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Too Many Moneylenders

Left parties never bother    about market issues that affect hundreds of thousands of ordinary people. If the Left in Bengal and elsewhere looks vocal about chit fund scams these days it is because they want to cash in on agony of chit fund sufferers in vote market. It is now more than certain that poor depositors who have been cheated by the ‘chit funds’ won’t get back their money. ‘Chit Fund’ related suicides are on the rise. Unless the Ponzy Scheme in any form practised by unscrupulous people is banned completely through appropriate legislation, and a mass awareness campaign is launched by political parties and the government authorities as well, nothing will change for the better.

The hard fact is that there are too many moneylenders and they are always too eager to fleece the economically disadvantaged who need hard cash to meet exigencies. After ‘Chit Fund’ it is now ‘Micro Finance’, a novel device to pauperise the poor, is hitting the headlines, in some states, for wrong reasons, of course.

Micro Finance institutions are swarming in different states of India, eager to become rich, by lending to the poor. It is easier to get a loan, than to repay it. Many borrowers, and agents who are committed to service the loans, have committed suicide, when they failed to repay the loans. Between April 2015 and January 2016, there were six suicides in Uttar Pradesh, related to loans from Micro Finance Institutions (MFI). In 2010-11 there were 60 reported suicides in Andhra Pradesh, connected to MFIs. The MFI industry is flourishing, and worth Rs 28,000 crore now. Under pressure from the MFI industry to relax the tight controls imposed on MFI in December 2011, after the Andhra Pradesh crisis, the Reserve Bank of India in April 2015, doubled the total indebtedness limit of borrower to Rs 1 lac. This enables MFIs to lend to poor customers with more liabilities.

The Andhra Pradesh state government had imposed the Micro Finance Institution (Regulation of Money Lending) Act 2010, to stop harassment of borrowers through coercive loan recovery practices. Repayment dropped from 99% to 20%, and most MFIs moved out of Andhra Pradesh state. Eastern Uttar Pradesh, Bihar, Madhya Pradesh and West Bengal are fastest growing markets for the MFIs currently. Seven or eight MFIs are active in each village. MFI loans are usually spent on consumption, though officially micro loans are given for income generation. Poor rural women borrow from one MFI to pay off another. Unlike in 2010, micro finance is better regulated with size of loans, purpose and interest rates, controlled by the RBI. This has also been a period of high growth for the industry. In the last few years, three credit bureaus have come up to help MFIs assess the credit worthiness of potential borrowers. The poor borrow from different sources. But the credit bureau reports are not foolproof. The Union government of India’s Micro Finance Institutions (Development and Regulation) Bill 2012, envisaged as an over viewing legislative framework for all types of MFIs lapsed in 2014, due to differences in political parties. In Azamgarh district (UP), a local MFI has jumped into the micro-credit boom, giving loans at more than 60% interest. Local Mafia are operating several MFIs. One top MFI had bagged a small bank license in September 2015.

Like notorious village moneylenders these modern day ‘Kabuliwalas’, otherwise famous or infamous for their coercive usurious practices, have launched a planned campaign to keep the poor villagers across the country in permanent debt bondage. Reasonable return, rather unreasonal return is so high in micro-finance business that it is soon going to play havoc with people’s lives.

MFIs are facing some problems in Bengal because the Sharada Chit Fund scam is still fresh in memory of a large number of depositors. People here are sceptical about MFIs. More than 200 MFIs along with banks, lenders and investors recently gathered at the Eastern India Micro Finance Summit to address various problems relating to their day-to-day business.

Market forces are very much there to see MFIs flourish. Political parties, left parties included, don’t expose strong-arm tactics of MFIs—perhaps they will wake up when MFI scams involving this ruling party or that will surface.

Frontier
Vol. 48, No. 29, Jan 24 - 30, 2016