Womens' group take microfinance to task in India

All India Democratic Women Association has taken a strong objection to the way microfinance is conducted in India. This came after Andhra Pradesh reported suicides allegedly due to microfinance practices. While the investigation is still on, several groups came out to express there reservations off late. AIDWA has made appeal for tighter regulation of microfinance business. Do you think their allegations are valid?

Microfinance murders

AIDWA is among the first women's organisations to have identified and documented the impact of the private microfinance sector on women. One of the most important resolutions passed by the Kanpur conference was on
the need to regulate microfinance institutions (MFI), which are
exercising a deadly impact on poor women debtors in several States.

The resolution drew attention to the “spate of suicides as a result of the harassment and strong-arm tactics employed by commercial and profit-oriented corporate MFIs for loan recovery”. Taking advantage of
the failure of banks to meet the credit needs of the poor, “this new
breed of moneylenders is luring women to form self-help groups, and then
charging these SHGs exorbitant rates of interest as high as 48-60 per
cent.…Whatever little collectivism has been generated by the SHGs has
been systematically destroyed in the process.”

The resolution highlighted the situation in Andhra Pradesh, where “32 MFIs are reported to have given loans worth Rs.25,000 crore to 40 per cent of the poor women in the State. Unable to meet the demands for loan
repayment, more than 100 people have committed suicide in the last
three months.” The ordinance promulgated by the Government of Andhra
Pradesh is an eyewash as it does not put a cap on the interest rates
that MFIs can charge.

“In Andhra Pradesh, where 32 MFIs are registered with the Reserve Bank of India in 2008, MFIs operate by pulling women out of the government self-help groups and forming their own groups comprising five
members each,” said P.A. Devi, Andhra Pradesh State AIDWA committee
member. “Every woman gets loans from four to seven MFIs, and there are
designated days of the week for repayments to different MFIs. There was
cent per cent recovery from the groups until the suicides started.” The
State government has spread the canard that women borrow in order to buy
beauty products for themselves, whereas the reality is that they borrow
to pay private school and college fees, to meet the loan demands from
other MFIs, and to meet the daily requirements of the family, Devi said.

“From the village moneylender to the corporate moneylender” is how Taposhi Praharaj, vice-president of the Orissa unit of AIDWA, described the credit situation in her State. The AIDWA unit in Orissa surveyed 600
SHGs in 12 districts of the State. The survey covered SHGs that had
taken government loans; those that had taken loans from the government
and from MFIs; and those that had borrowed only from MFIs. The last
category accounts for 70 per cent of the SHGs surveyed.

The survey found that MFIs had penetrated deep into villages and towns. While on paper the rate of interest is stated as a 10 per cent flat rate, the interest charged is on the entire principal throughout
the repayment period and cuts are made from the principal amount under
several heads, such as processing fee, bank charges, agreement charges
and membership charges. “The compounded interest is never less than 52
per cent, and we found that on the last Rs.10 instalment, the interest
is 525 per cent!”

Agents operate through the head of the SHG that the debtor belongs to and take away every possession the woman owns if she defaults. “Bilashini Behra from Bhubaneswar took loans from three MFIs, each
successive one to pay the previous one. She committed suicide because
she could ultimately not repay them,” said Taposhi Praharaj.

The AIDWA resolution called for an immediate Central law to cap interest rates charged by MFIs and to regulate their operations; to file criminal cases against MFIs engaged in extortionist practices; to cap
interest rates from banks to SHGs at 4 per cent and cap loans given by
MFIs to not more than 2 per cent above the banks' interest rates to
MFIs; and to expand cheap credit facilities through direct banking to
SHGs.

If these were some of the major issues that AIDWA brought to the foreground as the more recent issues impacting women, there were a welter of other important issues, ranging from the situation in Kashmir
and the way forward to the impact of price rise on all sections of the
people, including women, that were also discussed. For this
organisation, the way ahead is tough and complex, but if the outcome of
the conference is any pointer, AIDWA has deepened its understanding of
the situation it faces and honed its strategies to meet the challenges.

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