JOIN USDaralamma, a daily wage earner in Narasipatnam in Vishakapatnam was horrified when her 10-year-old daughter was kidnapped by the agents of a micro finance institution (MFI) for non-payment of dues. In many districts of Andhra Pradesh, the strong arm tactics of MFIs to recover loans has forced rural poor to commit suicides.
Alarmed by the distress of borrowers, the AP government passed an ordinance to curb the functioning of MFIs and protect the interests of rural borrowers. Henceforth the agents of MFIs cannot visit the loaner’s homes for recovery and use strong-arm tactics of harassment to force the borrower to repay the loan amount.
Violation of these rules would lead to stringent punishment of fines and jail term for the functionaries of the MFIs. The government is also envisaging setting up of fast track courts to punish MFIs that violate the laws.
It was Nobel Prize winner Muhammad Yunus in Bangladesh, who pioneered the micro credit concept through Grameen Bank model through establishment of self help groups (SHGs) to save and lend credit in rural areas. It is hailed as a one-stop solution to resolve the credit crunch and uplift the poor above the poverty line. Adopted worldwide, and promoted by NGOs and World Bank, it became a buzzword for uplifting the rural poor.
Social cause jettisoned
The network of MFIs in India states that the outstanding loan is to the tune of Rs 3 lakh crore catering to about 3 crore borrowers. Though, these institutions are supposed to provide credit at cheap interest rates, they are charging on an average about 24-40 per cent and some times even more.
Obviously, the social cause of micro finance is jettisoned for making profits, and eventually they have become the modern moneylenders.
Some of the MFIs have gone public, collecting share money through initial public offer (IPO). The largest micro finance player in India SKS is the darling of investors as the shares of this company has risen to unbelievable levels in a short span of time.
In one MFI, the salary of the managing director rose from Rs 2.29 crore in 2007-08 to Rs 8.08 crore in 2008-09. Obviously, the hike in remunerations is a clear indicator of the amassing of public money for personal profit under the guise of corporate management.
This is not only illegal under the Companies Act, but strangely the governing bodies of the institutions in which the public sector representatives are members have endorsed the loot.
But, will the stringent action contemplated by the AP government help rural borrowers? Indications are that it won’t. SKS has announced that it will challenge the ordinance in the court, claiming that it is against their interest.
There are already apprehensions that the ordinance has a lot of legal loopholes in favour of the MFI, as well as the difficulty in implementing some of the rules framed.
Rural areas in India have been facing multiple deprivations in which the macro policies of both central and state government are adversely affecting at micro levels, especially in the villages.
Cutting down on agricultural investments, reducing the subsidies, increasing input costs, falling prices for agricultural produce, decrease in social spending towards education and health and blocking the flow of agricultural credit are the major causes for throttling the lives of people in villages.
In this dismal scenario, it is claimed that the micro credit will resolve rural crisis and provide avenues for the people to come out of poverty through easy access to credit and providing alternate economic support for building livelihood opportunities.
Micro credit, as a tool to alleviate poverty, has not only miserably failed, but due to the market and economic pressure it has created a situation in which it is acting as a noose around the neck of poor people, causing several deaths in AP as well as in other south Indian states.
What is unfortunate is the way in which the apex monetary body — the Reserve Bank of India (RBI) tackling this crisis. Instead of intervention to cap the high interest rates charged by MFIs, it has announced constitution of a sub committee to look into the functioning of the MFIs for using strong-arm tactics to recover loans.
Dr Subbarao, the governor of RBI said: “There is a view that MFIs are charging higher rate of interest. We are marshalling all the arguments and I am not suggesting we will initiate legal actions but we will consult the government.”
It is well known that due to the guidelines of RBI, the mandatory rural and agricultural lending by scheduled nationalised banks is mostly parked in MFIs catering to the seed capital.
This cheap borrowing is the main source of lending for the poor. If this is leading to the crisis, why is the RBI hesitating to take action on its own, instead of looking to the government for directions?