News
Northern village women in claws of microfinance monster
Karadikundu villagers keep track of their multiple loans by naming each after the day of the week on which the respective collectors come. So there are ‘Monday loans, Tuesday loans and Wednesday loans — and others.
Situated at Pooneryn in Kilinochchi, this tiny fishing hamlet is caught in a debt trap of massive proportions. Women have flocked towards microfinance loans chiefly to buy equipment for their fishermen husbands. The men are seasonal fishers. In the months they do not go out to sea, they scout for masonry work. Falling incomes have thrust large numbers of families into despair.
Protest by northern villagers
The debts have to be repaid every week. Each company has given out around 20 to 50 loans in the village. The collectors come on a particular day and set up in a house or front yard. Two women told researchers who studied the Karadikundu phenomenon last year that they had to stay with the collectors until everyone had paid up.
“A woman in the village with two or three loans must spend countless hours on two or three days of the week, just to make payments,” said Niyanthini Kadirgamar, one of the researchers. “The women are asked to form groups of five and are held liable by the finance companies if one in their group fails to pay back the loan. There are hefty penalties for all of them if there are delays. In addition to the harassment of finance company agents, we found this social pressure was damaging relations and village life.”
It was also found that the effective interest rates were exorbitantly high. “While their loan cards had it down as 28 percent, when we calculated the effective annual interest rate, it came up to 70 percent as they pay both the interest and part of the principal from the first day,” Ms Kadirgamar said.
The villagers were displaced during the last phase of the conflict. They resettled after the war and received grants to build houses. They are now mortgaging their land and homes to private money lenders in Jaffna as a means of surmounting the pressure to pay back microfinance loans.
The interest rates for mortgaged houses were around 120 percent per year. But the war-affected women try their utmost to repay their loans, leading to low default rates for microfinance in the North. Fear of losing their homes has led to them cutting down on food.
“The tragedy is that having resettled quite recently and having lived in their newly built homes only for a few years, they are already vulnerable to becoming homeless and landless again,” Ms Kadirgamar remarked. “Home and land are the only assets they now possess. The jewellery, that many of the women had managed to safeguard even during the war, was lost now by selling them to make debt payments.”
The story of debt in former conflict areas, in all its starkness, has been repeated many times–but little has been done to alleviate the problem. This week, thousands of people marched from the Veerasingham Hall in Jaffna to the office of the Government Agent to draw public attention once again to the dire situation of those in the grip of microfinance loans. Among them were members of cooperative societies and hundreds of women.
The marchers presented a petition to the Government Agent that called for a ban on all microfinance companies using unethical and illegal practices. The petition also called for an interest rate cap with an effective annual interest rate not exceeding 25 percent so that “predatory loan schemes” are immediately stopped. It also urged the cancellation of existing “predatory microfinance loans” or a two-year moratorium on repayment, while calling for an expansion of low-interest Government credit schemes.
The 2018 budget proposes to provide grants and introduce low interest loan schemes through the thrift and credit co-operative societies to help the indebted. It is to be tried out on a pilot basis in the Northern and North Central Provinces.
“Unless the Government takes some action to ensure that the indebted people are freed of that debt, they will take the loans that the co-operatives give and continue to be caught in a debt trap,” warned Dethavalli Selvaratnam, Secretary of the Jaffna District Co-operative Council. “Either the Government should write off the debt that has already been given or allow a period during which they don’t have to pay. They must also reduce the interest rates on existing loans and disburse funds through us quickly so we can reach out to the people.”
But the interest rate cap she seeks has not won the nod of the Central Bank of Sri Lanka (CBSL). The regulator does not believe in such intervention “because there is so much competition among the bank and non-bank financial institutions that you don’t have to put a cap”. (Ironically, the Microfinance Act of 2016 empowers the Monetary Board to impose such caps).
Instead, the CBSL has set up a help desk at its regional office and sub-help desks in each of the four Divisional Secretariats. And it has reportedly urged banks and non-bank finance companies to grant a six-month moratorium on repayment of loans of Rs 50,000 or less (anything over six months is recorded as a non-performing loan).
“The idea is to buy six months in terms of repayment for those who took consumption loans and, in that time, to get some kind of livelihood support,” a senior CBSL official said. “We will have got the credit programmes going through Samurdhi banks and various thrift and credit co-operative societies.”
The official said the regulator had urged the banks and non-bank finance companies to grant this moratorium–and that they had agreed, even as recently as one week ago. But few, if any, of the indebted know about it. And the CBSL was unable to offer further information about whether such a freeze was in effect anywhere, for anyone.
Next week, Finance Minister Mangala Samaraweera will lead a team to the North to kick off some of the programmes promised in the budget. A committee has been set up, with the Government Agent, the CBSL Regional Manager and various co-operative society representatives to steer the initiative. But unless meaningful steps are taken fast, it is unlikely that the debt crisis will be resolved.
And as the well-attended protest in Jaffna this week showed, platitudes will only get the Government so far.