The Hindu Business Line : Nest or trap?

We now own four buffaloes and three acres. Six years ago, we had nothing. All this was possible because I could secure a Rs 10,000 loan about six years ago,” says Yadamma, a woman with two children and a borrower of Share Microfin in the Gumasthanagar branch of Ranga Reddy district, Andhra Pradesh.

Ramulu, her husband, adds: “We bought one buffalo and two sheep with the first loan. Prompt repayment got us more loans and we invested the money in buying more buffaloes.”

Micro beneficiaries:S.K. Parveen and her husband run three autos

Hailing from a typical poverty-ridden village in the Telangana region, the family has already secured loans totalling Rs 50,000, and plans to borrow more to buy two more buffaloes.

Women like Yadamma constitute the nearly four lakh groups (of five members each) formed by Share Microfin in 165 districts across 16 States.

“Group lending is a proven route to ensure discipline, as members will monitor each another’s repayment to keep alive the loan-worthiness of the group,” says Daveedu, Area Manager (Tandoor), Share Microfin.

Social collateral

Micro beneficiaries:Repayment meetings are also occasions for social interactions among members of microfinance groups.

Group lending also acts as ‘social collateral’, he adds; as Lakshmamma, a member, says, often group contributions are raised to help a member pay up.

The repayment meetings, usually held outside a temple or under a tree, are interesting to watch. For the members it is an outing, a social interaction and an opportunity to discuss new loans. The attendance is normally cent per cent and a member skips it only when there is an emergency. Meetings are never delayed or postponed, says Daveedu.

Members readily acknowledge that these loans have made a big difference to their lives. As a thumb rule, MFIs extend loans only for income generating activities and expanding existing businesses. “I opened a small kirana store in my house with the loan and it is doing well. I am even able to send my two kids to an English-medium school,” says Kanaka Durga, a Share member from Old Tandoor Village.

The loans are mostly used for buying buffaloes, setting up kirana/ tailor shops or enterprises involving agriculture. But we found some members borrowing for the second or third time and using the money for paying school fees or marriage expenditure, which is not permitted.

Micro beneficiaries: Kavula Sujatha runs a hardware store.

But as Durga, another borrower, explains, sometimes there can be no clear demarcation between income generation activity and personal expenditure. S.K. Parveen agrees, adding that microfinance has put her family on the road to prosperity. “I bought an auto with the loan five years back; my husband drove it. Now, we have three autos; he drives one and we rent out two.”

When asked why she did not approach banks for loans, she replied after some hesitation that she did not have an account!

Not all MFI loans are small, however. Kaluva Sujatha, who runs a hardware shop in Tandoor town, about 130 km from Hyderabad, took a loan of Rs 2 lakh under the micro-enterprise category five months ago. “We already had a business. I took the loan to expand it further,” she says, adding that the hassles she faced at public sector banks drove her to Share.

“The service is quite good here. I cannot make frequent visits to banks, as the shop has to be taken care of. Right from application to collection of EMIs, Share’s executives come to me and this saves a lot of time,” she explains.

Another benefit of MFI activity has been employment generation in rural India, points out Daveedu. “Most of the MFI executives are recruited locally.”

While the women who have taken loans are vocal about the beneficial impact and the improvement in their living standards, several economic experts berate MFIs for laying out “debt traps” for poor women. “Most of the loans are cyclical. Prompt repayment naturally makes the MFIs think that such customers are safe and they come forward with a top-up option or a new loan for a different purpose. There are many MFI clients who have been taking loans repeatedly for more than ten years. Don’t you think this is a perennial debt trap for these illiterate rural people,” asks an economist with a large public sector bank.

Dr Debashis Acharya, Reader, Department of Economics, University of Hyderabad, says the issue needs a deeper examination. Some of the individuals may use the loans responsibly to start new business ventures or expand existing ones and add to their assets. In such cases microfinance has a positive impact. But if the households use the funds partially for consumption on a continuous basis, they may fall into a debt trap. They may be regular in their repayment to the MFI without adding much to their assets or savings for future. It’s often difficult to monitor or regulate the usage of such loans.

Studies on microfinance have also highlighted the phenomenon of multiple loans leading to a possible debt trap, with lower and lower repayment rates.

Interestingly, asked if they foresaw a totally debt-free life for themselves, the women had no reply.

More Stories on : Gender | Credit Market | Rural Development

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