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In any village tea shop, an assembly of friends having a chat and taking a sip of tea is not an uncommon event. Similarly on one fine day when ours group of friends were having an enthusiastic habitual conversation in our village tea shop, unexpectedly our discussion turned towards the existing self-help groups in our village and their composition and the root cause of its functioning.Though ours is a village with a population of approximately 1500 inhabitants, some 25 self-help groups consisting 20 members in each group exists moved us to put questions and seek answers on them mutually. Further each member of those self-help groups due to the membership in the groups got a loan amount of Rs.25000 means it would come around a total of Rs. 1.25 crore of all members of the group! That much of money as a loan on a rough calculation cannot prevent all our friends from becoming astonished! Since all the participants of discussion from the time of getting up to going to bed are always in a position to worry about the financial position with which they could barely make ends meet, the discussion did not seem to cool down without reaching a rationale conclusion acceptable to all.

“Alas! Ours whole village has become a borrowers sanctuary like a birds sanctuary" with a deep sigh anguished a fellow, while another person took a list of the peasants who mortgaged their land to money lenders and various banks for getting loans and thus arrived a figure of total amount of their indebtedness nearing Rs.1 crore.

Can anyone believe that a tiny agricultural village is indebted to the tune of nearly Rs.2 Crores? From the above off-the-cuff estimation by the villagers the ground reality is revealed. Then each and every person would set out in calculating the magnitude of indebtedness of their villages, towns and cities in their mind. Instead of calculating by this way another mode of calculation may also help them.

The indebted villagers did not wander here and there to get loans rather those loan providing magnanimous and gracious persons voluntarily knocked the doors of villagers to give loans. Then we should have to ponder, “who are those such gracious persons?”

Since a villager’s blood relations themselves used to evade whenever a common folk in village seeks Rs.100 and Rs.50 as a small debt from them.It simply means that there is no other way for him than running pillar to post even for that meager amount. Then why this suddenly appearing gracious persons in villages provide loans to such cash starved villagers? From where these gracious persons get their courage to provide loan to such cash starved poor villagers?

How we should have to understand this loan providing person’s love and affection towards these poor villagers?

If the same type of situation prevails over the entire country, then for providing loans to the cash starved villagers of the whole country, what would be source of money to the tune of thousands of Crores? By lending loans to poor villagers, how far it would be profitable to those companies?

Who’s who of creditors?

SELF HELP GROUPS (SHG) :

In majority of cases, under the leadership of voluntary organizations, these type of groups are formed by associating 10 or 15 or 20 ladies as member participants. After the formation of groups, they used to open saving account in public sector banks or commercial banks and deposit their monthly subscription amount in the banks. When an ample amount is saved then they would lend that money to the members and would collect the repaid loan installments from the members, deposit that debt amount at the bank account. In the meantime self-help group members trains themselves or acquire training in self-employment creating activities like basket making, vermin compost making, computer operations, tailoring classes etc, , Later getting trained in these self-employment activities, banks would provide loan arrangement to the self-help groups. Then it’s the responsibility of these groups to repay the incurred debt by their self-employment related activities. The self-help groups are solely liable for the debt amount as well as the installment amount repayment of the members! As per NABARD’s recent report, Approximately one crore self-help groups (interlinked with 12 crore families) are active across the whole country.

NON BANKING FINANCE COMPANIES (NBFC):

They are private finance companies recognized by the Reserve Bank of India based on some stipulations that they should not receive savings deposit and they ought to give loans to economically weaker sections of the society. Apart from the existing self-help groups they are forming their own groups for women, petty traders, daily wage earners so that they can lend them loans. Also for petty shop owners, tea shop owners like other petty traders belonging to villages and towns are also provided with direct loan facility by them. Nearly 500 such micro finance companies are existing across the whole nation! At present the numbers of self-help groups associated with these companies have even surpassed the number of such groups associated with public sector banks.

These two branches of loan providers viz. banks and NBFCs have disbursed loans in the year 2015 to the tune of Rs. 48,882 crore rupees and out of it NBFCs alone have contributed Rs. 34,298 crores.This statistics was stated by federation for NBFCs named as SADHAN.The RBI recognized Sadhan functions as a self-regulating body for NBFCs.For the next three years these two kinds of organizations have disbursed loans i.e. up to the year 2018-2019 amounting to 1,87,000 Crores.

At this juncture we have to admit that in our country even elder persons are harassed by various officials for want of valid proofs to enroll them in Old Age Pension scheme so that they would be given a Rs.1000 as monthly pension by the government. Besides this for getting Aadhar cards and public distribution system cards (for food grains) poor peoples are usually tormented to climb up and down staircases of various government offices. If this is the case normally happening in all villages and towns of this vast nation, then what will be reason for providing that much of huge amount as loans to the same poor people by the above organizations? Whether their true concern and their generous nature regarding the pathetic condition of poor peoples of this nation or something else which drives the above organizations?

Objectives of Lending:

The State and Union government earnestly address that, “for the eradication of poverty of poor villagers by providing them a permanent livelihood resulting in their liberation from poverty.”

Especially for the rural poor women to liberate themselves from the clutches of poverty they should be engaged in cattle rearing, petty trading activities, handicrafts etc like activities stresses an organization called as Women’s World Bank (WWB).

”For the Upliftment of livelihood of the rural poor people, assisting them for engagement in small scale industries and marketing their produce, ours motto” thus claims the Madura micro finance company belonging to Karumuthu Thyagarajan chettiar family’s organization!

From the above statements one can conclude that they have a sincere vision and aim for the outright eradication of poverty of poor people and for that they deployed their personnel’s to disburse loans to each and every poor people of this nation. But those poor people who are the real targets, that is the true beneficiaries of this project the very poor people have some other facts to reveal from their side.Then it is inevitable to seek what would be their version and how far these projects have helped them to come out of poverty?

Whether the loans eradicate poverty? A Debtor’s experience:

The experience of a debtor woman who received loan from Ujjivan, “In the first year I got Rs. 5000 as loan amount and in the second year Rs.15000 and finally in the third year Rs. 25000. What business can be done with this meager amount? For goat and sheep rearing a man has to be allocated for looking after it along rearing it and a minimum of six months is required for them to yield return on investment. For raising cow and to sell milk a whole year has to be passed without any income. Through this type of business how the loan amount can be repaid?“ The above statement obviously shows the true state of affairs!

“In our street already four provision shops are there and we opened ours as a fifth shop. Since the customers visiting our shop bought in credit and without any repayment of money by them, then how can we get money for buying provisions which had been sold for credit? We realized that ours fifth shop cannot bring any windfall for us only after the passage some months. Due to our inability to repay the monthly loan installments from our provision shop business, we have no other way than to do wage labor work to repay the monthly loan installments” said in a desperate voice by an another woman beneficiary of the loan project.

A woman named Meena who had studied up to Higher secondary school, mother of two children trained in tailoring job echoed the same voice of hopeless situation prevailing in the villages. According to her all the garments which were put on by women like chudidhar, nighty, leggings, skirt, jacket were all made by readymade garment manufacturers. Some old women who were then having the habit of wearing the skirt and jacket and who were not having the habit of buying them at readymade shops could only provide job only catering the daily expenses of a family to a certain extent. Like gents if she ventured out for job in readymade shops, she might get job and earn but which was impossible for her as she had to take care of two little children. Even though she is a skilled person, because of her village and family situations her life has become grief stricken.

Some women debtors get the opportunity to invest money in particular businesses or utilize it for money lending activities. Out of them a woman stated that since she married her two daughters after the demise of her husband, she had to look after a son in bringing him up to meet the life expenses and education expenses. For that she got no other way than to resort to money lending activity to her colleagues, by utilizing the received debt amount as her capital.

A woman debtor’s husband stated for their son’s college expenses, he received loan of Rs.15000 from a money lender at an exorbitant rate of interest of 120%. From the debt incurred by her wife from self-help group he repaid the moneylender’s loan. Since the rate of interest for self-help group was 20%, he boasted his tact of saving the 100% interest amount for the loan amount of money lender.

Thus in majority of cases the loan amount only serves the daily expense requirement of poor people rather than eradication of their poverty. But those micro finance companies and governments whether are they ignorant of this ground reality? Certainly not.

“Out of debtors in villages only up to the level of 7% to 15% engage themselves in some sort of businesses and rest others don’t engage in any business. Also those who engage in the business activities, majority of them face losses frequently and hence through this micro finance there is no social utility" as reported in a survey conducted by Madura micro finance company among its customers. The Malegam committee constituted by Reserve Bank of India too echoed the same view that, “Majority of loans are utilized only for the daily consumption expenses”.

In conclusion the development project intellectuals too admit that the eradication of poverty and women’s upliftment which were boasted as aims of micro finance schemes are nothing but a impractical implausible stories! Then what is the real objective of these schemes?

Rise to the bait:

The word microcredit denotes various economical services including life insurance, loans, savings, and money exchange given to poor people which aids them approach to market and commerce and vice versa. The above definition has been given by an American economist R.P.Christen from his subject point of view.

According to the former director K.M.Thyagarajan of Madura micro finance company, “If the chain of activities of Goods and service markets existed without integrating common people, then the whole economic system itself would crush to ground; hence for preventing the economy from crushing to ground this concept of Micro finance took root and served the whole economy.” Thus the concept of microfinance was clearly expounded by him.

Furthermore as per his report regarding micro finance system,

• In the villages some 40% People are not having any assets who are termed as undocumented community and providing them loans for integrating them into this economic system is the primary objective.
• For the regulation and monitoring of loan schemes with suitable organizations alongside with the collection of identity proofs (such as voter identification cards, Aadhar cards, and Public Distribution System cards) of the beneficiaries (Debtors!) is the secondary objective.

From the criteria put forth by the American expert and from the exposition given by Mr. Thyagarajan we can come to the conclusion that both are Seeing Eye to eye. The common aim of both of them, is lending money to a cash starved native poor for making him to buy products manufactured by international and domestic MNCs! Moreover if we delve deeper into the facts regarding the operation of micro finance companies and their extensive background, we can discern their some other ulterior motives!

Foreign investors conducting the puppet show of the poverty eradication business :

Out of the 500 such microfinance companies operating in our country all the directors and chief executives of the top ten companies though they are born as an Indian but baptized at America and got their wisdom. The chairman of Madura micro finance company Ms.Thara tyagarajan, the chairman of Grama vidiyal company’s Vinoth khosla, B.S.S. company’s founder Ramesh pellamkkonda, Ujjivan Bank’s founder Samith Ghosh, Bandhan Bank’s founder Chandrasekar Ghosh all of them completed their M.B.A. degree in American Universities. Apart from the above the remaining people normally come from the Alumni of IIT and IIM like educational institutions, and retired ex-chief bureaucrats who worked in Public sector banks and NABARD like banks.

These micro finance companies though start their operation by getting approval from Reserve Bank of India with an initial investment of Rs.100 crore, for conducting their loan business they mobilize thousands of crores from foreign investment banks and finance corporations.

Following are the examples:

• Lok capital a micro finance investment company which is receiving aid from Rockefeller foundation has invested Rs. Seven Crores in the Chennai based Ashirvad--micro finance company (owned by Manappuram Gold Finance company).
• Mauritius United corporation, Netherland Development Finance company, and ex chairperson of World Bank Mr, Wolfensen are the investors in Ujjivan bank.
• An American investment company Microvest corporation which always invest in small and medium sized finance companies has invested in the Microfinance company “Grama Vidiyal” head quartered at Trichy. (Now IDFC company has acquired the Grama vidiyal).
• The Bandhan Bank which is the biggest microfinance corporation of our country has received investments from M/s.Caladium Investment corporaration of Singapore and World Bank’s subsidiary organization International Finance corporation.
• In the south India’s leading microfinance company M./s. Smile microfinance company US based company Development world market (DWM) has invested Rs.50 crores.
• In the Satya Micro capital company based at Kolkata, M/s.Kojo investment company of Japan has invested Rs.105 crores.

One may wonder for what reason the micro finance companies that came into existence for eradication of poverty for receiving investment, join their hands with worldwide Usurious finance companies?

Real objective is not the eradication of poverty, but extermination of poor people :

For the enlargement of its Capital, the multinational capitalists always tend to have an instinct of transforming each and every step of human society’s subtle happenings as a market for quenching its thirst for profit. Likewise they consider the poverty of poor countries as their market to do their business, so that its capital may enlarge hugely.

In a research study done by World Bank in the years 1994 and 1998 titled as "Demand for Micro finance Institutions in India “following precise calculation regarding the condition of poor people is present:

• Out of 7.5 crore families in India forty crore people of the population are below the poverty line.
• Out of these families six crore families live in rural villages and 1.5 crore families live in urban areas.
• The demand for debts among these poor people is calculated as $12 Billions or in INR 86, 400 crores (approximately) per year as per NABARD bank. {Since this figure pertains to nearly 22 years back study, now in this year of 2020 this may be quite larger than this old figure.}
• Also in an another study done by World Bank during the year 2005 nearly sixty crore people would be in the grip of poverty and their demand among them for loans would reach $100 Billion /Annum or nearly INR 7, 50, 000crores. (Refer:theatlantic.com/business/archive/2011/01/lies-hype-and-profit-the-truth-about-microfinance/70405/)

From the above points the readers of this article can clearly see that International Finance corporations continuously invest in these Indian microfinance companies since they find a lucrative avenue of profit for their investment with assured return for their investment. As the policy of successive Central governments always encourages this business those micro finance companies having global and local interest have tightly gripped and penetrated society to quench their greed of profit.

Old wine in new bottle or middle age usury in its modern garb:

The average interest rate for loans in Public sector banks is 9% and they lend loans to the self-help groups ranging from 7% to 9.65% rate of interest. They don’t impose fines, compulsory insurance premiums and processing fee for the dispersal of loans. But in the case of micro finance companies diametrically opposite situation exist, they are allowed by RBI to collect interest for the loans at the rate of interest 26%. Moreover some micro finance companies even collect up to 40% interest rate for the loans violating the RBI stipulations!

The Ujjivan Bank collects from its beneficiary who gets Rs.15000 as loan with interest at the rate of 23% amounting to Rs.2117. In the first five months installment period itself, it collects nearly 70% of interest amount. From every beneficiary it collects the processing fees and compulsory insurance premium as Rs.171 and Rs.211 respectively. If the company has 22 lakh beneficiaries across the country then its income from interest comes as Rs.549.12 crores per annum. By this year 2020 beneficiaries of Ujjivan Bank have arisen to 43 lakhs and its annual income is reaching Rs.9,300 crores.

The top ten micro finance companies functioning across our country have got as much as 4.5 Crores of customers. From the above example of Ujjivan Bank the reader himself can calculate how much it would be for all those top ten companies? These micro finance companies are violating RBI norms that only small loans to be distributed and instead they are engaging themselves into the sale of mobile phones, laptops and groceries. In this way of trade they are amassing huge amount of money.

According to the personal experience of a debtor, a village level traditional money lender acknowledges the reason for delayed payment of installments from his debtor, but in the case of micro finance company’s personnel they never admits any reason for delay in installment payment even for a single rupee. That collecting personnel behaved in such dogged manner based on his work routine, he did not remove from the beneficiary’s house. Since it caused humiliation before the people living near the neighborhood by the personnel, the beneficiary Easvari who was a daily wage laborer was compelled to pledge her jewel for paying the dues to the personnel as per her personal narration. The attributes like self-respect and Integrity of Easvari like wage earning poor people, and their sincerity together with honesty in repaying the received loans only serves as fertile manure for the growth of such micro finance companies.

Due to the enactment of, ”Abolition of Money lending act” the erstwhile moneylenders were forced to retreat for some time. But from the advent of micro finance companies they got courage to venture in their money lending activities. They are now creating their own self-help groups and have masked themselves as loan providers to them like a micro finance company. Thus they have given a second life to their illegal money lending activity in guise of a micro finance company. Underneath the surface of micro finance lending to self-help groups play, this real activity of money lenders is the other hidden and unknown side.

(to be continued...)

Written byTheni Maran

Translated by Mani

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