Though microfinance once was a popular lending system which also sought to empower rural women, today it has entrapped impoverished women in a vicious debt trap. Despite government efforts to regulate MFIs and provide debt relief to the affected, a large number of women continue to suffer from the pitfalls of microfinance loans
In rural Polonnaruwa, Renuka Kumari* and her three children often live in fear of the debt collection officers of the numerous microfinance institutions (MFI) from whom she has taken loans over the years. “The debt collecting officers harass us often,” she claimed. According to Renuka, her youngest, aged eight, is often left home alone as Renuka ventures out looking for work. “But she is afraid to stay home because of the debt collectors.”
They would often visit her home, at times even at night refusing to leave until she pays up. “The officer would sometimes bring more men along with him and stay till 9 pm refusing to leave,” she said.
Though microfinance once was a popular lending system which also sought to empower rural women, today it has entrapped impoverished women like Renuka in a vicious debt trap. Despite government efforts to regulate MFIs and provide debt relief to those affected, a large number of women continue to suffer from the pitfalls of microfinance loans. According to experts, the shift from an empowering microfinance loan industry to a highly commercialized profit-driven industry took place following 2010, leading to the problematic situation prevailing today. Nearly 172 suicides in the country have been attributed to the microfinance debt trap. Unable to pay, some borrowers had chosen to end their lives.
Renuka says yet another company had written to her recently claiming they would auction off her household items to recover the loan granted to her. Renuka is unaware if the company could legally take such a drastic step. Nevertheless, the mother of three is terrified of the possibility.
Renuka is not alone in her troubles. Sriyani Kusumalatha* from Hingurakgoda too is being constantly abused by the debt collectors. Recently a debt collector had even gone on to verbally abuse her aged mother over the phone at night. “My mother is 80-years-old. He had called her and verbally abused her because I had missed a payment,” she said. When her mother had threatened to go to the Police, an enraged collection officer had meted out more verbal vitriol to the old woman.
Visits late at night by the officers demanding for payments is also a common occurrence. “Sometimes I don’t know what to do, so I hide,” she said adding that the officers would scold her mother before leaving empty-handed. Abuse over the phone and through text messages have also become a daily routine for Kusumalatha.
Sharing her troubles she also gives an insight into the way microcredit lenders make inroads to rural villages. “First only one microfinance company came. Later more and more set up shop in the village,” she said referring as to how they established centres in chosen village homes. “They were only keen on granting more and more loans to us,” she said, adding that often they would not carry out background checks on the borrower or his ability to repay the loan. According to Kusumalatha they would ask after their employment, make some calculations and declare the borrower would be able to easily repay them. “I obtained a number of small loans, most were for less than Rs. 50,000,” she admits. But not having any stable employment eventually she had to sell her house and move in with her mother taking her children along. “I am trapped now and unable to repay my loans,” she lamented. Unfortunately, neither Renuka or Kusumalatha had received the debt relief offered by the government yet, leaving them to face the continuous harassment of the debt collectors.
But what the women who are now trapped repaying microcredit loans do not say is that the majority of the loans have been obtained for consumption purposes.
According to the Centre for Poverty Analysis (CEPA), debt is not the core of the issue faced by the women. Instead, it is the obtaining of loans for investments or business ventures for consumption purposes which have become problematic. According to CEPA, therefore, debt only becomes an issue for certain groups due to this reason.
In a bid to delve further into the issue, CEPA this week released a report titled ‘Debt at my Doorstep’ authored by researchers Chandima Aramabepola and Kulasabanathan Romeshun which looks into microfinance practices and its effects on women in particular.
Chairperson of the Sanasa Development Bank, Samadanie Kriwandeniya noted how unfortunate it was to discuss the issues relating to microfinance and credit in 2019, when Sri Lanka had a number of years to learn from the mistakes made by Bangladesh relating to the issue as early as 1996.
“Till 2011 there was a great focus on poverty elimination through microfinance,” she noted adding that however, a somewhat shift in focus took place later. resenting her findings co-author of the report, Senior Researcher at CEPA Chandima Arambepola noted that over the years the promise of microfinance as a panacea for the elimination of poverty has waned.“The social mission of the sector and the principles governing it has been compromised,” she noted, adding that the majority of borrowers, unfortunately, are women. While the researchers spoke to debt-ridden women from the Monaragala, Mullaitivu and Batticaloa districts according to Arambepola many were reluctant to admit they had borrowed beyond their capacity.
She also noted how microcredit has become the easiest option to obtain loans as a majority of banks do not have a physical presence in rural areas. “But though finance institutes have no presence they are omnipresent in the villages through the male officials who are often in and out of the community,” she noted.
The research also showed how with doorstep lending available the women had to rarely venture out to obtain credit. “But savings are never encouraged,” Arambepola said.
She also noted how there is now a never before seen link between the migration of women abroad for work and microcredit indebtedness. “The loans have pushed the women to seek work abroad,” she noted.
The report also identified that most of the borrowing was done by married women employed in the informal sector. Many appear to be engaged in waged labour, making it difficult for them to repay the loans obtained while the credit was not used for livelihood improvement. “They would often meet shortcomings in the household through microcredit which is highly problematic,” she added. From hospital visits to the education of children, weddings and even funerals women had often obtained loans to meet various social commitments.
Despite the high-risk women were also seen borrowing to fund the migration of their husbands or sons. “Sometimes the plans would fall through or they would return from abroad in a few months leaving the women debt-ridden,” she said. She also confirmed the allegation that often microcredit lenders had not done checks to deduce the women’s repayment capabilities.
The report’s coverage of the effect on the children due to microcredit was also troublesome. Having to witness the constant verbal abuse of their mothers from credit lenders, spouses or other female borrowers in the community, had left many children traumatized. Male officials stalking out near their homes or entering the homes while refusing to leave has also become a serious issue the researcher showed.
But perhaps the most worrying factor was the women admitting that they would continue to borrow and obtain loans despite the dire situation faced. The role of traditional money lenders which was supposed to diminish over time instead has become far more important than before as women seek out various other outlets to obtain credit to pay off previous loans. “A woman in Moneragala revealed despite her household income of Rs. 30,000 she was paying Rs. 40,000 in loan instalments per month,” Arambepola revealed adding that with livelihood improvements not taking place the women continue to be stuck in a vicious cycle.
(Excerpts are from interviews with members of the Nelumyaya Foundation. Names of *debt victims are fictitious to protect their identities)