Living life on the edge

Neighbours Namita and Sita shared a common wall in the Purshottampur village in Azamgarh district, 90 kilometres south west of Varanasi. They created a small opening through the wall to chat or exchange things as they went about their daily chores.

In June, they shared the contents of an agricultural pesticide through the gap, consuming it and ending their lives in a suicide pact.

The two suicides are similar to the 60 reported during the Andhra Pradesh microfinance crisis in 2010. For an industry that moved out of Andhra Pradesh and began flourishing (worth ₹28,000 crore now) in other poor parts of the country since then, the story of Namita and Sita are an uncomfortable truth that Microfinance Institutions (MFIs) are preferring to bury in their books, than talk about publicly.

Namita’s son Amit Tiwari told this writer that the two were shadow loaners for two other women, Priyanka and Sunita, who fled the village soon after the suicides.

All they got was ₹1,000 each as commission per loan. Priyanka, who is said to have collected around ₹5 lakh in this manner, was building a five-room brick house with the money.

In this poverty stricken belt of eastern Uttar Pradesh swarming with MFIs eager to become rich by lending to the poor, it is easier to get a loan than repay it. Priyanka soon backed out of her commitment to service the loans, and when the recovery agents began coercing Namita and Sita to pay up, they took their lives.

A day after their deaths, villagers beat up the staff of a well-known MFI whose managers were harassing the women in the preceding days. A few days later, the same company paid ₹25,000 each to the families of the two victims, and waived off the outstanding loans.

Ironically, it was in April, that the RBI -- under pressure from the industry to relax the tight controls imposed on it in December 2011 -- after the Andhra Pradesh crisis – doubling the total indebtedness limit of a borrower to ₹1 lakh. This enables MFIs to lend to poor customers with more liabilities.

In Andhra Pradesh, the government had reacted by bringing in the Micro Finance Institutions (Regulation of Money Lending) Act, 2010, to stop harassment of borrowers through coercive loan recovery practices. This led to a drop in repayment, from 99 per cent to 20 per cent and most MFIs moved out of the State. Today, eastern UP, Bihar, Madhya Pradesh and West Bengal are the fastest growing markets for the MFIs.

Among those who lent money to Namita and Sita are some of the top MFIs of the country, one of who has bagged a small bank licence in September. “There are seven or eight MFIs active in each village of this region. Though micro loans are given for income generation, the money is usually spent on consumption, and poor women borrow from one MFI to pay off another,” says the manager of an MFI in eastern UP.

In another part of Purshottampur, Kamlawati has stopped repaying her ₹20,000 loan since the suicides. She admits, “For last few years I have been showing the same buffalo to two MFIs as proof of loan utilised for income generation, and used the money to construct a house instead.”

Yet, unlike in 2010, micro finance today is better regulated with size of loans, purpose, and interest rates controlled by the RBI, but this has also been a period of high growth for the industry and there is great pressure to expand business in order to keep private equity investors happy. The Andhra Pradesh crisis was a result of unregulated lending to small borrowers, with many companies often lending to the same borrower.

In the last few years, three credit bureaus have come up to help MFIs assess the credit worthiness of potential borrowers. But the poor borrow from different sources and the credit bureau reports are not foolproof.

The Centre’s ambitious Microfinance Institutions (Development and Regulation) Bill 2012, envisaged as an overarching legislative framework for all types of MFIs lapsed last year due to differences. Meanwhile, in Purshottampur, a local MFI has jumped into the micro-credit boom giving loans at more than 60 per cent interest. There are three such MFIs being operated by local mafia in this district alone.

A new bubble is in the making.

The writer is a journalist and author of 'Manoj and Babli - a Hate Story', a book on honour killings in North India 

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