Andhra takes a Kalahandi turn

State shows rise in suicides due to private money lenders

Most of the suicide cases in AP have a similar storyline since 2006, when the state began to encourage micro finance as an alternative to public sector banks.

The suicides have been taken note of by the State Human Rights Commission (SHRC), which has now sought comprehensive reports from officials of the districts from where the suicides have been reported.

Suicides probably began in since 2006, when the Krishna district collector closed down 50 branches of two major MFIs following complaints about the MFI’s coercive methods of  loan recovery and exorbitant  interest rates. Media later came up with as many as 10 suicides, attributed to harassment by recovery agents.

Rivalry between banks
The crisis was reportedly triggered by the rivalry between public sector banks funded by the World Bank and the Andhra Pradesh government and private sector MFIs, funded by robust private sector banks.

“Trapped between these two, are some households that have taken loans from both,” noted Vijay Mahajan, head of Basix, a private-sector microfinance company.

Following the spurt in suicides, the state government initiated action against private sector MFIs. Krishna District Collector, Navin Mittal, raided offices of MFIs like Spandana, Share Microfin, Asmita and Undamma Bottu Pedatha and charged them with collection of higher interest rates, almost to the tune of 40 per cent and for harassing borrowers.
If properly monitored, microfinance is an effective tool to help reduce poverty and spread economic opportunity.

However, in Andhra Pradesh, the reverse happened, with the MFIs seeing the sprouting up of SHGs as a chance to fleece people.

The modus operandi of the MFIs includes unethical practices like taking blank cheques and stamp papers, and collateral in the form of home ownership documents and ration cards from borrowers.

Though their interest terms look simple, the MFIs extend loans that accumulates to compound interest as the term of repayment is weekly basis.

The women in the SHGs are forced to opt for finance from MFIs at exorbitant rates, as banks failed to provide loans for the groups on time.

Several NGOs working in the tribal areas allege that the MFIs target illiterate women, violating the AP Scheduled Area Money Lenders Regulation that calls for a licence to carry on business of money lending in Scheduled Areas.

Khammam Collector V Usharani, in a letter to the state government in February explaining the activities of the MFIs, said the MFIs have certificates of registration from the Reserve Bank of India.

Legislation sought
Taking note of this, State Minister for Rural Development, Vatti Vasanth Kumar, has urged Congress President Sonia Gandhi for Central legislation to curb the activities of MFCs, as the RBI was involved in the procedure.

On its part, the state government is planning to bring about a law to curb the activities of the MFIs, which will cover MFI loans under the Money Lenders Offences Act.

The minister has directed the collectors to set up tasks forces to monitor MFIs’ activities citing there are more than 20 cases reported from 10 districts, where MFI agents resorted to unethical means of recovery and harassment, resulting in suicides of the borrowers.