India in the gruesome spiral of Microcredit

The drawn face, eyes surrounded by lack of sleep, Khaja despair. “Between us, my father and I earn rupees at best 7000 [around 109 euros, ed] a month, but we have to pay Rs 3000 drafts week. I can not sleep at night, I do not know how we’ll get by. “At 26, this house painter is a victim of what many considered until recently as the miracle solution to fight against poverty in developing countries: microcredit. A system which, handled by private companies, is in places about to turn into a disaster. On September 27, the mother of Khaja, Jahirabee, committed suicide, leaving her with two children, a modest house mortgaged and irremboursables debts. “She hanged herself in the night because she knew that the agents would return claiming a bill the next day, and she did not pay.”

Trap. The history of this family from Andhra Pradesh (south-east of India) is a tragic illustration of the abuses emerged in recent years in microfinance. Jahirabee had indeed succeeded in getting loans from eight different sources… More than 7 000 in total, while the family was earning 150 a month at best. Trapped, she even had to resort to moneylenders to repay its micro-loans from microfinance institutions (MFIs), private companies that claim to help the poor gain access to credit that banks refuse them. A peak since microcredit was supposed to allow the poor to no longer be dealing with these local leaders, taking up to 120% annual interest.

In Andhra Pradesh, which combines in itself more than a third of microloans distributed in India, this cycle has become the norm. In recent years, MFIs distribute money to all-will without worrying about the use made of loans, and therefore the ability of customers to repay. Sort of a variation of the phenomenon of the US subprime, particularly perverse that it is the poorest of the poor, and that the interest rates are much higher than in the traditional banking system: between 24 and 40%. Symbol of runaway general, the number of beneficiaries jumped in the region of 250,000 in 2006 to 9.7 million … end 2010. “Getting a loan has become a breeze, summarizes a local journalist. Rather it is the fact of resisting the growing number of deals that are difficult. ”

From village to village, testimonies abound. All families are here debtor with several MFIs. Far from the original idea was that the recipients borrow to be able to run a profitable business, all take the contrary credits for daily consumption needs. A vicious circle, because it means they have another loan to repay the first, and so on. “And when they have no one to turn to, they commit suicide,” growls Jyoti Neelaiah, head of an NGO working in the communities of untouchables. In this region, dozens of customers have ended their days in recent months, trapped in a system that, originally, was to help them better cope …

Behind this revolting situation hides a huge business. Organizations that have begun to make microcredit as NGOs have been transformed in recent years by companies, including the biggest, SKS Microfinance, even made its IPO last year. “It was necessary because, in order to reach more people, we had to raise more funds,” explains Vijay Mahajan, president of the association of companies in the sector. Even some grant them the benefit of the doubt, this has had a perverse effect: to attract investors, MFIs have launched a frantic race for profits, forgetting the way the “social” dimension of their business. “Some have also done purely by greed,” says Vijay Mahajan. Within a few years, Indian MFIs have thus become the giant that share a sector estimated at 3.5 billion euros. All show staggering growth rates and profitability that would make the envy of any boss. Interested in the figure they relate to their business, agents that are on the ground go door-to-door by pushing borrowing. “They tell us even what to give as a boondoggle to justify the loan,” says a villager. And no check is made retrospectively on the use of funds.

Tensions. Betraying the original model which was to lend to a group of women, who then lent to its members in turn, MFIs, they entrust money directly to individuals, for which four other people must vouch. A system that creates tensions in the villages: in the event of non-payment, the guarantors are legally responsible, thus putting pressure on the defaulter. Besides, the beneficiaries are de facto deprived of account management, an aspect considered by all experts as crucial to the success of microcredit.

Shalbi, whose mother has also killed herself, do not even know how it must nor to whom. “I just know you have to pay 750 rupees on Monday, 350 on Tuesday and 150 on Thursday,” she lists in reference to the various MFIs in order not to step on toes, shared the day week in his village. How much rest he him to pay to each? “No idea.” Why had her mother taken these loans? “To buy food and clothes.” Used by the day as a laborer in a quarry, the young woman earns at best 240 rupees a week. The equation is quickly made: “I can not pay, and I can never him. But agents do not want to know. If this continues, I will not have to take the path of my mother’s suicide. ”

For if MFIs distribute cash besides, there is no way to negotiate repayments, weekly. By dint of borrowing, many debtors find themselves having to pay daily deals. Rumor has it that some agents even advise women to prostitution to pay … After all these suicides, the authorities in Andhra Pradesh have nevertheless reacted and introduced new legislation that, according to IMF, removes any viability the sector. “The procedure for granting a loan is so complicated that it is no longer profitable,” says Atul Takle, spokesman for SKS Microfinance. Some opposition politicians have called for especially not repay loans, raising fears of physical attacks against the agents.

“Abuse”. Meanwhile, the forgotten of the banking system more has only one recourse: the self-help groups (SHG), groups of investors set up by the government. Without access to the private banks, these are organized into federations, which borrow from public institutions with an interest rate of only 3% through grants. “The problem is that all these companies [MFIs] have grown visibly without a real legal framework, leaving room to abuse since everything depended on the social fabric – or not – of the leaders” underlines CS Reddy, who has worked for twenty years in this field.

In early January, the Central Bank issued a draft project to regularize the sector. Among the measures: interest rates capped at 24%, limited loans to 450 euros maximum and prohibition to borrow from more than two MFIs simultaneously. What, perhaps, end the current practice, far from the ideals that were the “inventor” of microfinance, the Bangladeshi Muhammad Yunus, Nobel Peace Prize in 2006. Which, to make matters worse for the picture of this sector so far deified, was, for obscure political reasons, resigned in March from his position as director of the Grameen Bank, the “village bank”, he designed in 1976.