[Listen to these women’s stories in the video above.]
Many residents in India’s Tumkur slum, about 50 miles northwest of Bangalore, are still reeling from the 2010 microfinancing crisis.
Microfinancing was designed as a tool to lift people out of poverty through small loans and was lauded internationally. The United Nations Economic and Social Council even went so far as to proclaim 2005 the International Year of Microcredit.
However, in India, the program imploded as a result of poor implementation and oversight, resulting in 70 suicides by people trying to escape payments in the Andrha Pradesh state between March 1 and November 19, 2010, the peak of the crisis.
The program’s problems stemmed from two points.
First, poor housewives don’t necessarily make good entrepreneurs. Much of the money was delivered to uneducated housewives with no experience in business, and much of the money they were given was never used for entrepreneurial purposes, but rather for everyday purchases and even luxury items such as TV sets. Compounding the problem, overzealous lenders were not verifying why a borrower needed the money. Some borrowers were even taking loans from other lenders to repay their original loans.
Second, the unusual nature of this type of microlending invariably led to instability and turmoil in small, close-knit villages. Instead of working directly with individuals, the microfinance companies lent money to groups of people who were all responsible for each other. This is what led to the harsh bullying of members who were late on their payments.
Social worker and Tumkur resident Narasimha Murthy told IBT the problems created by the microfinancers are pervasive.
“MFIs engage local women seven days a week. And we have found that women repay two MFIs each day.
“The general culture in these areas of Tumkur, which involved people being concerned about each other and their neighbors, has been spoilt by microfinance companies.”
“It’s created a lot of problems for us. Those who can, they repay. But those who cannot, they harass us and insist that we pay them back. And if we don’t, they come and sit at our doorstep,” said Zammen Taj, a beedi roller from Tumkur.
Borrowers also allege loan officials cooked their books to get borrowers to pay more than what they owed.
While there have been success stories the bad news outweighs the good and the system has been improved since the 2010 crisis.
About seven to 10 lending agencies, including private lenders and state-run self-help groups, were involved in microlending in the district several years ago.
Currently, there are about three agencies operating in the region, and the number of borrowers has declined.