Dear Readers
Up to this point I have been engaged in vigorous debates on the impact of micro finance on tribal people. Some among us are concerned about the high interest rates being charged to the tribal people in the name of micro finance. This is a genuine concern and should be addressed thoroughly. Perhaps the name of Micro Finance should be changed to "micro finance with mega interest". But being a believer of "free market economy" I am not concerned about any interest rate as long as the borrower gets the same margin of return from the free market as the lender is getting from the borrower. In this context I have given you bits and pieces of information in my numerous postings. Here I wish to summarize so you will get a real picture of what is happening in the field regardless of what Khirode Malick and others in the MFI are claiming.
1. Tribal people are being "pushed" from the same bank of the river into the currents of the river. All they are given is a "loan at the door step" as Khirode Malick has claimed. Then they are forced to pay the interest (I do not care how low or high) even if they have failed in the undertakings.
2. Although the loan is brought in the name of the group, the money is distributed to individuals according to the ongoing MF practice.
3. Because the money is brought in the name of the SHG, bank/lender records will only show the name of the SHG, not the names of the individual borrowers. However, the NGO records will show the individuals name because that is how they hunt the borrowers down to extract the interest.
4.You all know that many of our relatives (including some among your family members and friends) default loans (especially agricultural loans) routinely. But Khirode Malick has claimed 100% collection from hapless tribal women. This is misleading in two aspects: a) Actually the tribal people default the loan b) The 100% collection is actually interest collection. Just imagine how every one in a community will voluntarily give the interest due unless they are being coerced, manipulated, threatened and in some cases beaten up by fellow tribal people who are paid to do so. These all pass in the name of "community conflict" because one tribal person beats up the other. Because the most of the borrowers are women, they are not touched, but their spouses are attacked. Because many of the spouses are drunk most of the time, the assailant's excuse is "I was trying to straighten him up because for him his wife is unable to pay the loan money back". I have not yet heard the story of murder, but this an event waiting to happen if we do not do some thing.
5. As I have said in the above, illiterate tibial women are given any where between Rs.50000 to Rs.150000 as micro finance loan. They have no skill to invest and get a return from it. So they go ahead and use the loan money to improve their standard of living. This allows BISWA to show how peoples' lives are improving because of micro finance and the gullible visitor believes it. That is why Khirode Malick is constantly inviting people to visit their service area instead of answering questions openly.
6. As I have said above the "interest collector/ kabuli wala" shows up at the door at regular intervals to collect the interest and tells the borrower "you have nothing to lose or fear as long as you pay the interest". That is true because according to law MF loans must be given without any collateral.
7. Then comes the time to return the principal (because each loan has a stipulated terminal date). The borrower can not pay and defaults. Even if one borrower defaults the whole groups is considered to be at default. Thus, people within the same group coerce and assault so their fellow members will not default. They are abated by BISWA for this pressure tactics. Who actually does the coercion and assault? Those few in the group who succeed using the loan. They do this so the group will not default. Unfortunately in spite of all these many groups default.
8. According to the MF rules the SHG can not have more than 20 members of less than 13 or 15 (I forgot to write down). You will rarely find a group with 20 members even if BISWA has more than 100 SHGs. This is explained below.
9. As soon as the SGH defaults, the group can not get any more loan and is disbanded. But because the loan is not recorded against any individual, the same individuals are assigned to other SHGs and continue to get more MF loans and maintain their spurious higher standard life style.
10. Although the SHGs default, the lender does not lose the money because they have already expected this and incorporated the recovery in to the high interest rates. Thus, if there is no default, the lender makes even more money.
11. In addition to the above, there is another step in the exploitation. The bank sets the initial interest while giving the money to the NGO (individual tribes can not go to the bank for this loan, they can only go through the SHG and most SHGs are attached to an NGO, although, according to Justice Mohapatra, this is not a legal requirement. After the NGO gets the loan, then it sets a second tier interest which includes the bank interest. This is where BISWA gets rich. Because if it can avoid default for one group, it has income from the interest of the money loaned plus the margin that is included in the interest assuming that it will default.
12. I was told by more than one of my guides that in several instances NGOs (I do not know if BISWA does this) take the young women of the SHG and engage them in prostitution so the money they earn can be used to pay back the interest. In most cases, however, the interest is paid from their meager daily earnings daily labor. This is better document by the George foundation of the Wharton School of Business of U-Penn. That is probably why there is increasing number of HIV-AIDS incidents among tribal young women. This is what I have read in state news papers. I have no data.
13. As Susmita Mohapatra has indicated there is no post processing involvement of the MFIs except interest collection. Thus the borrowers have no advice for business entrepreneurship. When I challenged this to one NGO, its chief said "But Sir, only last week we had a Mushroom Expert who took from us Rs.10000 to offer training". When I asked then why are you failing? He said "we do not have money to pay him Rs.10000 each time, and no one is here to tell us what wrong we are doing". Please note, this came from the NGO, not the SHG. This reflects the consequences of non-involvement of the MFI in post processing phages.
WHAT IS THE SOLUTION? Very simple.
1. There is already rules in the book for defaulting SHGs. This is a good rule
2. There should also be a rule that once one SHG defaults, the respective NGO will not be allowed to form new SHGs.
3. There should be a rule once the SHG is formally formed, its number of members can not increase. This is how they form many SHGs with empty seats so they can absorb people from defaulting SHGs. Some times they exchange an old member for a defaulting member to keep the number same and form a new SHG with members who have not defaulted. This is easy to do because the primary lenders do not have any record on individual borrowers. They only have records on NGOs and their SHGs.
4. BISWA claims it has presence in all districts of Orissa and outside Orissa. Rule should be made that no NGO can operate outside its own district. This will cut down mushrooming of NGOs and wide spread exploitation by NGOs.
5. BISWA encourages through advertisements and letters external SHGs (including those of other NGOs) to transfer their money to its bank so it will arrange loan for them three times their deposits.
5. Each MFI loans should be required to also provide assistance in production, storage, processing and marketing of the products for which it is providing loan. This will open up jobs for graduates of different disciplines make assistance available for illiterate tribal women.
6. There should be a provision which will allow the SHG members to lodge complain with higher authorities than he/she/they are not getting the promised assistance from the MFI in a timely manner. This should prohibit the MFI from collecting interest as long as the borrowers problems are not solved. In other words, the MFI's financial growth should be linked to the financial growth of the borrower. ODT will address this by transferring the "front end load" through interest free loan to the "back end load" through profit sharing. I have found that this approach actually brings better results because the adversarial "prey (borrower)-predator (lender)" relationship is converted to "partnership" for common good.
7. I am sure there are other better solutions but probably it will occur to the readers better than me.
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