Even though the principle of microcredit is basically sound, and in
spite of there being institutions that manage them wisely, in India, some
people’s ambition took a toll of 60 lives in Andhra Pradesh this year. In the
districts of Krishna, East Godavari, Guntur and Prakasam, suicides may exceed
200. However, the wave of suicides went largely unnoticed in the media.
The
crisis in Andhra Pradesh is just the tip of the iceberg. As the microcredit
movement spreads across the country, the risk of suicides related to micro-credit
is a possibility to consider. The time bomb has been set. Unless the government
evaluates the seriousness of the situation and applies strict measures, poor
rural households will remain at the mercy of these ‘new’ lenders.
The microfinance institutions
in question (MFI) have been accused of exploiting low income people with
usurious interest rates and of intimidating borrowers with ‘forced loan recovery
practices’. A worried Chief Minister said: “MFIs have proved worse than conventional
lenders by charging interest rates above 20%”.
Until recently, microcredit
had been sponsored by both government and donors in Andhra Pradesh. Over 5.5
million women have been engaged in the microcredit movement, so the objective
of eradicating poverty did not seem too far. Reality has been very
different, since it seems that microcredit can be designed to maintain a low level
of savings so that the credit cycle can continue.
Charging a prime interest rate
of around 11%, the provision of financial services to SHGs is impractical for
most commercial banks, so that, by default, MFIs have gained a client base of
over 200 million rural households. Clearly, when it comes to economics, MFIs
have an eye on their interests. Poverty is a good deal. Otherwise, how could
these MFIs charge such interest rates knowing that no business can generate enough
profit to pay them? It seems that the strategy is to keep the vulnerable in perpetual
cycles of debt-credit-debt.
The crucial question is: was
not the government aware of the modus operandi of MFIs? Is it not it an open
secret that micro-credit institutions charge rates above 20%? Has the incidence
of harassment to both rural and urban borrowers not increased? After having
participated in the creation of self-help groups and having promoted
micro-finance institutions, the government cannot ignore its responsibility in
this mess.
It comes as a surprise to many
that although micro-financing institutions were launched as a way to free the
poor from the clutches of traditional lenders, some MFIs have gone far ahead of
their predecessors at the practice of exploiting those whom they purportedly seek
to help.
Source: infochangeindia
