Guwahati: Manobika Lahon of Santapur village in Assam’s Lakhimpur district has nearly paid off the Rs 30,000 loan she took from a microfinance institution (MFI), but she won’t be paying the remaining instalments.
Many others in the village, who took small loans to start a business, clear debt, pay for their children’s education, or emergencies, echo her conviction.
It is election season in Assam and promises of loan waivers of different degrees have been made by both the BJP and the Congress in their quest for votes.
“If the government decides to wipe off the loan, why should some of us pay? We have seen TV news reports on what the leaders said,” Lahon told ThePrint. “Our instalments are almost about to get over. But we have decided not to pay if others don’t. We won’t get a waiver in interest if we keep paying.”
Indira Gogoi, another resident of the village, made her last repayment in January. Speaking to ThePrint, she said she has decided not to pay further instalments as her “friends have all stopped repayments”.
Microfinance — or small collateral-free loans meant for low-income groups without access to conventional credit sources — has emerged as a poll plank on the threshold of the 2021 Assam assembly elections.
The campaign promises — the Congress says it will effect a complete waiver for women, the BJP is offering relief like extension of repayment window and interest waiver, on a case-to-case basis — seek to tap into brewing concerns in the state about microfinance institutions.
On the one side are borrowers who claim they are unable to pay back loans. They decry the “usurious” interest rates and allege harassment by lenders. There are also complaints that “greedy” MFIs talk them into taking more loans than they can repay or are allowed to take.
In light of the campaign promises, they have decided to hold off on repayment.
On the opposite side are those — including some borrowers — who argue that access to loans comes with responsibility. They claim some people take loans for frivolous purchases, and emphasise that it’s wrong to not pay back one’s dues.
Waivers, experts add, bode ill for the state’s credit culture.
In December last year, the assembly passed the Assam Microfinance Institution (Regulation of Money Lending) Bill, 2020, which seeks to bar door-to-door collection and regulate microlenders.
However, the bill — which has yet to receive the governor’s nod — has stoked some concerns about its impact on microfinance players in the state, with at least one lender reportedly facing a fall in collections since it was passed.
Credit for the poor
In its modern form, microfinance — also known as microlending and microcredit — took shape right across the border from Assam, in Bangladesh, with the Grameen Bank model of Muhammad Yunus.
Known as “banker to the poor”, Yunus won the Nobel Peace Prize in 2006 for his efforts to provide small loans on suitable terms — and some financial tips — to poor people, in a bid to encourage them to set up their own businesses.
The concept has since taken off in a big way, and is now on offer across several nations.
The microlending sector includes different types of institutions, including scheduled commercial banks and small finance banks (SFBs), but the RBI regulations currently only focus on non-banking finance companies operating as MFIs (NBFC-MFIs).
Under RBI rules, these microlenders cannot offer loans beyond Rs 1.25 lakh per borrower. However, this limit can be relaxed if the loan is meant for education and medical expenses, the rules say. Among other guidelines is one that bars beneficiaries from approaching more than two MFIs each.
Microlenders are known to impose higher interest rates than conventional banks since they cater to a customer base with no established credit history, and their cost of borrowing is high at 10-12 per cent. In a circular issued in February 2014, the RBI said MFIs can charge interest rates based on the cost of funds plus margin (currently capped at 10 per cent), which may translate into an interest rate of around 20-22 per cent at current bank lending rates.
The central bank is now planning uniform rules for the entire microlending space.
Microlending in Assam
Assam is one of the key states for microcredit in India’s Northeast. There are around 34 NBFC-MFIs in Assam, apart from seven small finance banks and nine scheduled commercial banks.
According to ratings agency Crisil, Assam’s microfinance portfolio (including banks and non-banks) was estimated at Rs 12,400 crore in September 2020, or about 5 per cent of the all-India portfolio in the sector.
A 1 January 2021 report by Mumbai-based financial services firm Emkay Research said the Kolkata-headquartered lender Bandhan Bank accounts for 55 per cent of Assam’s microlending portfolio, followed by Arohan Financial Services at 8 per cent, and Ujjivan Financial Services and Satin Creditcare with 3 per cent each.
For many people, microcredit offers the only reliable source of money to either start their businesses or when big expenses — education, medical, weddings, emergencies etc — come up.
However, according to CARE Ratings Limited, a risk opinion platform, issues like floods and erosion, and economic slowdown in tea garden areas, have impacted the repayment capacity of residents. Disruptions caused by the anti-Citizenship Amendment Act (CAA) protests last year also reportedly affected the functioning of MFIs and repayments.
Signs of a crisis in the sector — specially the districts in Upper Assam and the tea garden belt — emerged in 2019 with protests about allegations of unethical collections, illegal operational practices (such as taking savings and private assets), poor governance, high interest rates, and profiteering.
In February last year, thousands of women in the Dibrugarh and Charaideo districts took to the streets and submitted a memorandum to the authorities seeking permission to commit suicide following “harassment” by microfinance companies.
The MFI Bill
In December 2020, the state assembly unanimously passed the Assam Microfinance Bill, pitching it as a tool to prevent the exploitation of borrowers by lenders who don’t follow regulations strictly. The law seeks to extend RBI guidelines to all MFIs operating in Assam.
It mandates MFIs to register with the “registering authority” — to be appointed by state finance department — within a period of 30 days and collect dues only at gram panchayat offices or public places. It states that the “current cumulative loan outstanding of a borrower shall not exceed Rs 1.25 lakh”, and the interest charged can’t exceed the principal amount. It bars lenders from imposing security.
“We have brought a law in assembly recently where agents of MFI cannot go to somebody’s home and take away television or roof sheets for not being able to pay loan,” Assam Finance Minister Himanta Biswa Sarma said at a poll rally in Jorhat on 10 January.
But there are fears the bill may impact the credit discipline of borrowers in the region, as happened when a similar law was passed in united Andhra Pradesh in 2010.
The Andhra Pradesh law, which imposed certain restrictions on debt collection, led to a fall in repayments, spawning a crisis in the state’s microfinance sector, forcing many smaller players to shut shop or move out of the state. The RBI subsequently stepped in by bringing in certain regulations for NBFC-MFIs.
“Microcredit, despite suggestions that it is destroying people, is also helping them out. It’s a large industry now — of SFBs and microfinance players. People need the cash for reducing vulnerabilities, as working capital and even for consumption, which is critical for them to survive,” said Abhijit Sharma, Director, Indian Institute of Entrepreneurship (IIE), an autonomous institution under the central government.
“It is being provided in a mechanism, which is useful to them — conveniently provided at the doorstep and they don’t have to look for documentation. This was not possible with traditional banks,” he added.
‘Unable to pay’
Panchami Gogoi (25) from Samaguri village under Jehenia circle in Upper Assam’s Sivasagar district availed of her first loan in 2016. In three years, she took four loans from different MFIs amounting to Rs 2.72 lakh.
Raising a six-year-old and being dependent on her husband, a daily wage labourer, Panchami says she has been unable to repay anything except for a few instalments of her first loan.
“They came to my house two weeks ago and said sternly that I should pay my instalment. I am left to pay 30 instalments of a loan I took from Bandhan Bank in December 2018. During the Covid-19 lockdown, I sold off the poultry and livestock at home, now where will I pay from? They don’t understand.”
Almost 90 per cent of households in this village took loans from more than one source, including moneylenders, with some availing of as many as “8-9 loans” at a time, according to local residents.
“When the lenders approach us, we tell them we already have loans, but they ask us not to tell anyone that we are going for another. The agent who comes for collection keeps it a secret,” said Panchami.
Members of the Jagrata Nari Suraksha Samaj (JNSS) in Jorhat district, an umbrella unit of women organisations fighting against harassment by microlenders, said they have stopped repayments till the lenders return the excess money charged by levying exorbitant interest rates of up to 26 per cent.
“The MFIs pay no heed to the regulations, doorstep harassment continues. We want them to return the excess money they collected as interest rate, and all the belongings they took away from those unable to make repayments. Interest rate should come down,” said JNSS secretary Bobby Dutta, adding that a delegation from the organisation has met both state Finance Minister Himanta Biswa Sarma and Chief Minister Sarbananda Sonowal in this regard.
Many families in Upper Assam districts say they are still dealing with deaths and disappearances because of microfinance debts. Although the total number of deaths is not known, JNSS member Antara Dutta said she knows of “more than 20 people who committed suicide in the past few years, unable to repay loans”.
Some, however, believe that the agitation against MFIs has done more harm than good.
“Microfinance is the only source of funding for us. It’s not all bad,” said Runu Gogoi from Taranjan Gayan village in Jorhat district.
“The aim of the agitation should be justified. If you take money for buying personal things — TV, fridge, gadgets — and then refuse to make repayments, it’s wrong,” Gogoi added.
Premkanta Saikia, an agent in Sivasagar who has been collecting instalments on behalf of Arohan, a Kolkata-based MFI, over the past two years, said he and his colleagues have their own struggles.
“I collect from 25-30 households daily. Of them, only 15-20 borrowers pay, whatever they can. Some are good, but many misbehave. We try to explain to them the risks associated with borrowing, but some don’t understand,” he added.
“After Covid-19, collection has slowly begun, but it’s a tough time. It’s a difficult job,” he said.
P. Satish, Executive Director at Sa-Dhan, an industry body that has 160 microlenders as members, among others, said collections have been lower since Covid-19 struck and expects the situation to stay thus until elections. However, he added, those looking for credit will have to repay their pending loans.
“Collections continue, but it’s slightly less now because of Covid-19. Once the situation normalises, we will start again,” he added.
“Some effects will be there. From field level, we feel that this situation will stay till election. These borrowers also require credit and they can’t go anywhere else for this kind of credit,” he said. “If they want to keep their loan cycle going, they have to repay and get additional loan. So, this might be temporary, but going forward things should stabilise,” he added.
No full loan waivers, says BJP
Assam BJP Vice-President Swapnaneel Baruah said loans are an economic proposition and one cannot view them with an attitude of “Ji hobo dekha jabo (whatever happens, happens)”.
“Loan money should not be used for consumption. They keep taking loans, some are never able to repay it and fall into debt trap. A lot of them don’t know how to use debt,” said Baruah.
He, however, added that his party will announce “certain relief” for borrowers.
“We will give certain relief — like extension of time for repayments, waiver of interest — it will be a case-to-case assessment, no full waivers that will affect the industry.”
On 1 January, days after the Microfinance Bill was passed, state Congress announced a waiver of farm debt and microfinance loans for women as part of their poll campaign.
“We do not have any issue with it (the Bill), but women empowerment is a priority for the party and when we come to power, all types of microfinance loans for women will be waived,” Assam Pradesh Congress Committee (APCC) president Ripun Bora was quoted as saying by PTI.
Abhijit Sharma of Indian Institute of Entrepreneurship described loan waivers as a “retrogressive” move, even as he said the state government could take up some measures of temporary relief for borrowers, like providing grant money, or offering a relaxation period in terms of repayments.
“When credit is not repaid, more loans will not come. All the investment going in the rural areas will stop, which will only make the poor suffer more. Money will only come to areas where money returns or grows,” he said. “It will affect a large number or people, particularly the poorer section that is otherwise totally bereft of bank loans.”
The onus of improving the state’s credit culture rests with both borrowers and lenders, he added.
Besides initiating a “very strong campaign on financial literacy and making people aware on the implications of taking a loan, the MFIs have to be responsible lenders”.
“The crisis has occurred because of the greed of MFIs. The RBI regulations very clearly say that we should not have more than two players providing loans to one individual. If you start giving more loans, they take it because they need it, but cannot repay back.”