15-11-2010, 10:09 AM
A sad tale of micro-finance in India. Similar to loan sharks I guess?
Nov 15, 2010
MICRO-CREDIT: BANE OR BOON
INDIA: Spate of suicides over defaults
By Nirmala Ganapathy, India Correspondent
NEW DELHI: Struggling to meet her expenses, Ms Bandaru Padma took loans from four microfinance firms totalling 79,000 rupees (S$2,300).
The loan repayments came to less than 2,000 rupees each week.
But the 23-year-old, unable to pay the instalments, started to default on them, and had recovery agents hounding her for the money.
On Oct 4, Ms Padma took her two young children and jumped into a well, killing all three.
The tragedy at Chennaipally village in Andhra Pradesh state is not an isolated incident.
Twenty-five defaulters have committed suicide in the past two months in the same state, and 50 other suicides are suspected to be linked to micro-credit woes.
The southern state has the highest concentration of microfinance institutions - around 20 registered and hundreds unregistered.
State officials tell of cases of lenders kidnapping children, making borrowers stand in the sun and taking away household items.
Recovery agents have even been reported to encourage borrowers to commit suicide - after nominating themselves as the insurance beneficiary.
'There are a lot of unsocial elements let loose on the poor who, for many reasons, cannot pay,' said Mr R. Subramaniam, principal secretary for rural development in Andhra Pradesh.
The accessibility to easy loans, he said, had lured many poor Indians into debt traps.
'If they want to marry their daughter with a loan they know they can't repay, they will still take it,' he said.
Pioneered by Bangladeshi Nobel Prize winner Muhammad Yunus in the 1970s, the micro-credit revolution has been feted globally. It has given the rural poor access to small loans to buy cattle and seeds or to start new businesses.
But in India, the microfinance industry today is in crisis, and there have been protests against it.
'Personally for me it's terrible... a complete undoing of what�I have done for the last 20 years,' said Mr Vijay Mahajan, the founder of Basix, one of the first microfinance institutions in the country.
More than 30 million borrowers are estimated to have taken out loans worth a total of US$6.5 billion (S$8.4 billion), of which US$2 billion comes from Andhra Pradesh alone.
There are about 50 main players accounting for 80 per cent of the micro-credit sector in India.
The interest rates for small loans range from 24 to 36 per cent a year.
But some lenders are charging 50 to 60 per cent. The rates are much higher than those charged by banks but it is very difficult for rural borrowers to get bank loans.
The spate of suicides has prompted the authorities to act. Last month, Andhra Pradesh passed an interim law that banned microfinance lenders from charging high interest rates, and also restricted borrowers from taking multiple loans.
A national law to regulate the sector, addressing in particular the uneven interest rates, is also in the offing.
Mr Alok Prasad, the chief executive of the Microfinance Institutions Network, the industry body, said the restrictions were sending players into a tailspin.
With 80 per cent of the sector regulated by the Indian central bank, he suggests that the problems come from individuals or unregulated lenders.
Still, the new law has raised hopes.
'Those who have built an empire on unethical standards may and should collapse,' said Mr Subramaniam.
'This crisis should cut out unwanted tendencies that have cropped up.'
gnirmala@sph.com.sg
Nov 15, 2010
MICRO-CREDIT: BANE OR BOON
INDIA: Spate of suicides over defaults
By Nirmala Ganapathy, India Correspondent
NEW DELHI: Struggling to meet her expenses, Ms Bandaru Padma took loans from four microfinance firms totalling 79,000 rupees (S$2,300).
The loan repayments came to less than 2,000 rupees each week.
But the 23-year-old, unable to pay the instalments, started to default on them, and had recovery agents hounding her for the money.
On Oct 4, Ms Padma took her two young children and jumped into a well, killing all three.
The tragedy at Chennaipally village in Andhra Pradesh state is not an isolated incident.
Twenty-five defaulters have committed suicide in the past two months in the same state, and 50 other suicides are suspected to be linked to micro-credit woes.
The southern state has the highest concentration of microfinance institutions - around 20 registered and hundreds unregistered.
State officials tell of cases of lenders kidnapping children, making borrowers stand in the sun and taking away household items.
Recovery agents have even been reported to encourage borrowers to commit suicide - after nominating themselves as the insurance beneficiary.
'There are a lot of unsocial elements let loose on the poor who, for many reasons, cannot pay,' said Mr R. Subramaniam, principal secretary for rural development in Andhra Pradesh.
The accessibility to easy loans, he said, had lured many poor Indians into debt traps.
'If they want to marry their daughter with a loan they know they can't repay, they will still take it,' he said.
Pioneered by Bangladeshi Nobel Prize winner Muhammad Yunus in the 1970s, the micro-credit revolution has been feted globally. It has given the rural poor access to small loans to buy cattle and seeds or to start new businesses.
But in India, the microfinance industry today is in crisis, and there have been protests against it.
'Personally for me it's terrible... a complete undoing of what�I have done for the last 20 years,' said Mr Vijay Mahajan, the founder of Basix, one of the first microfinance institutions in the country.
More than 30 million borrowers are estimated to have taken out loans worth a total of US$6.5 billion (S$8.4 billion), of which US$2 billion comes from Andhra Pradesh alone.
There are about 50 main players accounting for 80 per cent of the micro-credit sector in India.
The interest rates for small loans range from 24 to 36 per cent a year.
But some lenders are charging 50 to 60 per cent. The rates are much higher than those charged by banks but it is very difficult for rural borrowers to get bank loans.
The spate of suicides has prompted the authorities to act. Last month, Andhra Pradesh passed an interim law that banned microfinance lenders from charging high interest rates, and also restricted borrowers from taking multiple loans.
A national law to regulate the sector, addressing in particular the uneven interest rates, is also in the offing.
Mr Alok Prasad, the chief executive of the Microfinance Institutions Network, the industry body, said the restrictions were sending players into a tailspin.
With 80 per cent of the sector regulated by the Indian central bank, he suggests that the problems come from individuals or unregulated lenders.
Still, the new law has raised hopes.
'Those who have built an empire on unethical standards may and should collapse,' said Mr Subramaniam.
'This crisis should cut out unwanted tendencies that have cropped up.'
gnirmala@sph.com.sg
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