Microfinance schemes were meant to be the saviour of the world’s poor. But in parts of India, lenders are enticing borrowers into poverty traps.
A garlanded picture of a young woman stares out into the emptiness of an abandoned house. The small building in India’s south-eastern state of Andhra Pradesh was once home to a family of four. But everything changed the evening that Laxmi Narayan found his 20-year-old daughter, Monica, on fire. Unable to cope with the grief, and the constant reminders of what happened, the family decided to move in with relatives.
Monica’s family had borrowed about 50,000 rupees ($1,100) from a microfinance company. However, unable to make the repayments, the family say they were harassed and humiliated by recovery agents from the lender. One evening last October, agents told Monica’s parents that the young woman should be sold to pay off the loan. For Monica, it was the final insult. She poured kerosene over herself and set herself alight.Narayan says he tried desperately to save her. The scars on his face and hands are a permanent reminder of his failure to do so.
Microcredit, in which small loans are typically given to the very poor – mostly women – to help them generate their own incomes, was once hailed as the solution to global poverty. Yet for many of the rural poor, such schemes have become more like a death trap, including in Andhra Pradesh where micro financing was tied to at least 80 suicides in the state last year.
The problem for many in rural areas is that they are ill-serviced by mainstream banks, and even when big banks are present, many find the application process too challenging.But while microfinance schemes were meant to offer hope to the poor, they have frequently been the source of exploitation, with some institutions charging interest rates as high as 50 percent. It’s stories like that of Monica that have put microfinance under the spotlight in India – and created the worst ever crisis of confidence in the industry.
It wasn’t meant to be like this. The United Nations declared 2005 the international year of microcredit. In 2006, Bangladeshi economist Muhammad Yunus and the Grameen Bank he founded were awarded the Nobel Peace Prize. At the time, Yunus said boldly that microcredit had the potential to create a world in which poverty could only be seen in a museum.
But less than half a decade later, microfinance is fighting for survival. In Andhra Pradesh, known as a hub of micro credit, debt repayments from the state’s about 8 million micro-borrowers have dropped to around 20 percent following a government crackdown in response to the large number of suicides.
The microfinance crisis is reminiscent of the 2008 subprime mortgage meltdown in the United States, where companies handed out easy loans to higher risk homebuyers who suddenly found they couldn’t repay their debts when house prices crashed.
Photo Credit: Sirensongs
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Rajeev
What John Chan writes raises a cental question: Why can’t India use those monies to establish a welfare system that can keep those India poor from borrowing from loan sharks
it is because India has no governmental infrastructure to do so, what exists, exists as an artifact from the colonial past. China, for all it’s problems, in large part owes its’ successes to the fact China has the most complex and long-lived state structure in human history.
It is unlikely that the knowledge inherent in Chinas’ very old state structure can build on the very quickly changing scientifically knowledge we are creating today. We ust make societies that use non-renewable fuels, nanotechnology, genetics, & computer science. These systems of thought will grow to be even more central to life than they are today. This knowledge comes from what surrounds us, and not from the past: government will grow from knowledge expanding today and that knowledge has never existed before.
India does not have, due to invasion and co-operation, a state structure anywhere akin to that which China is equipped with.
States though will be formed tomorrow from knowlege that is coming into being today. India may be deficient in state form, but with knowledge that may mean India can become the only large state in the world to create infrastructure based on todays’ changing knowledge, and be the only state that is specifically created for a world of changed science.
Will the power elite in India see this, put aside temporal greed and create a state based on advanced scientific knowledge rather than greed……little fucking chance.
venkat s kanakamedala
this is true.most of the corporate banks like ICCI also send muscle people to collect or recover the loan.i want icci assets should be freezed by int community or by indian gov should nationalize.like the same microfinance lenders will do all wicked acts of torturing the poor people.the gov should pass a strict law if the barrower does not have means to pay the loans should be waived.microfinanciers are like vultures eat living humans.better to excute if microfinanciers or banks like icci if they do abuse n harrasment to poor people who have taken money n unable to pay.these private banks n microfinanciers should be punished.