Mylaram Kallava defaulted on loans taken for her daughter's treatment

 

Terms and perdition may apply: The government is seeking to regulate microfinance companies

 

Ketadi Ramachandra Moorthy's family is struggling in debt

Micro-Finance Suicides Increase

16 December 2010 Last updated at 10:12 GMT

India's micro-finance suicide epidemic

By Soutik Biswas BBC News, Medak, Andhra Pradesh

In his grotty, two-room brick home, all that remains of Ketadi Ramchandra Moorthy is a laminated colour photograph sitting on the cold cement floor.

Two months ago, the 40-year-old carpenter dropped dead after a heart attack at a bus station in Hyderabad, some 70km (43 miles) away from his rural home in the south-east Indian state of Andhra Pradesh.

He had travelled to the city to beg friends for cash to pay loans he had taken over the course of a year from private micro-credit firms.

A broken man, he had been heading back empty-handed to Gajwel village in Medak district.
A government report said Mr Moorthy had suffered a heart attack "due to pressure put by the micro-finance institutions for repayment".

"He was so stressed out that he just collapsed and died," says his wife, K Karuna, 36.
More than a third of the 30 million households that have taken micro-credit in India live in Andhra Pradesh. The majority of the borrowers are women.
 
Borrowers' revolt
But the small loan has turned out to be a big curse for many in the state.
More than 80 people have taken their own lives in the last few months after defaulting on micro-loans, according to the government.

This has triggered the worst ever crisis in India's booming micro-finance industry.
Scenting votes, opposition politicians have encouraged borrowers to halt repayments - micro-finance companies have given out 80 million rupees ($2bn; £1.3bn) of loans in Andhra Pradesh.
Banks, in turn, have stopped lending to micro-finance companies and fear they may not recover some $4bn in loans.

"Multiple lending, over-indebtedness, coercive recovery practices and unseemly enrichment by promoters and senior executives [of micro-credit companies] has led to this situation," says Vijay Mahajan, chairman of India's Microfinance Institutions Network.

India's micro-finance crisis mirrors the 2008 subprime mortgage meltdown in the US, where finance companies threw cheap and easy loans at homebuyers until prices crashed and borrowers were unable to sell their homes or pay their debts.

But the difference in India is that the borrowers are even poorer, with zero social security.
Mr Moorthy's story is a tragic example of how micro-loans - annual interest rates vary from 24-30%, compared with the 36%-120% charged by usurious money lenders - can lead impoverished, ill-educated people to ruin.

This defeats the supposed purpose of micro-credit, with all its talk about improving the lives of the poor.
In 2002, Mr Moorthy took a loan worth $350 from a micro-credit company to build his $2,210 home.
Half of the money came via an interest-free loan his wife - who rolls tobacco leaves for a living - took from her employers.

A moneylender chipped in another loan worth $440 that is yet to be repaid.
 
Ultimate price

In May 2008, micro-credit salesmen descended in droves on Mr Moorthy's village and he took a second loan worth $330 to pay off small debts to his neighbours.
This second loan, the family say, was paid off within a year.

Undeterred by the debt trap he was falling into, and persuaded by aggressive micro-credit agents, Mr Moorthy borrowed $660 in three loans from as many companies.

These were to pay for the education of his three children, including a college-going son, and, again, to repay previous debt.

When he died in October, he had been defaulting on the latter three loans for up to 20 weeks.
Mr Moorthy's annual earnings, say his family, usually never exceeded $110.
"Loans have been given to rural people without checking whether they had the capacity to repay," says Reddy Subrahmanyam, the state's most senior rural development official.

The government estimates families that have taken micro-loans in Andhra Pradesh have an average debt of $660, and an average annual income of $1,060.

This means more than 60% of their fragile, uncertain income is being spent paying off loans.
Two months after his death, Mr Moorthy's family struggles to survive, pawning jewellery and depending on the generosity of caring neighbours and vote-seeking politicians.

The eldest son, K Ramanachari has had to give up the college education that cost his father so much.
The 19-year-old has found a job ferrying tobacco leaves on baskets once a week, earning about 100 rupees ($2.2) for a day's work.

Mrs Karuna rolls tobacco leaves during the day and then, if she is lucky, finds farmwork in the evenings.

All this fetches her less than $3 on a good day.

She pawned her silver and gold jewellery, worth nearly $200, to keep a roof over her children's heads and send them to school.
 
Appendicitis to suicide
Two leading politicians, including the state's main opposition leader Chandrababu Naidu, have lent her $1,100, which she plans to deposit in a bank.
"Big or small, loans kill. I will never take up another loan," says Mrs Karuna.

Sometimes a loan taken to save a life can end up taking a life in the debt-stricken villages of Andhra Pradesh.

Mylaram Kallava, 45, hanged herself from the ceiling of her mud hut in the neighbouring village of Ghanapur after she defaulted on four micro-loans amounting to $840.
The loans were taken to pay for medical treatment for her 17-year-old daughter's appendicitis and her eldest daughter's pregnancy, which ended in a miscarriage.

The nearest government hospitals were more than 70km (45 miles) away, forcing Mrs Kallava to seek private treatment which was well beyond her means.

The three loans were taken in July last year - Mrs Kallava was in default for just two months when she killed herself.

It did not help that her grave-digger husband, Narsimhulu, 55, was in poor health and found work only now and then.

The federal jobs-for-work programme in the village stopped in August, leading to an acute shortage of employment in the area, locals say.

"I could feel that my mother's tension was building up when she began defaulting," says her daughter, Sangeeta. "She was unable to get work.

"Her co-guarantors in the group came to the house and asked her to explain. I think she felt ashamed."
For seven days before she took her life one weekday evening, Mrs Kallava had been unable to find any work.

The micro-loan recovery agents were due to come knocking by the end of that week.
She did not wait for them.

This is the first in a two-part series by Soutik Biswas on the micro-credit industry in India.

Culture Cuts Both Ways - Ta-Nehisi Coates - National - The Atlantic

Culture Cuts Both Ways - Ta-Nehisi Coates - National - The Atlantic

A comment from Cynic which I think furthers the conversation:

I was reading a new memoir the other day, by a Harvard graduate who went to work as a prison librarian. Much of the book is an account of his acculturation. He discovered that his robes and spell books, so to speak, were a lot less useful than plate and a broad-sword. That he couldn't afford to be seen as a punk. He was perfectly equipped for a comfortable, upper-middle-class life - and wholly unprepared for his new environment.

We tend to associate culturally-specific practices with the relative successes of the cultures with which they're associated. Things rich people do must be beneficial; habits of the poor, not. The reality is more complex. Culture of Poverty is a label attached to a wide array of behaviors. There are behaviors - physical assertiveness - well-suited to that environment that may tend to inhibit success elsewhere. There are other behaviors - emphasis on familial and communal ties - that will cut both ways, sustaining people in difficult times but sometimes making it harder for them to place their individual needs above the demands of the group. And there are others - initiative and self-reliance - that are largely positive, and in many ways, even more advantageous if carried further up the social scale.

I bristle when I see people discuss the culture of poverty as a pathology. That's too self-congratulatory, and too cramped a view. The reality is that, like all cultures, it has aspects that translate well to other circumstances, those that translate poorly, and those that are just plain different. And that's no different than the Culture of Affluence.

Reading this got me thinking on those lessons, which originate in poverty, that ultimately served me quite well. People talk about reading books as being written off as "acting-white." I guess. Here's what I know about that: When I was eighteen, binge-drinking and snorting coke was "acting white." I was at Howard then, where a large swath of the student population hailed from high schools where most people didn't go to college. Most of us had watched the crack era unfold firsthand. The notion of coming to college and essentially tempting suicide was seen as the province of "The Culture Of Affluence," of the rich and the foolish, of the white.

And now for our standard disclaimer: This is an expression of how it was processed at the time, and not an accurate depiction of the great variety and richness of the white American experience. I can well imagine that there were also plenty of poor white kids at that time who dismissed such practices as "The Culture of Affluence" also. I am offering some reflection on how we processed the world, and not how the world, in its complex totality, actually worked.

Panic Withdrawals trail CBN’s revocation of 200 microfinance banks’ licences

Friday, 24 September 2010 by Hope Moses-Ashike 

Worried depositors of microfinance banks (MFBs) have being besieged the banks demanding their money, following Central Bank of Nigeria’s (CBN’s) revocation of the licences of 200 MFBs. A large crowd of depositors was seen at most of the banks visited by BusinessDay. Looking worried, the depositors, most of who spoke on condition of anonymity, said they had to ask for their money as the CBN did not name the MFBs which licences were revoked. “It is a precautionary action we are taking. Nobody wants to lose money to any bank for any reason”, one of them said.

Managing directors of some MFBs who spoke with BusinessDay under anonymity said the CBN took them unawares with the announcement. They told BusinessDay that both investors and depositors are confused as the list of the affected banks has not been made known. Similarly, sources at the National Association of Microfinance (NAMB) said that the CBN has been consulted on the impact of its action on the sub-sector.

A managing director from Lagos who claimed that his bank was not affected said: “With the situation of the microfinance banks generally, I saw this coming”. He stated that those whose licences were withdrawn had closed shop long ago. Prior to this development, the regulatory authorities had instructed some microfinance banks to shore up their capital base within a specified period after examining each bank.

Analysts were of the opinion that failure to meet up with CBN’s instruction may have triggered the action. The CBN Tuesday revoked the operating licence of 200 MFBs following results of its audit of the sub-sector. Lamido Sanusi, the CBN governor, said the apex bank revoked the licences in the last two weeks. According to him, the comprehensive list of the affected MFBs would be released soon.
(read article here)

‘Poverty In Nigeria To Drop 50% By 2015’

Weitten by From Jerry Uwah, Washington DC	Sunday, 25 April 2010 00:12

LeadershipNigeria
920 million to remain poor || 1.2m more infant deaths may occur || Poverty in Nigeria and other sub-Saharan African countries would drop by a half to 21 per cent from its current level of 42 per cent by 2015, the World Bank and the International Monetary Fund (IMF) have said.

The federal government estimates put poverty rate in Nigeria at 55 per cent but independent observers insist that 70 per cent of Nigerians live below the poverty line.

The latest Global Monitoring Report 2010 on the Millennium Development Goals (MDGs) released at the World Bank/IMF Spring Meetings in Washington D.C., yesterday, said the estimates are largely based on the strong progress in some regions before the global financial crisis.

However, the report said that as a result of the crisis, 53 million more people will remain in extreme poverty by 2015 than it otherwise would have been. Overall, the report projects that the number of extreme poor could total around920 million five years from now, marking a decline from the 1.8 billion people living in extreme poverty in 1990.

The MDGs - a set of internationally agreed targets adopted in 2000 - measures the extent to which people across the world have access to clean water, education, food, healthcare and other basic needs.

However, the critical MDG target of reducing by half the number of people suffering from hunger from 1990 to 2015 is very unlikely to be met, as over a billion people struggle to meet basic food needs, the report says.

Both the 2008 food price crisis and the financial crisis that hit in the same year have exacerbated hunger in the developing world.

Moreover, the report notes that malnutrition among children has a multiplier effect, accounting for more than a third of the disease burden of children under age five. According to the report, for the period from 2009 to the end of 2015, an estimated 1.2 million additional deaths may occur among children under five due to crisis-related causes.

Noting that these effects might have been more serious, the report stated that pre-crisis policy reforms by developing countries, as well as strong actions by countries and by international financial institutions helped avert a much worse crisis. "Governments kept social safety nets intact (at least through 2009), and massive efforts by the international community to limit economic contraction and contagion have paid off.

"Spurred by recent strong performance in emerging economies and the recovery of global trade, Gross Domestic Product (GDP) growth in developing countries is projected to accelerate to 6.3 per cent in 2010, up from 2.4 per cent in 2009, according to new IMF projections contained in the report.

Global output, meanwhile, is projected to increase to 4.2 per cent this year, reversing a decline of 0.6 per cent in 2009.

"The international community cannot afford to be complacent, since the recovery remains fragile, with long-term implications for many of the goals, including those related to health and education," cautioned Justin Yifu Lin, World Bank chief economist.

Before the crisis hit, progress on the individual MDGs was already mixed. The proportion of children under five who are underweight declined from 33 per cent in developing countries in 1990 to 26 per cent in 2006, a much slower pace than is needed to halve it by 2015. Improvement on this target has been slowest in sub-Saharan Africa and South Asia, where as many as 35 per cent of children under five suffer from stunting.

"The crisis is hitting everyone. But for poor countries, the impact will last long after the global economy has recovered," said Lin. "Furthermore, if recovery is not sustained, continued weak external conditions could lead to widespread domestic policy failure. History tells us that the consequences for human development will be disastrous," he warned.

Kaduna Govt Disburses N155 Million Micro-credit Loan To Traders

By Baba Negedu, Reporter, Kaduna

Special Adviser on Media and Public Affairs to the Government of Kaduna State, Umar Sani (middle); Chairman, NUJ, Kaduna State Council, Yusuf Idris (left) and his Secretary, Mr. Dominic Uzu, during an interactive forum with journalists at the NUJ Press Centre, Kaduna…recently.

Photo: Nath Jubril

Kaduna State government has disbursed N155 million as micro-credit loans to about 21,856 traders from 252 market associations in the state and called on the traders to make good use of the government assistance to them.

Governor Namadi Sambo, while issuing out cheques to the beneficiaries, disclosed that the state has concluded agreement with Access Bank to raise N1billion for the traders and with Unity Bank to also raise N1billion for farmers in the state.

Sambo, who described the state’s gesture to the traders as a poverty alleviation strategy, said the micro-credit delivery system is meant to provide immediate support to the productive sector of the state’s economy “so as to enhance their operational efficiency and eventually get such enhancement sustained.”

While congratulating the beneficiaries, Sambo urged them to judiciously use the facility by allowing it to be revolving thus paying back promptly to allow other people also participate in the scheme and restated his administration’s commitment to implementing poverty alleviation programmes targeted at the very poor in the society.
 

Sambo said, “You will recall that the first phase of the distribution of poverty alleviation materials carried out in November 2009, then about 4,950 persons benefited and very soon the second phase of the distribution of poverty alleviation materials will take place in Kachia Local Government Area and many more people are expected to benefit.

“This administration’s primary drive has been focusing on projects/programmes that touch the lives of the common man, positively making him have a sense of belonging. We are not unmindful of the harsh economic realities currently being experienced by our citizens thus posing a challenge to us to extend measures to cushion these difficulties and make life meaningful to our people. This we have identified and pursued from the inception of this administration to date.”

According to Sambo, “Today 252 associations from Sheikh Abubakar Gumi, Chechnya, Kafanchan, Sabongari, Zaria City, Tudun-Wada Zaria markets and the Central Union with a total of 21,856 members will benefit from a total loan package of N155 million through five micro-finance banks. Our support to the six market associations will also be extended to other markets in Kaduna State in the near future so that they could also benefit from the government’s good gesture in boosting their businesses,” he said.

Method of Action

The Grameen Bank's Method of Action can be illustrated by the following principles:

1. Start with the problem rather than the solution: a credit system must be based on a survey of the social background rather than on a pre-established banking technique.

2. Adopt a progressive attitude: development is a long-term process which depends on the aspirations and committment of the economic operators.

3. Make sure that the credit system serves the poor, and not vice-versa: credit officers visit the villages, enabling them to get to know the borrowers.

4. Establish priorities for action vis-a-vis to the the target population: serve the most poverty-stricken people needing investment resources, who have no access to credit.

5. At the begining, restrict credit to income-generating production operations, freely selected by the borrower. Make it possible for the borrower to be able to repay the loan.

6. Lean on solidarity groups: small informal groups consisting of co-opted members coming from the same background and trusting each other.

7. Associate savings with credit without it being necessarily a prerequisite.

8. Combine close monitoring of borrowers with procedures which are simple and standardised as possible.

9. Do everything possible to ensure the system's financial balance.

10. Invest in human resources: training leaders will provide them with real development ethics based on rigour, creativity, understanding and respect for the rural environment.

Managing the Double Bottom Line in Microfinance

Managing the Double Bottom Line in Microfinance

Dr. Sourendra Nath Ghosal , Head (Knowledge Management) , Microfinance Focus

Micro financing institutions have emerged as a successful delivery model to garner savings of poor of course in a limited manner and to fund rural and urban poor to pursue any economic activities to enable them to earn their livelihood. It has been reported to have an average annual growth of 30% and have covered about 68 million people. (Vide STATE OF THE MICRO CREDIT SUMMIT CAMPAIGN REPORT –2003 and subsequent reports of CGAP). So much so good but an in depth analysis would reveal that yet these institutions have to go miles to achieve its ultimate objective of alleviation of poverty of poor and not just remain as an institution to fund immediate trading or farming needs of these people.

Some of the constraints in attaining the above objective that these institutions face as has been pointed out in various research studies (vide Presentations of CGAP & World Bank data) could be summed up as follows:

1. Inadequacy of donor funds particularly when compared to its insatiable demand; in fact one research study has revealed that on an average annual cash flow estimated for this sector is at least $5 billion but in fact donor funding is even below $1 billion;

2. Insufficient flow of funds from the private sectors as most of them consider such investment is risky if not ranked as unsafe;

3. Inadequate state support as most of the state funds are routed through political institutions for obvious reasons;

Above all these institutions source funds from commercial banks at high cost.

It is obvious therefore most of these institutions lend money at high rate of interest and despite this their margin as reported by most of them remain low and therefore they have very poor leverage to maneuver pricing of their products and services to suit the needs of poor, poorer and poorest. Hence the question of alleviation poverty relegates to background and only continuity and sustainability remain as primary or rather sole objective of these institutions. In fact social mission is dumped for obvious reasons by most of these institutions. Furthermore some smart management take advantage of poor people dependence and ignorance of financial natty gritty and impose other charges along with structuring interest rate on flat basis or at monthly rate to hide the higher load of interest they charge on these helpless poor.

It is therefore imperative to help them to source low cost funds to empower them to strategize their business with social mission of alleviation of poverty and also to pursue commercial viability for attaining sustainability which is indeed equally important. This fine tuning is feasible when mindset of state agencies and donor institutions could be changed so that they not only think these institutions are less risky as well more effective both in achieving social and commercial missions.

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