The microfinance industry pursued a path of rapid business growth in recent years; two investigations now link it to debtor suicides
First they were stripped of their utensils, furniture, mobile phones, television sets, ration cards and heirloom gold jewellery. Then, some of them drank pesticide. One woman threw herself into a pond. Another jumped into a well with her children.
Sometimes, the debt collectors watched nearby.
More than 200 poor, debt-ridden residents of Andhra Pradesh killed themselves in late 2010, according to media reports compiled by the State government. The State blamed microfinance companies which give small loans intended to lift up the very poor for fuelling a frenzy of over-indebtedness, and then pressuring borrowers so relentlessly that some took their own lives.
The companies, including market leader SKS Microfinance, denied it.
Investigations
An independent investigation commissioned by the company, however, linked SKS employees to at least seven of the deaths. A second investigation commissioned by an industry umbrella group that probed the role of many microfinance companies, did not draw conclusions but pointed to SKS' involvement in two more cases that ended in suicide. Neither study has been made public.
Both reports said SKS employees had verbally harassed over-indebted borrowers, forced them to pawn valuable items, incited other borrowers to humiliate them and orchestrated sit-ins outside their homes to publicly shame them. In some cases, SKS staff physically harassed defaulters, according to the report commissioned by the company. Only in death would the debts be forgiven.
The videos and reports tell stark stories:
One woman drank pesticide and died a day after an SKS loan agent told her to prostitute her daughters to pay off her debt. She had been given Rs. 1.5 lakh in loans but only made Rs. 600 a week.
Another SKS debt collector told a delinquent borrower to drown herself in a pond if she wanted her loan waived. The next day, she did. She left behind four children.
One agent blocked a woman from bringing her young son, weak with diarrhoea, to the hospital, demanding payment first. Other borrowers, who could not get any new loans until she paid, told her that if she wanted to die, they would bring her pesticide. An SKS staff member was there when she drank the poison. She survived.
An 18-year-old girl, pressured until she handed over Rs. 150 meant for a school examination fee, also drank pesticide. She left a suicide note: “Work hard and earn money. Do not take loans.”
In all these cases, the report commissioned by SKS concluded that the company's staff members were directly or indirectly responsible.
Caught in the despair of poverty, tens of thousands of impoverished Indians kill themselves every year, often because of insurmountable debt. The supportive structure of the microfinance companies was supposed to change that.
But Davuluri Venkateswarlu, director of Glocal Research in Hyderabad, which conducted the industry-wide investigation, said in an interview that he told SKS executives there was “clear involvement of SKS personnel” in some suicides.
SKS continues to deny all responsibility for the deaths, and says it never commissioned an independent inquiry. SKS spokesman J.S. Sai, who flew to Mumbai from the company's Hyderabad headquarters to discuss the AP's findings, said the company stands by its September 2011 affidavit before the Supreme Court. In that affidavit, chief executive M.R. Rao says SKS “is neither the cause of nor responsible for any suicides in the State of Andhra Pradesh.”
The deaths came after a period of hyper-growth leading up to the company's hugely successful August 2010 initial public offering.
Originally developed as a non-profit effort to lift society's most downtrodden, microfinance has increasingly become a for-profit enterprise that serves investors as well as the poor. As India's market leader, SKS has pioneered a business model that many others hoped to emulate.
But the story of what went wrong at SKS has led current and former employees and even some major shareholders to question that strategy, and raises fundamental questions for the multibillion-dollar global microfinance industry.
Meanwhile, whistleblowers at SKS say they have been targeted for retaliation and that the company has failed to correct structural flaws that contributed to the suicides.
“At the end of it,” said Alok Prasad, chief executive of the Microfinance Institutions Network, the industry group that commissioned the Glocal report, “you come down to a handful of cases where some things went wrong. Is that indicative of the model being bad or very rapid expansion leading to a loss of control?”
Beginnings in Bangladesh
Microfinance was born in desperation. Amid the 1970s famine in Bangladesh, Muhammad Yunus began giving small loans to poor women with his own money. Despite the predictions of bankers, the women paid him back.
The core idea of Professor Yunus' Grameen Bank was the borrower group. Five women from a village determine how large a loan each member gets and act as guarantors. If even one member is delinquent, no new loans are issued. Group members apply pressure and support that has kept repayment rates near 100 per cent.
Professor Yunus' innovation won him the Nobel Peace Prize in 2006.
In 1997, Professor Yunus' acolyte, Vikram Akula, founded his own microcredit organisation, Swayam Krishi Sangham, which stands for “self-help society.” In 2005, SKS started operating as a for-profit company and Mr. Akula began chasing private investment to achieve the massive scale required to dent global poverty.
Public issue
In August 2010, SKS Microfinance, then India's largest microlender, went public. Exuberant investors oversubscribed the Rs. 1,715- crore offering by nearly 14 times. The stock surged more than 10 per cent on its first day. In celebration, the company handed out 21,000 watches to employees.
Then media reports began to surface that over-indebted borrowers were killing themselves.
In October 2010, a mob of 150 people surrounded SKS' Hyderabad headquarters, protesting the suicide of a borrower's husband. They threatened to drag the corpse inside and demanded Rs. 9.8 lakh.
It was one of dozens of deaths the Government of Andhra Pradesh blamed on aggressive tactics by microfinance companies. The police jailed microfinance employees, including dozens from SKS. Among the charges was abetment to suicide, essentially driving people to kill themselves. Authorities investigated 76 cases in which employees from SKS and other microfinance companies were blamed for driving borrowers to take their own lives. The State passed a law designed to clamp down on abuses with new restrictions on loan disbursement and collection and onerous registration requirements on the companies. Microlending in India's largest microcredit market was effectively shut down.
Charges denied
Microfinance officials fought the new law and denied the charges, accusing the State government of trying to gain traction with voters and punish companies for capturing valuable market share from state-run lending groups.
Established microlenders such as SKS said loan sharks operating under the guise of microfinance were behind the excesses. SKS and other companies asked a court to stop the arrest of their employees. The court issued a stay on new arrests. Today, no one is in jail.
In a November 2010 letter to the Union Finance Minister, Mr. Akula defended his company and included supportive articles from The Wall Street Journal and the Financial Times.
At the same time, the industry group Microfinance Institutions Network hired Glocal to investigate 44 deaths among debtors of microfinance companies, including SKS.
Mr. Venkateswarlu, the Glocal director, presented the findings to executives at three lenders. In January 2011, he delivered startling news to Mr. Akula and Mr. Rao — SKS employees had clear involvement in the suicide of four borrowers, meaning that their actions appeared strongly linked to the subsequent deaths, according to their investigation.
The AP obtained a four-page section of the Glocal report that deals with the SKS case studies. It related the financial history of borrowers, the loans obtained, the nature of pressure or harassment for repayment, and the microfinance company involved. Mr. Venkateswarlu verified that it was indeed the material he presented to Mr. Akula and Mr. Rao.
“They said they'd look into the issue and take some appropriate action,” Mr. Venkateswarlu said.
SKS sent internal audit teams to the field. Their reports exonerated the company.
Inquiry initiated
Unable to reconcile the two sets of findings, SKS hired Guardian's Human & Civil Rights Forum and Third Eye, a private investigative agency, to do a more thorough, independent inquiry, according to Ramesh Vautrey, head of administration at SKS, who oversaw the investigation, and Rajender Khanna, the president of Guardian's.
A January 17, 2011, letter from SKS, signed and stamped by Mr. Vautrey, asked Mr. Khanna to “carry out a fact-finding enquiry on the causes of suicide and complicity of our field staffs without any prejudice,” according to a copy of the letter obtained by AP. The AP was shown invoice numbers for SKS payments to Third Eye and e-mails indicating the findings were sent to top management.
P.H. Ravikumar, who became interim chairman of the SKS board last November, said neither management nor the board had authorised an independent inquiry into borrower-deaths.
“Our enquiries from 2009 to 2011 have revealed that neither SKS nor its employees have been the cause for any of the suicides in the state of Andhra Pradesh,” the company said in a statement. The company also said SKS employees have been acquitted in two borrower suicide cases in Andhra Pradesh and that only one criminal case remains outstanding.
Mr. Khanna sent teams to speak with families of the dead, village leaders, neighbours and loan agents, videotaping the interviews. Their report said SKS employees bore direct or indirect responsibility for at least seven suicides, including two that overlapped with the Glocal findings.
The interview videos were shown to the AP by Uma Maheshwari, who said she was present during one set of recordings and visited several of the families personally. She left SKS in July.
In one video, the daughter of borrower Dhake Lakshmi Rajyam cries, gasping as she talks to an investigator in Tadepalligudem, Andhra Pradesh.
Rajyam was unable to pay off Rs. 1.18 lakh owed to eight different companies. Employees of microfinance companies, including SKS, urged other borrowers to seize the family's chairs, utensils and wardrobe and pawn them to make loan payments, her family told investigators. Unable to bear the insults and pressure of the crowd of borrowers who sat outside her home for hours to shame her, Rajyam drank pesticide on September 16, 2010, and died, the family says.
“We've lost my mother,” her daughter says. “Nobody will support us.”
The investigator's conclusions lay the blame on SKS employees, saying they failed to comply with company policies “and even basic moral rights.”
Mr. Vautrey said he sent the case studies to three top managers, including Mr. Rao. E-mails obtained by AP indicate that summary reports were e-mailed to the managers.
Mr. Rao did not respond to multiple requests from AP seeking comment.
Mr. Vautrey went to Mr. Akula's office one night and told him what they were doing was bad karma. “I don't want to be part of a team abetting suicides,” Mr. Vautrey said in an interview. “It is systemic failure. We have no right to kill anybody for our own business. Let's close down our business if we can't do it right.”
Profound shift
A profound shift in values and incentives at SKS began in 2008.
In October, Boston-based Sandstone Capital, now SKS' largest investor, made a major investment. It joined U.S. private equity firm Sequoia Capital, which funded Google and Apple and is SKS' largest shareholder, on the board of directors.
Mr. Akula, who had been chief executive in the company's early days, stepped down in December 2008 but stayed on as chairman. The company brought in new top executives from the worlds of finance and insurance.
SKS also began transferring more loans off its books, selling highly rated pools of loans to banks, which then assumed most of the associated risk of borrower default. That freed SKS to push out more and bigger loans.
In December 2009, SKS launched a massive sales drive. The “Incentives Galore” programme ran through February 2010, just one month before the company filed its IPO prospectus.
Agents won prizes worth up to 10 times their average monthly salary for signing huge numbers of new borrowers. Mr. Vautrey said he coordinated the shipment of 8,800 television sets, refrigerators, gold coins, mixers, washing machines and DVDs as rewards for more than 3,000 districts nationwide.
One loan officer signed up 273 groups in a month. Under training protocols, the ideal number of groups formed per month is 12, the maximum is 36, according to field agents and reports written by Mr. Akula.
“The focus is only on targets,” said Ramulu Sirgapur, who spent a decade at SKS before he left in December. “Even if we've given feedback, there might be recovery or repayment issues. That's OK. Just concentrate on growth.”
The result: Management had a great set of numbers to show investors as it shopped the IPO. In a month, SKS could add 400,000 borrowers and 100 branches, and train more than 1,000 new loan officers. SKS had 6.8 million borrowers and had disbursed Rs. 15,680 crore in loans. India was pimpled with SKS branches, which bloomed in nearly 100,000 villages. SKS said it was the fastest growing microfinance company in the world.
What was overlooked
But basic principles of lending were overlooked, according to interviews with current and former employees, as well as correspondence and internal PowerPoint presentations by Mr. Akula.
Six current and former SKS staffers with experience in the field told the AP they no longer had time to check a borrower's assets or follow up and make sure a loan was put to productive use. They said they were pressured to push more debt onto people than they could handle, and that the number of days devoted to borrower training was cut in half.
“You have a [borrower group], and a loan officer goes out and trains them, educates them, then they give the loan. That's the SKS I'd seen in 1999. That was the whole model on which microfinance is supposed to work. In the quest for growth, a lot of these things got neglected,” said Ankur Sarin, director of the SKS trusts, which are the fourth largest shareholder in the company and tasked with looking out for borrower interests.
As the relationships between heavily indebted borrowers and loan agents broke down, it became harder to collect. Frustrated agents began working together and going door to door to collect, rather than taking payments only in public, a company rule that had been designed to limit coercion. They began using other borrowers to pressure defaulters into repaying.
“The growth was very rapid. That growth led to some suboptimal outcomes,” said Ashish Lakhanpal, managing director of Kismet Capital, one of SKS' largest shareholders, who was on the SKS board until October 2010. “Were there lapses? Absolutely.”
While the board was concerned about fast credit growth, the company never believed it was harming borrowers, Mr. Lakhanpal said. “Mistakes were made, but I find it difficult to believe there was anything people did at a managerial level to encourage field officers to do that,” he said.
Plan that never made it
In the spring of 2011, Mr. Akula began circulating a plan to spend Rs. 49 crore to train financial counsellors, who would make sure clients were not getting into too much debt and used their loans productively, according to Mr. Sarin, Mr. Vautrey and others with firsthand knowledge of the proposal.
But the plan was never adopted. Publicly, Mr. Akula continued to deny that SKS bore any responsibility for suicides. “Whatever happened was due to external factors and was not reflective of any fundamental flaw in our model,” he told Business Today.
Privately, Mr. Akula prepared a 55-page presentation for the board that detailed the seven suicides that SKS' outside investigation had blamed on the company. The presentation showed how the pre-IPO push for growth led to a systemic breakdown, and again urged core reforms to restore training and lending discipline.
Board members received copies of Mr. Akula's presentation at a July 26, 2011, meeting, said a former employee who helped prepare the material.
The minutes of the meeting, however, make no mention of the report.
“As per my notes, this was not part of the board proceedings,” company secretary Sudershan Pallap wrote in a September 26 e-mail to Mr. Akula, who had complained of the omission.
Mr. Ravikumar, who would become interim chairman when Mr. Akula resigned, said the board was never informed that SKS employees were implicated in any suicides, and denied Mr. Akula presented any such findings to the board. “There was no presentation from Vikram Akula at that board meeting. This will be reflected in the minutes, as signed by Vikram Akula,” he said.
Mr. Ravikumar said the board reviewed reports from the Microfinance Institutions Network, but none of them implicated SKS employees.
Complaints
Mr. Akula continued to complain to the board that his presentation had been ignored. He summarised his concerns about the company's direction in e-mails, obtained by the AP, to seven board members, including Sequoia's Sumir Chadha, Sandstone's Paresh Patel and three independent directors — Mr. Ravikumar, Harvard's Tarun Khanna, and Pramod Bhasin, the former chief executive of Genpact.
Mr. Chadha, Mr. Patel and Mr. Khanna did not respond to multiple requests for comment.
Mr. Ravikumar declined to comment on what he said was personal correspondence.
Mr. Bhasin said reports claiming SKS bore responsibility for borrower suicides were “unsubstantiated.” “Any issues raised to the Board at various times were fully investigated by external parties and found to be unsubstantiated or without evidence or actions were taken on them where appropriate,” he wrote in an e-mail.
Rancour within the company was intensifying. Board members felt Mr. Akula was suffering from a bad case of “founder's syndrome,” that he could not stand to share power at a company that had become too big for him to run.
Finally, on November 23, 2011, Mr. Akula resigned.
Mr. Vautrey said he was targeted, and SKS began termination proceedings against him on February 6.
Three members of his staff have been fired and have filed wrongful termination complaints.
On February 6, SKS also sold Rs. 243 crore in securitised loans. The stock price surged 10 per cent. Top executives have been on the road, hoping to raise Rs. 500 crore from international investors.
Mr. Sai, the company spokesman, said SKS has hired an ombudsman, is spending Rs. 14.7 crore to improve its customer grievance programme and has revamped training to ensure that employees comply with current regulations and do not lend to over-indebted borrowers. He said the company would like to reorganise incentives to maintain rapid growth while ensuring loan quality. Those changes have yet to be implemented, he said. -- AP
Keywords: SKS Microfinance, small loans, lethal debts, farm suicides
I have read the stories of suicidal cases of women who had taken loans from sks MFI.The stories are hard to read and digest.How,the social development organisation like sks MFI can behaved rudly with their clients. The deaths of the dalit and poor people are very chief for sks MFI.I do endorse that culprits should be punished taken into landscape of the crime.
CLARIFICATION - No wonder I am receiving mails on SKS! This is not ME, Dr. R. Uma Maheshwari freelance journalist from Hyderabad, writing on POlavaram and displacement! I was NEVER EVER with SKS even remotely! IN fact, I wrote about the way SKS MFI staff were harassing women just two days after the Godavari floods of 2006! My article, "Pay up or PErish" was published as Pay up or Die in Times Of India, Hyderabad edition (September 3rd 2006), but the editors in the paper removed the SKS name altogether! Hope I do not receive emails anymore wondering if I ever worked with SKS. GOD FORBID!
I think we are forgetting a basic fact here. While the MFI interest rates may be higher than banks, what is the other option that the poor have to get a loan? The other option is the village moneylender who charges FAR higher than any MFI. Moneylenders charge 100-300% interest rate while MFIs charge abt 30-40% interest rate. Journalists need to at least have a working understanding of the sector before writing silly stories (even if they seem emotionally appealing). By shutting down MFIs we are shutting options for the poor to get loans at a lower rate than from money lenders. The bank penetration in rural areas is very poor and access to credit for people with no collateral is extremely limited.
The coercive collection policy by some profit hunting MFIs like SKS is
responsible for the AP crisis. But at the same time we cant ignore
government's initiative to check the MFI activities and so called
watch dog RBI. One single customer was served by as many as eight
MFIs. If we go back to some years backs, we easily understand that
government policy pushed the poor women's of AP to avail credit from
MFIs. Political parties in AP always tried to use credit as a means of
political patronage. Chandrababu Naidu had introduced rural lending
model called Velegu in 2000 and empowered Society for Elimination of
Rural Poverty (SERP) to offer credit at 12% and interestingly during
2004-05 election Rajshekhar Reddy promised to waived off 9% to get
political patronage.
There a numbers of MFIs in India, working for the poverty alleviation
in true sense. We shouldn't undermine the contribution of Basix, SEWA
Ujjivan etc.
It is heartening to read about the way micro-financing institutions are
working. Where business and profits gets involved, the moral rights and
the zeal to uplift the society goes for a toss.
The exhaustive investigative story by Erika Kinetz threw light on the dark contours of the face of Microfinance institutions in Andhra Pradesh. Else where in the world in Africa and Brazil too it is same story. As SKS charges between 18 to 24 percent interest, it is a receipe for disaster for the loanees. However, I happened to hear Ms. Vijayalakshmi, a cotton farmer from Warangal District in Andhra Pradesh, who overcame MFIs by using Bt pest resistant seeds. She told me last week at a CII -Agrivision 2020 workshop that in the last ten years she used Bt Cotton, her family was pulled back from the brink of loans, MFIs and repaid hand loans. She also was happy that her husband survived from the brink of committing suicide. A case of technology coming to the aid of farmers.
Micro finance started off as a noble thing. With the for-profit greed,
it is being turned into a demon now. So does SKS pay up compensation for
those who kill themselves because of their harassment?? All the
employees should be made to attend a compulsory moral training which
will impart them with the basics of humanity and tell them that human
life is more important than money! In my opinion all the agencies which
deal with money recovery should undergo such a training.
Even in Bangladesh there were many reports of MFI going out of control and people going to the extreme.
There has to be laws to regularise the operations..Companies must be restricted in the number of borrowers they enrol in their areas and there must be forums to listen to the complaints about harrassment by the overzealous.The borrowers need to be properly assessed on why the
want the loan and what they see to be their source for the repayment.
The women's "Sangh Krishi"movement in Kerala need to encouraged for
emulation in other parts of the nation and wherevr possible BORROWING
need to discouraged since many of the money borrowed are spent for non
productive things.ANOTHER critical issue about to be burst on our face is the Student Loans.The employment crunch anticipated in the very near future will hurt many and Banks and Govt MUST take note NOW
Micro finance it is a devil's trap. Because the rich will not go for it knowing that the interest is exorbitantly high. If so how the poor can can pay for it. Still ,like evening flies which get attracted to the flame of oil lamp and turn in to ashes the poor borrowers fall victims to such borrowings. After the first loan, finding it difficult to repay ,the poor go for fresh loan and get half of the principal amount. Half is redeemed against unpaid loan. So it hardly needs few repetitions to exhaust fully and end one’s life. On the other side the money lenders will be fattening like beast at the cost of the poor. No doubt presence of this type of money lenders no way helps the society to tide over any of their problems , instead it sow the seeds of indebtedness and suicides. So what is required is simply scrap their presence. People will find their own plausible means to overcome their needs. Gvt. can think of some Grasmere project for giving them small scale jobs and earnings.
Microcredit has enabled easier access to loans, and by corollary people who would not have been able to borrow earlier are now borrowing - women, small farmers, petty vendors and so on. Their 'experiments' in borrowing seem to be going wrong much more often - especially when their inability to repay is not just about being tagged as a defaulter in the books of a bank. A key success factor for a micro-lender (who mostly lend without security), is their ability to use peer-pressure and social stigma to protect their capital and to extract regular repayments, and this is a psychological tool much more powerful than any type of physical coercion. The poor borrowers would rather be dead than to be seen as a traitor to their brethen.
MFIs got priority for the hassle free and fast loans with less paper work. and it works for those, who doesn't own any property or have any good and permanent job.
but when these MFIs fail to clearly tell the borrowers about their terms and conditions and when the borrowers fail to understand the terms and conditions then the real problem starts.. By educated and honest gram sarpanch and officials these things will be rectified..
This model is not flawed and it has worked in other countries. But it is very fragile. The loanees are supposed to use the money to (a) even out their volatile and seasonal regular income, and/or (b) put into an economic use that generate new earnings for them. But, how many of these loan receivers have the know-how and the discipline to channel the money into right path? How many of them know how much to take as loan? How many of them have the idea for a new business? How many of them have access to savings institutions? The field-people of the lenders are supposed to teach these and the loanees are supposed to learn these over time. Looks like in their urge to grow fast, companies like SKS could not recruit the right field-people. Further, the mushrooming of these MF companies give the loanees to 'play one loan against another'.
The article is a systematic presentation of the malady, which exist in
the financial industry in India. The reasons are i)wrong/excess credit
ii)abnormal/unsustainable/unserviceable rate of interest iii)
eagerness of the foreign funds for a return of 8-10% on the investment
iv) habitual/inclined delinqency of borrowers due to social
environement iv) political climate for populistic policies v) absence
of pre-emptive surveillence by Central Bank and Govt.authorities, vi)
non-availability of resources particularly debts to MFIs from
commercial banks at reasonable rate of interest and vii)unreasonable
and ambitious business plans of MFIs to make a quick buck.
MFIs are required as intermediary financial institutions for India, to
meet the productive credit needs of millions of 'have nots', but need
to correct the short-comings by all the stake holders.
The article on Micro Finance institutions and how they plunder those innocent and gullible people is a pointer to the depths to which our profit driven philosophy has taken us. What our Central Government and Reserve Bank of India do to help them? They never care for providing banking facilities to the unbanked rural areas. Instead they encourage more and more bank branches in metro and urban centres only. Had there been an effective credit delivery channel through Banks, these people would have escaped from the clutches of ruthless moneylenders in the form of MFIs. There was a period when all banks were compelled to earmark at least 1% of their total lending to weaker sections under Differentail Rate of Interest scheme(DRI) where the interest rate is a reasonable 4.00% only. The instructions are still there. But who cares? Strict compliance of this norm alone would help lakhs of poor and underprivileged from our villages. Anybody listening?
The MFIs in India have been lending to millions of people and out of
which about a hundred are driven to take the extreme step and among
these a few such extreme step have been directly or indirectly
attributed to pressure from MFIs. As has already been pointed out it
is not justified to jump to conclusions without getting into details.
The PM's relief package was implemented in Vidarbha but today the fate
of the farmers there is not much different. The Loan Waiver was
implemented in 2008 with about Rs. 65,000 crore but in late 2009 paddy
farmers from Coastal Andhra committed suicide. What is message we are
getting out of these? Jumping to quick conclusions does not solve the
real problem. In the present case, the actions and inactions of only
SKS were highlighted giving doubt about the intentions of the article.
Even when so much was said about MFI's harassing the people and all
that, now the poor are the ultimate sufferers as they may be taking
much costlier loans.
Microfinance institutions lend at exhorbitant rates - about 30% to begin with. Landless agricultural labour and small farmers are the target clientele. Most of the times, the loans are for consumption purposes and FMCG goods which do not have any possibility of increasing the revenue of the household. Most of them are illiterates and therefore would not have understood the problems of not paying back. MF organisation do not bother to evaluate the repaying capacity. All they are interested is to form a core group and then lend. That is it. Most of the executives at the grass root level are semi-illiterate and their only aim is the commission. It is a perfect blend for disaster. Both for the lender as well as the borrower. Indian enforcement agencies are corrupt and obviously will side with the cash rich - in this case the MF organisation. And life in India is worthless. Nobody bothers.
The MFI is taking the people of AP for a ride. They charge very high interest for the loans. Secondly they drives the borrowers to commit suicide so as to settle the loan amount and interest from the insurance amount. The creation of MFI seems to be suicidal. We have nationalized banks who also lend loans to the poor. The government should have softened the procedures of thee banks and
helped the poor and the farmers. It is time that the MFI is closed down immediately so as to save further loss of poor and farmaers life.
The micro finance was supposed to be helping the poor a step up, and out of their poverty. If this report (and others like it) are correct, it is indeed sad. Who are these loan companies, that will rather murder at will to get their money returned? It is one thing to expect repayment for the loans, but quite another to aide or abet, or forcing these poor people to commit suicide. I am sure there are enough laws in the books to punish predatory lending and usury. I am also sure, no one really cares if they are enforced or not. After all, these are really the expendables! India does not, and will never forge ahead with things like this as a backdrop. It's a darn shame for the country.
I hope some good citizen will file a case against SKS for abetment of
suicide.
Though micro finance institutions are established to serve lower base population but these days they are in the news because of above incidences or charging higher interest rates.Neither any institution is 100% perfect,so there is need to strengthen the system in order to prevent such incidences.
Major part of the budget allocations from Central as well as State
Governments are allotted to rural part of the country and it is a bad
policy allowing these profit motivated private players into these
vulnerable sections of economy. I think in this global economy which is
creating pockets of economic oases (All of them being in urban
areas)which have become self sustaining, government should focus their
strengths in creating opportunities for human and economic development
in rural areas by good and efficient governance.
The suicide of a loan defaultee is tragic.It is an offence to commit
suicide and it may appear to solve the families problem but it
reflects very poorly on the society and the Government that they were
not able to help the person.The Government should provide the Safety Basket by providing a safe outlet where work is given and investigation is done
and the person made to finally repay the loan amount.These cases can
be handled only if a large retailing outfit with sufficient Government
shareholding is created.That kind of industry will provide sufficient
shops for the indigent.No use making a racket about Aam Aadmi if the
aam aadmi perish.
I think that people miss the point. The poor are no more opportunistic as the MF/NCs. The MF/NC have access to cheap leveraged money which they indiscriminately lend and then resort to financialization of the loan transactions in the form of securities which then transfer the risks to investors (if public institutions, the public) whereby the MF/NC coffers are replenished to carry on the ponzi scheme. This is in contrast to the village level nano-finance schemes of yore, which were a weekly auction of savings (as low as 10p), sometimes at interest rates of 100% a week. The transactions were a community affair, and risks moderated by community involvement. The fault lies in the system built on debt and empowered finance; not on the defaulting nature of the borrower (the poor have more pride than rich:) nor too much on the rates. If the MF/NC had access to free money, they would not even bother about loan repayments. Hence the pressure on RBI to ape the FED in lowering interest rate.
In this entire article there is not even one sentence about why these people are not pay back their loans. Wringing one's hands about suicides and abetment of them is all very well. But why not at least attempt to go into the reasons? Nobody lends money without any expectation of getting it back. So why was the loan given, did the borrower mislead the lender about the purpose of the loan? Why did the borrower not repay? What is wrong with attempting to collect the loan in kind, if not possible in cash? Microfinance is by definition a loan of a small amount, given at concessional rates. If even such loans cannot be recovered, then you have to wonder what these loan officers were thinking when these people came forward to apply for a loan.
While the poorest of the poor were killing themselves where were policemen? Why we make laws? In this oligarchy, democracy is dying a slow death and so is the power of a common man. I dont agree either with Mr. Arvind or Mr. Sankar, the greed of men is universal and we have enough number of legislations that can rival the number of articles in wikipedia. Drafting legislation is not the solution, implementing already existing one strictly and honestly is the solution. This article presents a disturbing picture of the current socio-economic situation of rural india.
The root cause is high interest rates. What was the interest rate charged to the poor borrowers? Any interest rate which is more than than 2% over the prime lending rate, especially directed at the under-priveleged should be made a criminal offence.
Giving loans to the poor without investigating their capability to pay back seems to have bben the cause of all this mayhem. From my experience, I have seen that a poor man will always jump for an offer of a loan and will make sure that he does not repay it. This is the result of the rampant corruption at all levels in our country. Corruption has eroded the self respect in human beings in our country. Their normal approach is that so many are doing it and getting away from it, so why not we also do the same. The MFCs have exploited this weakness to give more loans and charge usurious rates of interest. The MFCs are not the losers but the poor end up as dead bodies. Rahul Gandhi, whom people think is fit to become PM,praised these MFCs not realizing what they are precipitating in this country. When such people become the PM more poor will commit suicide. It clearly shows the hollowness of these dynastic leaders who perhaps do not know anything about poverty.
It is so sad to see the bread winner of the family leaving a good family with a young woman and a child as orphans. This is where some NGO's should play a role in psychological counselling and volunteers in good jobs and good income should come together to help such people in times of distress and need to counsel that suicide is not the solution.
There are so many myths - religious and non-religious. The non-profit organisation is a biggest myth of all! There is no such thing as free lunch! Some one will have to pay! Do all the workers in non-profit organisation work free of charge ? No.
This is very sad story and touching one. I want to help financially the family of Hari Prasad for his child education plus other expenses. Could Hindu help me to connect me to this family? Thanks
Follow up to the above: To help alleviate the plight of the poor
something positive can be undertaken. Those with surplus cash
lying dormant in banks especially those in the West where there is
little or no interest earned, transfer it to bona fide MFIs/credit
unions/co-ops that are secular and universal in their aims and
objectives. They can, in partnership with rural communities,
advance adequate short/long term funds as required to support
employment/enterprise, and personal/social/educational endeavours.
I am quite confident like myself a pensioner with moderate needs,
residing in the West, there are many who will be glad to
participate in such a scheme. It will be better than the mealy
mouthed offerings of the Western Governments who would expect
India to buy their weapons in return. Aware Indian readers, please
advise and or direct to genuine schemes already in existence. If
not, a people to people endeavour is worth promoting. Lets help
end exploitation!
Maybe a few legal changes to the loan structure are needed. One is to streamline a bankruptcy procedure. If the micro-loan companies get the idea that their badly placed loans will only end in a court-ordered loss they will be more careful and less predatory. Another would be a stricter enforcement of income to debt ratios in documenting loans. In the US a bank can only loan a person about 35% of their income in total. Trouble here began because bank agents made money on commissions for new loans. This gave them incentive to lie to customers, on the loan documents, etc. So reduce the amount of pay farm loan agents make by commission, put them on salary. Loans based on crop production should be made on a basis of annual return, not monthly payments. Farmers earn their money on the sale of a crop so the lenders might get full repayment upon sale, or a max of 10% of sale. Then lenders share the risk with the farmer, and would maybe help them find higher crop prices out of self-interest.
This is APPALLING.... I used to donate to MICRO FINANCE organizations in the USA. I later came to know that there are MIDDLE Organizations and Crooks who charge astronomical rate of Interest putting the borrowers in a very sad state. This has to be regulated by the government stipulating that the rate of interest should not go beyond a reasonable percentage which should be around 8 or 9%. Similar situations in other countries have prompted those governments to regulate stricter. INDIAN GOVERNMENTS (CENTRAL AND STATE)must regulate this. There has to be a OMBUDSMAN like LOK Ayukta. THE GOONDAS must be done with. People are living in fear and that is not called Democracy......
MFI like credit unions are meant to be owned, controlled and run
by the beneficiaries for their own benefit. How come these carpetbaggers from the States and undoubtedly their trojan horse SKS enabled to exploit and profit from this market. This is immoral and not only bad but dangerous for India. Is it not dissimilar to the practices these sharks undertook in the States and Europe, driving multitudes to lose their homes and into abject poverty. Are they out to do likewise in India, providing credit without collateral to the abject poor. Do they also intend to bundle these toxic loans and sell them on to too big to fail financial institutions. Will India fail like Greece in the not too distant future. This is shaping to be so. These land sharks delight in ravaging the poor and vulnerable. The lawmakers are either asleep or worse still in cahoots with this shenanigan. Avoid usurers like the plague. Help set up or direct people to bona fide MFIs and credit unions/co-ops soonest.
I totally agree with Mr Arvind. We have learnt this inhuman financial practice from our villainous American Wall Street friends, to completely dry up poorest of the poor. It is both sad and bad. There should be some legislation from the part of government to curb this inhuman practices. Otherwise it would go beyond control and many would loose their lives. Unfortunately, it already went too far. Everything starts with a good faith and later becomes occupied by the greedy monsters. So only proper legislation can control this act to protect the innocent people.
The story is a plagiarism of the events in the USA - the new ideal of Indian neo-liberals. The correspondence is stunning - but our literates don't seem to notice. This story is about the stupendous rate that our economy is descending quietly into extreme financialization with neo-liberals and feudalists at the helm. High levels of food wastage, the soup kitchens and the homeless shelters have saved USA from suicides - we do not have that luxury. The alternate media is growing in the west mostly due to the highly qualified pool of indebted students realising the hopelessness of their future - here the better off have thicker skins probably attributable to our feudal past. Whereas I was skeptical about the Indian trajectory, this story cleared up matters - we are indeed governed by the failed policies of the IMF and other western banksters. Kudos to The Hindu for the story - but an editorial is needed that will connect the dots for the vision impaired of our country.
In the photo, the age of the widow is 22. She has a daughter who is five years old. She must have been pregnant when she was 16. Which implies that, in all probablity, she did not complete her higher secondary education. And 16, by no stretch of imagination is the age for a woman to marry. Along with wrong policies, it is practices like these which contribute to the problems faced by farmers.
A law should be enacted prohibhiting anybody from marriage if they are under the age of 21 and do not have a Bachelors degree. This will go a long way in preventing post natal complications and also help prevent population explosion.
People from these MFIs who are driving the poor to suicide must be given exemplary punishment for long periods with hard labour and the MFIs must be levied exemplary monetary penalties. Their CEOs and other executives must be held accountable. It is ridiculous that the poor are being exploited and driven to extreme steps by usurious interest rates. The Government should step in to right these wrongs.
These MFIs are the backbone of our rural development , but when one
comes across such instances of unadulterated brutality on their
part...One begins to question the rise of profit-oriented outlook
adopted by these institutions . The ideal solution would be a more
active and vigilant monitoring by the human rights activists.
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