NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, January 15, 2016

Just when everyone thought the microfinance industry – which almost collapsed after the Andhra Pradesh crisis in 2010, when more than 60 persons committed suicide due to indebtedness – is resurgent and poised to touch new heights in lending to the poor, the spectre of another crisis looms on the horizon.

In June 2015, two women, Namita and Sita, committed suicide in Purshottampur village some 80 kilometres south of Varanasi after taking micro loans from as many as seven micro finance institutions (MFIs), from the scores that throng the UP and Bihar countryside. Holding a clutch of passbooks which they later found from her hut, Namita’s son Amrit Tiwari says, “We had no idea that she was so heavily indebted. And, we did not even see the money because my mother and Sita (both neighbours) actually took the loans for Priyanka who gave them just Rs 1000 as commission for each loan.” There is a web of such credit pipelines in the village where loans taken by one are serviced by another, who in turn has collected a cache of money by persuading several women to become ghost loanees for her.

In Atraulia, also in the same district of Azamgarh, Gudi has left the village with the money (estimated to be about four lakhs) collected from several village women who took ghost loans for her. “The trend of women leaving their villages without telling anyone is on the increase. They either to go to their parental home or migrate to towns when they are unable to repay. The problem of multiple borrowing is growing by the day because each village is usually serviced by seven or eight MFIs and competition is intense”, said the manager of an MFI in Varanasi requesting anonymity.

Priyanka, incidentally, fled the village soon after the suicides in June because everyone knew that the loans for which the recovery agents of different MFIs were harassing Namita and Sita were actually hers. The five room brick house that she was building for herself with the money she had collected from several women (estimated to be about Rs 5 lakh) is incomplete. Villagers say that she spent some of the money for her own cancer treatment in town.

It is easy to get a micro loan in this poverty stricken belt nowadays but hard to repay. Priyanka soon began defaulting on her payments, leaving the hapless Namita and Sita to fend for themselves. The two, who were neighbours, took their lives in a suicide pact of sorts, by together consuming ‘sulphas’ – a commonly available agricultural pesticide.

The angry villagers of Purshottampur who beat up the staff of a well known MFI a day after the suicides, say that there are several more ‘Priyankas’ in their village. A few days later, the same company quietly paid Rs 25,000 each to the two families to suppress the rage building up against it and waived off their loan amount. “But we still have to repay five more loans and no one is helping us to recover the money from Priyanka” said a worried Amrit.