COMMENTARY

Microfinance:
Moneylending in a New Avatar?

Srilata Swaminathan

Micro-credit has long been touted as the panacea for poverty and mantra for women’s empowerment all over the world, and in liberalised India too. Accordingly, micro-credit and SHGs spread like wildfire through rural and even urban India (and the rest of the world), capitalising on the dire need of people to have easy accessible small loans. In rural India the stringent conditions and complicated nature of loans from banks make them inaccessible to the vast majority and women in particular. The ubiquitous local and traditional money-lenders charge exorbitant rates of interest while taking land or jewellery as mortgage, and in spite of repeated demands, the government has done nothing to address this problem and help the poor.
Women, who because of their lack of collateral find it especially difficult to borrow from banks, do need access to credit, and micro-credit was said to fill that need. However, even at the height of the euphoria over micro-credit and micro-enterprise, the progressive women’s movement cautioned that micro-credit in fact tended to exploit patriarchal structures by seeing women as being more ‘efficient’ and ‘credit-worthy’ because they are more susceptible to social pressure and coercion, and less mobile and therefore less likely to decamp. Moreover micro-enterprises and micro-credit were being used as a ‘safety-net’ to facilitate the retreat of the State from its social responsibilities in times of liberalisation. Above all it was stressed that micro-credit was no substitute for the urgent expansion of institutional credit infrastructure and credit access for the poor, especially women. It also warned against the entry of corporate finance companies into the micro-credit ‘market’ in search of profit, which could be no substitute for bank linkages. The experience of women in rural India, especially states like Andhra Pradesh where micro-credit and micro-finance institutions (MFIs) were aggressively pushed, has amply borne out all these warnings.   
The suicides of over 50 women members of self-help-groups (SHGs) in Andhra Pradesh in the past few months, and the revelation of large scale malpractices by unscrupulous and rapacious MFIs have burst the microfinance bubble. The entire Andhra experience – where bank linkages are inadequate, and MFI companies which were encouraged to penetrate the microcredit market earned windfall profits in the name of empowering women, who have actually been pushed into the debt trap and suicide – raises serious questions about the policies pushed by successive TDP and Congress Governments in the state.
A detailed survey of the recent SHG suicides by the Andhra government that shows that the MFIs charged exploitative rates of interest, and resorted to humiliating and violent recovery methods in the style of moneylenders. Each suicide case shows severe harassment by the companies in loan recovery, some were forced into prostitution to pay back their loans, many had to flee their houses and leave all their belongings behind.   
Reportedly a government study even found that “some MFI agents themselves are encouraging the debtors to commit suicide so that their loans are repaid. This happens because the borrowers are covered by insurance… The MFIs draw up an insurance cover for the borrower at the time of loan disbursement. In the eventuality of suicide, they recover the amount under the Loan Protection Fund (LPF) by which 10 per cent of the loan amount is deposited with the RBI which repays the remaining loan amount due from the defaulter.”
The worst offenders among the MFIs have ironically gained international profile as agents of social change and poverty alleviation! 

Take the case of Vikram Akula, the CEO of SKS Microfinance, one of the MFIs with greatest penetration in rural districts of AP. SKS followed the typical MFI trajectory: beginning as a ‘not-for-profit’ unit using grants, and metamorphosing into a for-profit Non-Banking Financial Company (NBFC). In 2006, Akula figured on the Time list of the world’s 100 most influential people, along with Nobel winner Mohd. Yunus and was awarded the ‘Social Entrepreneur of the Year’ Award by Sonia Gandhi. In 2010, SKS became the first  microfinance institution in Asia to go for an IPO listing on the stock market, attracting a record Rs 1600 crore. SKS boasts of a 5.8 million loan base, mainly among rural women in AP, and a loan recovery rate of over 99%. SKS made a spectacular increase in profits – from Rs 2 crore in 2008 to Rs 174 crore in 2010. A large number of the recent suicides in Andhra have been SKS borrowers. SKS’ phenomenal IPO listing provided affirmation that the business could assure its share-holders of reaping fat profits through “double bottom line returns”! They make sure that the women in SHGs police each other in paying their weekly instalments and by forcing them to take responsibility for each others’ payments. The company makes an easy killing of 30% interest on all loans. (In fact the recent findings have shown that many MFIs took up to 60% from the women by adding various other fines and figures for which they do not account.)
Akula has claimed that while many of the suicides were borrowers from SKS, it was their debts to traditional moneylenders and not SKS that led to the suicides. Let us examine that claim. Vikram Akula has just released a book titled A Fistful of Rice: My Unexpected Quest to End Poverty Through Profitability. The title speaks for itself, and in the book he claims to have modelled his SKS on Wal-mart and McDonalds! How is profitability achieved? Akula’s own book hints at the humiliating and insulting methods deployed by SKS. He writes, “When we started... people decided to test us by not paying... We instructed our loan officers not to leave... until the repayment came… The entire village would realise there was some issue... And that person would lose izzath — lose face. Losing face is a fairly devastating thing in a village context, and people will do anything to avoid it.” (p 76) He also tells of an instance where the loan was taken to buy a goat but kept to buy food. Akula’s assistant tells the customer: “Buying food doesn’t generate income, so you’ll be no closer to getting out of poverty that way. Either buy a new goat, or give us back the loan money.” (p 82) Buying food to address hunger is no doubt unprofitable from the point of view of SKS! In such circumstances where a woman is being humiliated for her inability to pay back loans, or where she is being pressurised to return loans which were used for consumption rather than investment, she is forced to take more loans – often from traditional money-lenders – to pay back the MFIs like SKS. As she borrows from Peter to pay Paul, she is drawn deeper and deeper into the debt trap, and is finally pushed to suicide.

Nor is Akula an aberration. Even Nobel-winner Mohammad Yunus had argued that his Grameen Bank model was compatible only with a capitalist, free-market model: “I do believe in the power of the global free market economy and using capitalist tools...I believe in the central thesis of capitalism: the economic system must be competitive...[and] profit maximising.” The Grameen Bank experience in Bangladesh too may not be very different from that of Andhra Pradesh. As one economist points out, “After 8 years of borrowing 55% of grameen households still aren’t able to meet their basic nutritional needs – so many women are using their loans to buy food rather than invest in business.” Many of them are borrowing and getting into deeper debt just so that they can pay their instalments.
The Congress government at AP and the Centre are now belatedly trying to assuage people’s anger at MFI exploitation and the resultant suicides by taking some steps to regulate the MFIs. The RBI has set up the Y H Malegam committee to look into the functioning of MFIs. The AP Government, under pressure to be seen acting to rein in the MFIs, has promulgated an ordinance and a draft bill capping the interest rate at 8% above the basic bank interest rate. The RBI and UPA Government’s Finance Ministry has also reportedly suggested that MFIs be prevented from charging more than 22-24% interest rates. However even these attempts at regulation are highly inadequate, since the proposed caps are still too steep. Rather, the governments at State and Centre should ensure that rural women are guaranteed institutional credit at subsidised interest rates so that they are not forced to approach MFIs for loans.     

Imperialist nations today, through finance capital wielded by their governments, their banks and lending agencies, and MFI corporations are modern version of moneylenders – moneylenders even worse than the traditional variety because of the sheer scale of profit they earn at the cost of the poor, and their political agenda of keeping the poor under control in the name of ‘freeing’ them from poverty.