By R.Ram/Ceylon Today
Colombo, April 27: “I have lost my elder son, who earned for my family, and my husband one after other. Now, I am alone to feed my five children. A loan for livelihood. Another loan to settle it. Another loan for a funeral of my relations. Now, I am ‘suffering’ from not paying the weekly instalment of any loan” said Sooriyakumar Kalyani.
In the past, her husband and eldest son earned income to run the family. In addition to it, Sooriyakumar Kalyani also went to garden work. Their life moved on with a moderate income.
After Corona, the opportunities for day-to-day work have decreased. Because of it, Sooriyakumar Kalyani planned to do self-employment. She decided to cultivate ground nuts. Then, an employee of a financial institution visited her home and said he could give loans for self-employment. He also said the three women can form a group and get a loan. No witness is required to obtain the loan. He also mentioned that family details, Identity card and Electricity bills are good enough. She thought loans are available easily and hoped that their future will be bright.
She got a loan along with other women from her neighbourhood. She didn’t know that she was getting a loan under the microfinance loan scheme. She is now suffering from the unfortunate situation, that has befallen her.
Elaborating further she said when the three of us got together, they informed us that it would be possible to loan out the money. “They got us to sign on 18 places on documents and gave money. After that, I paid the money weekly. Now, I am not in a position to pay it” she said with great regret.
Not only that, the current interest for a Rupees is Rs 45,000.00. They come to collect the weekly amount. I explained my situation to them, but they keep waiting at the entrance of our house till nightfall to collect the money. I am in utter confusion about whether to take care of my five children or pay off the debt, lamented Sooriyakumar Kalyani.
Microfinance loans are defined as the provision of financial services to low-income people by the Consultant Committee for helping the poor. This Committee also notes that it provides loans, savings and other essential financial services to the poorest of the poor, as they are not serviced by conventional banks mainly due to their inability to provide adequate collateral.
It was on this basis, the microfinance system was also introduced in Sri Lanka. After the civil war, these types of lending institutions started their operations in the North, East and North Central provinces for agrarian assistance.
Even the microfinance institutions, whether authorised or non–authorized by the Central Bank provide loans, but unfortunately it has not been helpful to the lifestyles of the public. Rather, it has led them into a ‘Debt trap’.
This was confirmed by a report on “Contemporary forms of Slavery” by the UN special reporter Tomoya Obakata who visited the island in December 2021.
He has pointed out that, there were more than 200 suicides due to the microfinance loans and the majority of them were women, in a report submitted in Geneva at the end of his Sri Lanka’s mission in 2022.
In this case, it is inevitable that women-headed families, who were involuting in the microfinance debt are unable to settle the amount due to the Coronavirus and economic crisis.
A cross-sectional study was conducted during field trips to the districts of Ampara, Trincomalee, and Mullaitivu, which focused on women-headed households with microfinance loans. The study confirmed that women in these areas are currently facing a crisis due to their inability to repay their loans.
The study focused on ten women-headed families in each district, and it was found that four families in Ampara and six families in Tirumala were aware that they were receiving credit through the microcredit programme. However, none of the families in Mullaitivu knew about it. Moreover, eight families in the Mullaitivu district alone received and completed the loan application in their mother tongue.
All surveyed households in all districts were found to be under significant stress due to various factors such as high-interest rates, the Covid-19 pandemic, and the loss of jobs caused by the economic crisis. The non-payment of instalments has led to mental and physical harm for all but one family in Ampara, and they have also faced legal challenges from microfinance institutions.
Ahamathulebai Bahniya, a 40-year-old mother of three, from Ampara, has been separated from her husband for nine years. She got a microfinance loan to start self-employment and is now unable to settle the amount.
And, it is also confirmed in the study that the woman-headed families got the loan to improve their livelihood.
However, now they are struggling to continue with their daily life; cannot settle the loan and the amount they have to pay is continuously increasing due to the ‘day interest’ or interest calculated and accrued daily.
She said, “I have received a loan of Rs 60,000 for self-employment. As the prices for food items, fuel, electricity, education, and all the other essentials have significantly increased, household expenses have increased beyond our manageable proportions. Therefore, I couldn’t pay the instalment on time. Now, my loan balance has become Rs.75, 000.00. Even, when I informed about my current financial situation to them, they are yet to acknowledge it and respond favourably”.
Not only that but it has also been reported that around 2,898,000 people nationwide have been trapped in the microfinance loan scheme provided by various micro-credit institutions. The Union of Women affected by microfinance loans pointed out that 84% of them (2,439,000) are women.
As a result of more than a decade of efforts to regulate unregulated institutions providing microfinance loans, the Parliament enacted the Microfinance Act No. 6 of 2016 which came into effect on 15 July of the same year.
It has also been reported that the Government in 2018 had stepped forward in settling the unpaid microfinance loans above 1.25 billion of 45,139 women in the North, East and North Central provinces.
Meanwhile, the microfinance lending institutions have written off interest payments to the value of Rs 141.41 million in respect of such microloans, according to the Annual Report of the Ministry of Finance for the year 2018.
But, there is no comprehensive data to prove whether the amounts allocated by the government have reached the appropriate beneficiaries and had changed their critical situation.
Moreover, there are situations where microfinance institutions do not maintain transparency about their interest rates. Also, those companies do not provide the application forms in the mother tongue of the people receiving their services.
H.P. Chandrikamane, 42 years old, a mother of two from Trincomalee, Kallarawa engaged in the maritime industry has had a bad experience with non-transparency on the calculation of interest rates and the total amounts repayable to the microfinance institution. She has borrowed only Rs 60,000 but her repayments to date had amounted to Rs 140,000.
“I needed money urgently. I didn’t read the application form as it was in English. We were not informed of any condition in the application form that if we are unable to repay the loan we would end up in jail or our properties would be taken away. I now think how unfairly high interest is charged every time I pay an instalment.”
At the same time, C. Moganaveni, a mother of two from Iluppaikkulam, Trincomalee, said she got a loan of one lakh in 2017 and later worked abroad and paid the instalment continuously for two years.
After returning from abroad, she met with an accident and broke her arm and therefore was unable to pay the loan instalments on time. Due to this, she says that she had experienced rude and very aggressive approaches from the collectors.
Subsequently, when she tried to settle the loan in full, she was notified that there was a loan balance of Rs 96,000. However, she had been later informed that if a sum of Rs 57,000 was paid, the loan would be fully settled.
As advised by the lending institution, I pledged my jewellery and paid Rs 57,000. But, after about two months, I was informed that I have to pay another Rs 12,000. When I asked for the reason they failed to give me a proper answer. In three months, that amount has now grown to Rs 45,000. “Now, they are pressuring me to pay that amount. Currently, I am unable to pay the remaining amount,” she said with tears in her eyes.
Reportedly the Central Bank has stated that it is concerned about the activities of certain microfinance institutions, as it has adopted illegal deposit schemes, exploiting customers and practising unethical lending and it has become necessary to regulate and supervise the unregulated institutions engaged in microfinance business in Sri Lanka.
However, any such control mechanism or regulation has not been established till now. The UN special reporter Tomoya Obogada said, “The Government has not taken any effective or timely action to regulate and monitor exploitative microfinance institutions.”
Meanwhile, Renuka Karunarathna, 36 years old mother of two, from Welioya Sabumalthenna almost ended her life, being unable to cope with loan instalment payments.
With her bad experience, she is not only determined to settle the loan but also advises and cautions about 50 other families in her village on the risks and dangers of obtaining a microfinance loan.
She reminded her painful past and said, “I got a loan to do poultry farming, in case our cultivation fails. I find it extremely difficult to settle the loan instalments.”
“In that situation, a collector, who came to collect the instalment, sat at my home for a long time. So, I didn’t know what to do at the time. I told him that I am going to a nearby neighbour’s to collect money and then in an instant got the idea to commit suicide. Fortunately for me, my good neighbours saved my life. Since that day, I have acted responsibly to take good care of my children and society with dedication.
It is important that those who have gone through various struggles and hardships after obtaining microfinance loans create that awareness in society. It is a great humanitarian effort to stop those who try to commit suicide.
Likewise, special mention should be made of a ‘community group’ in association with the local mosque management that has brought the microfinance credit issues to an end in Ampara Nindavoor. They have given the residents a ‘smooth conclusion’ to the microloan menace through Islamic religious guidelines.
According to Islamic teachings, charging or paying interest is prohibited. The said social group brings together the loan providers and borrowers on one platform and thereby seeks assistance to settle the loan from donors. This serves as a great example of an amicable settlement.
Though such awareness and mediation activities remain limited, they will certainly help put an eventual end to the so-called microfinance loans, which have caused burning issues.
Moreover, Gauthule Jayatissa, President of the Federation of Agricultural Progressive Communities, warns that “there is a land grabbing agenda behind the microfinance programme”.
He said that while he wishes to see a permanent end to illegal loan schemes certain microfinance institutions have been bent on, on a mission of ‘land grab’ from poor villagers peoples, while the villagers moved to town. He pointed out that countries such as the USA, England and France are fine examples where land grabs similarly take place.
Nadaraja Devakrishnan, the Chief Coordinator of the People’s Organisation for Social Awareness, advises that effective implementation of the government’s current programme is necessary to find an immediate solution to the micro-credit problem.
Specifically, he mentions that loans through women’s organisations such as thrift loan schemes, rural bank loans, samurdhi loans, and livelihood schemes are State loan assistance schemes aimed at assisting women which do create issues like in the case of micro fiancé loans.
However, Nadaraja Devakrishnan, points out that, when such schemes were being implemented, in the past, involving rural women their goals and objectives were weakened, fraught with political interests and corruption.
However, Dr. Ahilan Kathirgamar Economic specialist, Senior Lecturer at the University of Jaffna has suggested four strategies for permanent recovery from microfinance credit problems.
1. Should deduct the loan amount or write off the loan or give an adequate grace period to borrowers.
Allowing to increase incomes, without settling the loans for a certain number of years, and settling the loan at a lower interest within a specified period. The debt burden of people increases when you a get loan and start to settle the loan.
2. It is important to regulate interest rates. The government should implement the designated interest applicable legally. Microfinance credit providers should strictly observe that they should not charge more than 25-30% interest. Based on that, the financial sector will run smoothly.
3. If there is a ceiling on the amount of loans, these micro-credit institutions will not be fully involved in this sector as their profits will be decreased. Then, the money lenders in the village will get involved in this sector. They can offer loans at reasonable interest rates. Women entrepreneurs could also join the cooperative sector for an alternative financing scheme. Particularly, it can be carried out through cooperative village associations.
4. Even the new Credit Regulatory Authority for Sri Lanka approved by the Cabinet in 2019, has not been implemented yet. It has led to an uncontrollable and unmanageable situation. Hence, stringent laws governing loan schemes by the Regulatory Authority should be approved in Parliament and implemented forthwith.
The government has a huge responsibility at hand; to effectively protect the livelihood and future of women leaders and entrepreneurs and their overall welfare and well-being by implementing and regulating a legal definition of microfinance institutions with clarity.