that the interest includes insurance cover. There are around 100 MFIs operating in AP, of which only 18 are registered, he adds.
Venkatanarayana blames commercial banks for the mess created by MFIs. “Banks do not want to invest in the rural poor. Reaching out to the poor means investing in infrastructure, manpower and other activities, which they are unwilling to do.”
Kishore Kumar says moneylenders are now calling themselves MFIs. “That’s the reason we have started taking corrective measures. The Microfinance Institutions Network (MFIN), the industry body, was formed with this very purpose.”
To address the issues, the Andhra Pradesh government issued an ordinance on October 15 to protect borrowers from exploitation by MFIs. But has the damage been already done?
MFIN, while agreeing that there might be some aberrations, argues that the ordinance will affect the financial inclusion plans of the government. “There is a need for a study on the suicides by independent social scientists. If the suicides are proved to be due to the activities of MFIs, we will compensate the family and take punitive action against the erring staff. If required, the MFI will be expelled from MFIN,” says Vijay Mahajan, founder of Basix and CEO of MFIN.
Ban multiple lending, bring about greater transparency, slash interest rates and monitor the end-use of loans. These are some of the steps that can be introduced to salvage the MFI sector and make it successful, say activists. But should these not have been done before the MFIs started operating? The Warangal deaths are ample answer to that question.
CASE 1: Ranjitha
Everyone knew K Ramesh. His wife, Ranjitha, borrowed Rs 10,000 from Spandana, an MFI, to buy a buffalo. The family paid 15 weekly instalments of Rs 225 each. But she could not keep up with the repayments. She was part of a group of villagers, who had taken loans. The first time she defaulted, other members of the group pooled in and paid her instalment. But soon after, they insisted that Ramesh clear the dues. Spandan’s agents also started hounding them. Ranjitha doused herself with kerosene and set it alight. The following day, Ramesh hanged himself. Ranjitha was hospitalised with burns, but survived. “If you borrow in a group, you have to repay in a group. That was the diktat,” she says.
CASE 2: KAUSAR
Twenty-two-year-old Kausar, a resident of Warangal, is buckling. She has a two-year-old son and a Rs 10,000-loan to be repaid. She paid 25 instalments on time. But then her child met with an accident and the money was spent on treatment. She again borrowed Rs 12,000 from Swayamkrushi and took another Rs 12,000 through a friend. With medical expenses mounting, she found herself unable to make her repayments. Members of the group threatened to sit in front of her house. This prompted Akbar, her husband, to take the extreme step: suicide. The insurance cover would take care of Kausar’s loans, but she still has to repay the loan taken on her behalf by her friend.
CASE 3: ALIYA
“MFIs don’t crosscheck if a loan was used for the intended purpose,” says Suresh, a friend of Baskaa Aliya in Kadapikonda near Kazipet. Aliya committed suicide after failing to repay money owed to MFIs. His wife, Hyma, had borrowed Rs 40,000 from Sharemoolah and Spandana. Suresh pays Rs 625 a week for the Rs 26,000 loan that his wife had taken. Agents highlight the long-winded procedures that banks follow to sanction loans. This deters the poor from approaching them. They also believe getting a loan from banks is too difficult a job for the likes of Aliya and is the main reason the Andhra government's Paavala Vaddi (loans at 25-paise interest) scheme is not utilised.
CASE 4: RAMA
Multiple borrowing ruined Rama’s life. Her teenage daughter, E Mownika, set herself ablaze after lenders repossessed her sewing machine. She succumbed to her injuries. Her father also suffered burns in an effort to save her. Rama, a resident of Karimabad, had taken loans from five MFIs. The family is yet to return Rs 1,00,000, including Rs 50,000 to Pragati. They used to pay Rs 5,300 every month, but defaulted three months ago. “The agents would tell us to sell household items to repay,” she alleges. Rama had taken loans to expand her business. Her husband runs a paan shop. After falling into a debt trap, she ended up taking fresh loans to repay earlier loans.