News
Microfinance companies pose a deadly trap in the impoverished North and East
View(s):By S. Rubatheesan
With the ongoing economic crisis pushing more families into poverty in recent times, thousands of war-affected families in North and East have become prey to the loan shark companies engaged in microfinance lending, charging exorbitant rates.
Among them, war-affected women-headed households have become the worst-affected as they are forced to pay loan instalments by starving themselves and their children.
The Feminist Collective for Economic Justice (FCEJ), a grassroots-level organisation, detailed the impact of unauthorised microfinance lending companies in the East, with visible malnutrition and neglect in many households.
A woman from Thalankudah, Batticaloa, died by suicide leaving young children behind as she was unable to repay the debt she had taken to build a small house over her head.
Chairman of Manmunai Thennakapattru Pradeshiya Sabha took steps to close down branches of unregisteredmicrofinance companies operating in the region. Pic by Theva Athiran
Another woman with a disabled child attempted suicide, unable to face the threats from loan collectors, who regularly entered the home and refused to leave until the money was collected, often hurling verbal abuse and sometimes resorting to physical intimidation.
Just last week, a money lender forcibly took her national identity card as well as her bank card until she repaid the instalment, leaving her with no access to her own account.
These are some of the instances documented by FCEJ on the illegal practice of some 35 microfinance companies that charged higher interest rates, ranging from weekly, monthly and group loans at an interest rate ranging from 1.25 (monthly) to 310 percent per year.
Realising the impact on the families and rural economy, local bodies stepped up with regulatory measures to control the illegal practice by microfinance companies and their so-called ‘agents’.
Megasundaram Vinoraj, Chairman of Manmunai Pattu Pradeshiya Sabha in Kaluwanchikudi, was among the first to come up with such measures and implement them, including the closure of branches of microfinance companies without approval from the local body.
“In our area, microfinance companies have become a menace, where many families are caught in a debt trap and unable to come out of this cycle of loans. Our council passed resolutions against 35 companies other than banks for engaging in such activities recently,” Vinoraj told the Sunday Times.
Among the steps taken by the local body are prohibiting loan agents from visiting the residences of people who obtained loans after 4.00 pm and holding illegal gatherings in the area.
In addition to Kaluwanchikudi, agrarian villages such as Manmunai and Vellaveli were targeted by loan shark companies, as farmers were forced to resort to these companies due to red tape measures in force at the formal banking sector if they wanted to access credit.
“We also came to know that local villagers were not informed about the interest rates initially and companies charged exorbitant rates as penalty fees starting from Rs. 750 per day if they fail to pay a weekly instalment,” Vinoraj noted.
The extremely high daily and weekly interest-levying schemes which may not require collateral, however, employ extraction by threat, physical and verbal abuse, intimidating family members, holding hostage bank cards, identity documents, assets, and accessing phone contacts to intimidate by humiliation, FCEJ noted in a statement last week.
The FCEJ also observed that some companies use women’s homes as loan collection centres. The woman in charge, while she gets a small commission, is also often deeply in debt.
“Women are formed into groups and held responsible for the nonpayment of group members. Such practices have sown deep fissures and conflicts within communities. While the extraction is making many households more precarious and destitute, the industry capitalists are enriched.”
Meanwhile, the Sub-Committee appointed by the Ministerial Consultative Committee on Rural Development, Social Security and Community Empowerment has instructed officials to take steps to collect data on individuals who are unable to repay microfinance loans in 4 Divisional Secretariat Divisions in the districts of Nuwara Eliya, Batticaloa, Polonnaruwa and Colombo this week.
The directive was issued during a meeting of the Sub-committee on Future Steps to Address the Microfinance Lending Problem held in Parliament recently under the patronage of its Chairperson MP Samanmalee Gunasinghe.
The Chairperson of the Sub-Committee stated that as a pilot project data will first be collected from four Divisional Secretariat Divisions located in the districts of Nuwara Eliya (Hatton), Batticaloa (South Koralaipattu), Polonnaruwa (Welikanda), and Colombo (Wellawatte).
During the meeting, discussions were also focused on potential relief mechanisms for individuals struggling with microfinance debt, and on the means of intervention to support and possibly rehabilitate affected borrowers.
It was further decided to summon 34 microfinance institutions currently registered with the Lanka Microfinance Practitioners’ Association to discuss what relief measures could be offered to indebted clients and what collaborative solutions could be developed.
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