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Another representative survey of nearly 100,000 families in 11 states conducted by the New Delhi-based NGO Praxis India found that while “the livelihoods of Dalits, Muslims, (indigenous) Adivasis and nomadic and “notification-free” tribes were disappearing, loss of income led to increased use of loans, including from local lenders at high interest rates ” . In addition, “loans, mainly taken from employers, neighbors, relatives and lenders and at high interest rates, have been the trigger for other forms of social and economic exploitation, including trafficking, bonded labor and child labor. ”
This was also observed by members of Prantajan - a civil society initiative engaged with the marginalized - when they went to organize community kitchens in several regions of West Bengal, India. The purpose of these kitchens was to create solidarity networks between people devastated by the double blow of containment and super cyclone Amphan . By organizing these community kitchens, they had the opportunity to interact with the local population, men and women, and to know their greatest concern during this difficult time: the fear of having to face the collection agents of the various microfinance institutions. (MFI) who had previously granted them loans.
This is how the work of organizing victims of microcredit began, mainly women in rural areas.
This work began with a survey of more than 100 women who had taken out loans but had not been able to repay them since the confinement began. Take the example of Sabina Khatun, a villager who works as a subcontractor for the leather export industry. She took out a loan of 80,000 Indian rupees for household needs. According to the contract, she has to repay 950 rupees per week for two years, for a total of 98,800 rupees, which is actually a rate of 21.73% per year since the money is paid back every week. Currently, she is unemployed and unable to pay her weekly installments and therefore, sued by loan collectors.
This is happening at a time when there is an increase in private corporate debt defaults . We have already seen that “great business leaders like Vijay Mallya, Nirav Modi, Mehul Choksi, Jatin Mehta (Winsome Diamonds) and the Sandesara brothers (Sterling Biotech) are accused of wrongdoing and fled the country without paying their debts. Credit Suisse’s India Corporate Health Tracker from August 2019 showed that with few exceptions, all large private companies are heavily in debt and “chronically stressed”. He warned that a new wave of asset crisisnon-performing was coming. (For more, read “Rebooting Economy XIII: Why Indian corporates are debt-ridden”) This was before the pandemic hit. The pandemic resulted in a moratorium on loan repayments, which large companies reveled in even when they were able to repay. The semi-annual report of the central bank , the Reserve Bank of India (RBI) on Financial Stability Report of July 2020 indicates that 70% of the moratorium offer was used by companies rated “A” and higher with a comfortable debt-to- equity ratio (meaning they could pay but chose not to).
This RBI report warned that the gross non-performing assets ratio of regular commercial banks was likely to deteriorate from 8.5% in March 2020 to 12.5-14.7% in March 2021, due to the distress economic impact of the pandemic . [1]
In addition, “India cut interest rates by 0.4 percentage point, from 4.4% to an annual rate of 4%. Policy rates are a tool used by central banks to implement monetary policy. This change is the first to have taken place since March 27, 2020, when the central bank lowered interest rates by 0.4 percentage point to 4.4% [2] The key interest rate has been falling steadily since October 25, 2011, when it was 8.5%. Policy interest rates are normally reduced to counteract weakening prices, or a possible deflationary situation. It also aims to revitalize the economy and facilitate the increase in exports. Likewise, home construction loan interest can be used at an interest rate as low as 6.75% per annum and 7.3% per annum for the purchase of an automobile.
Therefore, this exorbitant interest rate in the case of microcredit reflects a class prejudice where the upper class and the middle class are allowed to borrow at very low rates and where the proletarian layers of society are swindled in the name of " livelihood support ” .
In 2005, microfinance grabbed the headlines when the United Nations pompously proclaimed that year the International Year of Microcredit and declared that “ microcredit has changed people’s lives and revitalized communities since the beginning of the decade. trade (...) The Year of Microcredit 2005 calls for the creation of inclusive financial sectors and the strengthening of the powerful, but often untapped, entrepreneurial spirit that exists in communities around the world . “ [3] This has not only legitimized this type of modern, organized wear, but also introduced microcredit as the key solution to reducing poverty. However, in reality, microcredit has earned the nickname” death trap Because it claimed the lives of millions of people.
Our experience has clearly shown that MFIs target the poor, not only those who earn less, but also those who do not earn enough to lead a dignified life. MFIs attract these strata of society with “easy loans” that push hundreds of thousands of poor people into debt. In its report, the National Sample Survey Organization (NSSO) previously released shocking data on the increase in household debt in India and warned of a household debt crisis.
As MFIs engage in such looting, the government and regulatory authorities like the Reserve Bank of India turn a blind eye. It created new ground for MFIs by removing, in 2014, the highest interest limit (26%, which was already very high). [4] As a result, lenders have set arbitrary rates and have forced borrowers to repay, often unscrupulous.
Not only are the interest rates high, there are also serious rule violations in the lending process. In its circular [5]the central bank clearly mentioned the lending rules which must be followed in all cases, namely: no penalties for late payment, no security deposit or borrower’s margin, a standard loan agreement, the supply of a loan card indicating: the effective interest rate applied, all the other conditions related to the loan, information allowing the correct identification of the borrower and especially the information and entries appearing on the loan card in the vernacular languages. However, our experience shows that these provisions are deliberately violated. There is no enforcement of the guidelines or criminal action against offending MFIs.
MFIs do not provide legal loan contracts and interest rates are not mentioned in payment documents in vernacular languages. Agents only tell borrowers to pay a certain amount of money after a week. If these do not fulfill, the former force them to repay at all costs. However, due to the pandemic, many loan recipients have not already paid their due dates and they have no idea when they will be able to repay their loan.
Conclusions
Under these circumstances, Prantajan members began to organize the victims of microcredit. In the absence of a real process of financial inclusion and in a context of loss of all means of subsistence, the task is difficult, but nevertheless very important. In addition to organizing on the ground, several other strategies are being developed, including a larger campaign and legal remedies. The demand for legitimate financial inclusion occupies an essential place in this context.
Similar protests are also taking place in different parts of the country and we intend to partner with them.
Sushovan Dhar
Sankha Subhra Biswas
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