“People in our village are committing suicide because of microfinance loans.” We first heard the news from a community activist in Polonnaruwa.
I informed Nelumyaya Foundation’s Sri Lanka team and its head office in London of this issue, because her statement spoke of a large-scale industry which is not different from a black market business.
She described a human tragedy that cannot be elaborated through printed words. Since we created a strong network in the Anuradhapura and Polonnaruwa Districts when we implemented the “Girls Go Green” programme, aimed at eradicating period poverty in those districts, we were familiar to some extent with their day-to-day lives. We were aware of the fact that those areas, which were already in a difficult state due to unplanned development projects, were facing hardships due to economic and health issues such as kidney diseases.
In collaboration with the Independent Television Network (ITN), we documented the scale of this tragedy in Polonnaruwa and Anuradhapura. Some videos were shown during the Sanwadaya live programme I participated on 19 June. The remaining videos had been used for the production of documentaries and news. The Nelumyaya Foundation is of the opinion that the Sanwadaya programme helped to expose the true situation of the microfinance crisis in Sri Lanka, which was believed to have been limited to only the north-east area.
Information revealed through our research suggests that this issue is essentially a social issue that affects not only the north-east, but also all other parts of Sri Lanka.
Strong arming rural folk
Microfinance agents were issuing loans in various forms such as weekly loans, union loans, etc., even to villagers who did not have any form of livelihood. We heard from Kalutara that microfinance loans had been issued to mobile betel quid sellers as well. Microfinance agents visit women in Badulla, who make lime packets at lime kilns for a salary of 30 cents per packet, at 10 p.m. to collect loan instalments. A woman we met in the Polonnaruwa District said that her husband always says that all four members of the family must commit suicide by electrocution.
Certain police stations in Sri Lanka, as per the instructions of microfinance institutions, had summoned the victims to police stations, filed complaints against them, and interrogated and harassed them. They did it disregarding the fact that loans and loan interests do not establish a criminal liability. We have been told with proof that the agents of certain so-called reputed institutions, regulated under the Central Bank of Sri Lanka, stay in front of borrowers’ homes saying “we won’t leave until you pay the interest”.
“First they come to our village, and hold meetings at one home. We also attend these meetings. We do not know what the interest is,” said Chandrawathi, who lives with her husband and two daughters in Welikanda, Polonnaruwa. She became a “multiple borrowing MIF victim” over a period of time.
Even though she obtained a loan to become self-employed, her husband had to spend all that money for the treatment of her brain tumour. Their only hope in life became paying the debts by now.
The majority of these rural people have no knowledge about responsible borrowing and paying debts and interests. The concept of microfinance came to Sri Lanka in the early part of the 2000s; but it is not the same as the concepts introduced by Muhammad Yunus of Bangaldesh and Mahathir Mohamad of Malaysia.
Microfinance and social responsibility
Initially, Yunus gave microfinance loans to homeless people through Grameen Foundation at an interest of 0%; for students, it was 5%. The heart of Yunus’ microfinance concept was to go to rural areas and to give loans to women with the aim of uplifting rural economy. For some reason, the concept of microfinance in Sri Lanka has lost its essential part of “social responsibility”.
The Micro finance Act was introduced in 2016, with the aim of ending unfair loan interests, compound interests and unethical practices including harassment that existed within this industry at that time. But the micro finance industry in Sri Lanka further declined due to reasons such as shortcomings of regulating institutions (the Central Bank regulated only a handful of micro finance institutions that invest depositors’ money) and not having a proper mechanism to regulate institutions that impose unfair interests.
Even though there are 1,500-15,000 lenders engaged in this industry, only 74 institutions have been registered under the Lanka Micro finance Practitioners’ Association (LMPA). Although it claims to represent the majority of micro finance institutions, they do not have a proper methodology to tackle irregularities and illegal practices.
Micro finance loans have gradually become the main source of income of many finance institutions. They seem to consider it a “direct marketing” tool. Through this programme, we emphasized that the main reason for the micro finance crisis in Sri Lanka is the gap between responsible lending and responsible borrowing. We pointed out that this is meant to be a two-way formula. We have no intention of bringing down micro finance institutions that are issuing loans responsibly. Since low income communities in rural and urban areas of Sri Lanka are unable to obtain services from reputed banks, we intend to obtain the contribution of micro finance institutions to eradicate poverty and uplift the status of life of those communities, while urging micro finance institutions to act as a mediator.
Annual reports issued by certain finance institutions show that it is a highly profitable business, and that they profited billions of money in 2017.
Following this programme, we received unbiased inquiries, explanations, impolite criticisms, and also life threats. Many criticised this intervention viewing it as an attempt to bring down the micro finance industry in Sri Lanka. They seemed to hesitate to give a value to human lives.
“They did not say these things when they accepted loans,” was the basis of most of these threats. We counter questioned them: “Did you not assess whether they can pay back when you gave loans?” Accepting loans when you clearly cannot pay back, and giving loans to those who cannot pay the money back, are equally wrong.
Hundreds of telephone calls and letters that we received after Nelumyaya Foundation’s intervention provided proof of the depth of the crisis. Overall, they all had one question: “What must we do now?”
Lanka Microfinance Practitioners’ Association (LMPA), taking into account the tense situation that arose amongst people over malpractices in the micro finance industry, amended its Code of Conduct in July.
It stated: “The importance for a Code of Conduct to be adopted by the micro finance sector was underscored by the recent public debate around rising levels of indebtedness resulting from micro finance loans.” They emphasized that the institutions that unfairly impose high interest rates have defamed the entire industry.
“It doesn’t matter even if you die. That’s why there is insurance.” This is how certain microfinance agents threaten. Meanwhile, we exposed the story of Karapincha Amma in Galnewa who is not in a position to make more than Rs. 750 a day. Her interest installments are bigger than her income. We believe there are many stories like the story of this mother, who lives with her 92-year-old mother. Following Nelumyaya Foundation’s intervention, the Human Rights Commission of Sri Lanka commenced an investigation regarding her story.
Why don’t media institutions expose the true picture?
A young father in Welikanda, Boatta committed suicide by jumping in front of a train with his two children, because his wife left for Colombo looking for jobs due to not being able to settle a micro finance loan of Rs. 150,000. Nelumyaya Foundation revealed the truth about this incident when media institutions in Sri Lanka failed to do so.
A private TV station that recorded an incident, where more than 50 persons of Jana Udana Village, Galnewa were summoned to appear before the Mediation Board, never telecasted it. Apart from certain private websites such as Lanka News Web and state media institutions, other media institutions in Sri Lanka were not sensitive to this issue, due to possible links between media monopoly and commercial intents.
Another reason why many media institutions ignore this issue is that the society’s tendency is to consider loans a personal issue. They do not recognize the social stigma that leads to suicides and collapse of the cultural family.
Furthermore, they have not done a systematic study about how low literate, rural and urban people have been affected by the debt trap. Civil society and non-governmental organisations that raise their voice for people’s civil, political, and economic needs have been dumbfounded because some of them too have tuned to micro finance loans in a way of income generating in the scope of the 2016 Act.
Issues with government programs and politicians
Finance Minister Mangala Samaraweera announced at ITN’s Sanwadaya programme, stated that the Government will take immediate actions necessary to resolve this issue. According to the cabinet paper submitted by the Minister, the Government wrote off one loan of up to Rs. 100,000 taken by people in 12 districts affected by drought.
The signing of agreements between the Finance Ministry and micro finance institutions commenced on 9 October as a component of the Government’s microfinance relief programme. However, we are of the opinion that this programme does not provide any relief to people who are affected by the micro finance debt trap as they were paying their installments as far as they can, due to threats and arrests. Three months of arrears is one of the conditions of this relief programme. Because of this, in some villages we work in, not a single woman had been qualified to receive this relief.
After the Government introduced the above relief programme, regional politicians became active looking for votes. Certain individuals had made unfair statements such as, “the Government pays all loans. If agents come, tie them to trees,!” and we have received voice recordings as well.
Misusing this programme as just another election promise, is unfortunate. They play this risky game two years before the elections while giving false promises about settling loans. Due to these false promises, during the past four months, paying loan installments in several provinces has drastically decreased causing a serious risk to institutions that lend depositors’ money.
In a country that has got used to focus on solving insignificant issues while disregarding the major issue, many promises have been given by political authorities including, providing relief for the victims of micro finance loans through the Enterprise Sri Lanka Loan Scheme, appointing a special committee to resolve micro financial issues and amending the Microfinance Act, which are still inside Pandora’s Box. And also Nelumyaya Foundation (NyF) is in the opinion of that promoting laon schemes will not assist to take them out of this widespeard agony and misery.
“I was selected for the Enterprise Sri Lanka programme, but eventually I was told that I am in the CRIB and therefore they cannot give loans to me,” said a woman affected by the microfinance loan crisis.
Chandrawati in Welikanda is currently fighting a battle between life and death at the General Hospital, Polonnaruwa, due to her serious condition.
We believe that, once obtained, loans must be settled but not with their lives. We need a stable programme and a collective action to resolve the micro finance crisis that has led to a tragedy, and to establish a balance between the victims and institutions. We stress the concept of "Responsible borrowing & responsible lending".
People are still hopeful; so is Nelumyaya. Nelumyaya Foundation will stay awake together with affected people and institutions, crossing its fingers, for the betterment of this country.
- By Radika Gunaratne
(The writer is an Attorney-at-Law and Director Programmes – Nelumyaya Foundation) |
(This article was first appeared in The Morning News paper on 14th Oct)