{"id":54260,"date":"2017-07-16T00:34:02","date_gmt":"2017-07-16T04:34:02","guid":{"rendered":"http:\/\/dbsjeyaraj.com\/dbsj\/?p=54260"},"modified":"2017-07-16T00:38:36","modified_gmt":"2017-07-16T04:38:36","slug":"predatory-microfinance-loans-with-exhorbitant-interest-rates-make-people-of-batticaloa-fall-into-terrible-debt-trap","status":"publish","type":"post","link":"https:\/\/dbsjeyaraj.com\/dbsj\/?p=54260","title":{"rendered":"Predatory Microfinance Loans With Exorbitant Interest Rates Make People of Batticaloa Fall Into Terrible Debt Trap."},"content":{"rendered":"

By<\/p>\n

Meera Srinivasan<\/strong><\/p>\n

(*Some names have been changed on request)<\/em><\/p>\n

P<\/strong>eople in Batticaloa, one of the poorest districts in Sri Lanka, are badly hit by \u2018predatory\u2019 microfinance loans with exorbitant interest rates<\/p>\n

\u201cFirst, it was the tsunami that destroyed our community. Then came the war. Now, it\u2019s microfinance.\u201d That is how Jesudasan Rajitha describes the growing web of debt that is trapping people of this district on Sri Lanka\u2019s east coast.<\/p>\n

Ms. Rajitha is with the federation of women\u2019s rural development societies, which focusses on economic concerns of women. \u201cNot a day passes without someone telling me that they are struggling with a huge debt,\u201d she says about the district\u2019s now-famous \u201cdebt story\u201d. The problem of rural debt pervades the country\u2019s post-war north and east, but Batticaloa, one of the poorest districts with the lowest mean monthly household per capita income of LKR 6,270 (roughly \u20b92,630) in the country, appears the worst-hit.<\/p>\n

<\/p>\n

People here witnessed enormous bloodshed in the final leg of the civil war, especially after the LTTE\u2019s eastern commander Karuna Amman broke away from the organisation in 2004. Just as a tentative normalcy began returning after the war ended, scores of microfinance companies set up shop to \u201cboost entrepreneurship\u201d and revive the economy. But what they really promoted was a culture of hapless borrowing among the people, if the current situation in Batticaloa is any indication.<\/p>\n

Pushed to the brink<\/strong><\/p>\n

Raja*, 39, speaks matter-of-factly about his plan to sell his kidney. He has already made inquiries about the necessary medical tests and the price his kidney might fetch. \u201cThey say I will get LKR 8-9 lakhs (about \u20b93.7 lakhs), but even that won\u2019t be enough to fully repay our loan,\u201d says the lean man as he and his wife Chithra* talk about their outstanding debt of LKR 15 lakhs (about \u20b96.3 lakhs), through five loans from microfinance companies and local money-lenders.<\/p>\n

\u201cSee this,\u201d says Ms. Chithra, handing out laminated cards given by the companies, where five-digit figures in dark blue ink stare from the top. Unlike nationalised banks, microfinance companies give credit with very little paperwork and no collateral security. It is common to find women, who have taken one loan to close another, caught in tedious repayment cycles of four to five loans. The agents not only parade the villages to sell microfinance loans at people\u2019s doorsteps, particularly targeting women, but are also notorious for their aggressive ways of recovering them.<\/p>\n

Before 9 every morning, the 32-year-old Ms. Chithra hurriedly gets ready with her four children to leave for her parents\u2019 home, about an hour\u2019s bus-ride from Thiruperunthurai village, where she lives. She returns well after sunset and remains indoors all evening to escape the agents\u2019 \u201charassment\u201d. \u201cOne of them told me why don\u2019t you die if you can\u2019t repay your loan,\u201d says Ms. Chithra. Not that she did not consider the option earlier, but the thought of the children stopped her.<\/p>\n

The couple is stuck. Though Ms. Chithra recently joined a garment factory \u2014 the only one in the district \u2014 for a basic monthly salary of LKR 13,500 (roughly \u20b95,600), she fears going to work as she might have to encounter the companies\u2019 agents on the way. Mr. Raja works as a mason but cannot be sure of finding employment every day.<\/p>\n

Vicious cycle<\/strong><\/p>\n

As many as 27 microfinance companies have branches in Batticaloa, say officials at the District Secretariat. Amid increasing incidence of suicides in Batticaloa in the last five years, many reportedly linked to the burden of mounting debt, the district\u2019s Government Agent (corresponds to collector in India) P.S.M. Charles raised the matter with the Centre in 2012 and sought regulation of interest rates. \u201cI tried my best to bring it down to 14%, but could not pursue it beyond a point because of political pressure.\u201d<\/p>\n

With hardly any job creation or investment inflow after the war, microfinance loans have assumed a predatory character, Ms. Charles notes, adding that families take them mostly for survival, and seldom for enterprise.<\/p>\n

\u201cIf people do not have an idea about their meal the next day, how can we talk to them about becoming entrepreneurs?\u201d she asks, seated at her office in the Portuguese-built fort in Batticaloa town.<\/p>\n

Batticaloa also has a high rate of migration of workers to West Asian countries. \u201cPeople take up those jobs because they get up to (LKR) 3 lakh before leaving, which they use to repay an existing loan. It\u2019s a vicious cycle,\u201d Ms. Charles says, pointing to a growing network of illegal migration agencies.<\/p>\n

Social breakdown<\/strong><\/p>\n

Microfinance is typically loans for small sums, often group-guaranteed by women taking it. Some are monthly loans, but more recently, companies have introduced weekly loans that women borrow to pay off monthly loans.<\/p>\n

While the companies claim on paper that they charge a 28% interest, the women begin paying part of the principal and the interest from the first week itself, their total interest effectively amounting to 69%.<\/p>\n

The culture of loans is a huge strain on the community and has caused a social breakdown, say women in Kokuvil village.<\/p>\n

\u201cEven if the husband signs as guarantor, ultimately the woman alone is blamed for defaulting,\u201d says 27-year-old Hema*, who sold her land and house to repay her debt partly. \u201cThese weekly loans should just be abolished,\u201d she says angrily.<\/p>\n

Multiple borrowings<\/strong><\/p>\n

Acknowledging there is a problem \u201cof multiple borrowings\u201d, honorary secretary of the Lanka Microfinance Practitioners\u2019 Association Imran Nafeer says the post-war north and east were \u201cconducive\u201d for microfinance.<\/p>\n

\u201cSuch loans can give immediate relief to the community. There are many good things about microfinance, but bad things come fast.\u201d<\/p>\n

While the association is encouraging members to adopt ethical recovery strategies, the Central Bank alone has the authority to take action, he says. In May, Sri Lanka\u2019s the Central Bank said it would undertake a study on household indebtedness in the north and east. Meanwhile, families like Ms. Chithra\u2019s are getting sucked into a quicksand of debt.<\/p>\n

Courtesy:The Hindu<\/em><\/p>\n

Tweet<\/a><\/div>","protected":false},"excerpt":{"rendered":"

By Meera Srinivasan (*Some names have been changed on request) People in Batticaloa, one of the poorest districts in Sri Lanka, are badly hit by \u2018predatory\u2019 microfinance loans with exorbitant interest rates \u201cFirst, it was the tsunami that destroyed our community. Then came the war. Now, it\u2019s microfinance.\u201d That is how Jesudasan Rajitha describes the …<\/p>\n

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