People's Democracy

Micro Finance Institutions:

The Local Face of Finance Capital in Delhi

Archana Prasad

RECENTLY a team from the Delhi Janwadi Mahila Samiti carried out a small survey of the operations of micro finance institutions (MFIs) in the lower middle and working class neighbourhoods of Mangolpuri and Sultanpuri in North West Delhi. This survey is a part of a larger initiative being undertaken by the AIDWA in its ongoing campaign against the unfair practices of these institutions. The survey found that all most all the clients of these institutions are women, most of whom are either self employed (with small and minute enterprises) or domestic workers. Many of them are helping their husbands in small businesses like selling and sharpening of knives or vegetable vending. Their average income varies from Rs 2000 to Rs 5000. Their family incomes are erratic and unable to fulfil their needs. In this situation, the women of these areas are often forced to take consumptive and other loans in order to meet their requirements. Today both these neighbourhoods are the hubs of the field operations of MFIs that give multiple loans to women and use local social relationships to extend their operations.   

EXPANDING

URBAN OPERATIONS

The penetration of micro finance institutions (MFIs) into the lower middle and working class neighbourhoods of Delhi began in the second half of the last decade. The expansion of these can be seen by their growth in the last three years. For example, Ujjivan Financial Services started its operations in 2008 and grew by ten times by the time of its last returns in March 2011. In the area of our survey itself, the company reported about 3000 members in Mangolpuri and 2000 members in Sultanpuri in March 2011, one year after it started its operations. In other areas like Narela and Jahangirpuri it showed a membership of 3000 and 4000 respectively by March 2011.  This is only one of the six big companies operating in the area visited by the surveyors. The others are SKS Microfinance, Share Micro Finance, Janalakshmi Financial Services, Basix (in partnership with Smriddhi) and Bandana, for whose operations the exact figures are unavailable at present.

The growth of MFI credit operations in the last five years has been facilitated by the failure of the central and state government’s model of micro finance to solve the problems of the urban poor. From the mid-1990s the National Bank for Rural Development (NABARD) had pioneered the self-help group bank linkage programme in the rural areas. By March 2010, about 6.7 lakh bank linked groups had been formed and only about 83,000 existed in the urban areas. In Delhi the total number of bank linked groups was about 2,047. The urban self employment under which the Delhi government promoted self help groups of poor women had only managed to form 43 self help groups and thereby benefit 481 women from 1997-2010.  Most of the other bank linked groups were formed by NGOs whose estimated number operating in the city was about 400-500, and who provided loans at interest rates of 25-28 per cent. This evidence shows that the government’s strategy of financial inclusion has had limited or virtually no impact in urban areas.

CLASS

FACTOR

The MFIs in the area are characterised by the fact that they only give loans to women, and usually refuse loans to any other male member of the family. The loans are given in the name of supporting self employment, but are almost never used in income generation activities. As one woman in K bloc of Mangolpuri said, “We have to say that we are going to take money for self employment and work otherwise we will not get any loans. But the truth is that most women in this area that I know use this loan for their other needs like health, marriage or any other requirement in the family.” They do this because loans from other informal sources were taken at a higher interest rate than those from micro finance institutions. As another woman from L Block stated, “Sometimes we take loans from local people (shop keepers etc) of Rs 300 hundred for ten days and pay an interest of Rs 100 over this amount”. Thus poor women with unstable livelihoods and low incomes only go to MFIs because they have no other option.

But there were exceptions to such cases, from a slightly higher income group. Of all the women interviewed in the area, only three or four of them were actually taking loans for investing in their small businesses. However such women came from a relatively higher income group, one of whom runs a training centre for tailoring and earns about Rs 10,000 per month on her own. She also has some properties to her name. Another woman runs a garment business and gets piece rated work done from other women. Thus the family income and class is an important deciding factor in deciding how much a woman benefits from her loan. Clearly those who earn good money and have running businesses find borrowing from MFIs a viable option.

THE COSTS OF

BORROWING

Most of the loans are given to women in groups of five or ten known as joint liability groups (JLG). The system of lending starts with small loans and interest rates ranging from 23 to 28 per cent. For example the first loan given by Ujjivan is of Rs 10,000 and has an interest rate of 26 per cent. If the woman repays this loan successfully than she is given another loan for Rs 15,000 and a third loan for Rs 21,000. The interest rates for the second and third loan may reduce depending on the record of repayment of the borrower, but they are never less than 23 per cent. Similarly SKS Micro finance lends at the rate of 26 per cent, and Bandana lends at the rate of 21-24 per cent or more depending on the nature and extent of loan taken. Interest rates were less than 23 per cent in only two cases where women had been borrowing continuously and larger amounts for their businesses. These businesses employing other women were given loans of 18-20 per cent in the fourth year of their borrowing. Hence, those who demonstrated a stable livelihood were paying lesser interest than the poorer women who had low incomes, once again demonstrating the socially unjust methods of this system.

But a deeper study of the interest shows, that the interest rates mentioned by the agent on the woman’s loan card are far less than the actual cost being incurred by the borrower. It is these additional costs that are the real source of the profits of the MFIs. Every woman paid a one time cost of Rs 150-200 at the time of borrowing the loan. As one woman told us, part of this money goes to the agent who mobilises the borrowers. Apart from this SKS India takes Rs 20 per month for insurance where as other companies took Rs 200 per year as insurance. This money has never been recovered by any borrower even when they encountered an accident.  Domestic workers from Sultanpuri stated that they were refused loans when they asked for their insurance money to be returned. Women can also take ‘emergency’ loans from the company at a monthly interest rate of 10 per cent.

REPAYMENT WOES &

FRAUDULENT AGENTS

But in addition to this, it is the punishing repayment schedule, the ‘agent’ system that is the main source of exploitation of the women. Most loans are for durations of ten to eleven months with weekly repayment schedules. Payments are usually made to the agents of the company. In many cases these agents are young boys who are employed for this purpose. Neighbourhood women with good capacity to mobilise borrowers are also made agents and given commissions. The agents are meant to take weekly instalments and deposit them in the company’s office where they are entered into the computer against the name of the borrower. In this system, the women sometimes end up paying one instalment twice. Like one woman from Sultanpuri explained “We were regularly paying our instalments to the agent of the SKS company. But when we went to close the loan in the SKS office, the person there insisted that some instalments had not been paid.” This means that many a times the women are forced to pay their instalments for a second time. In another case the agent from Basix - Smriddhi insisted that the women had not paid up their full instalment and cut Rs 800 extra from her security deposit of Rs 1400 before closing the loans. There are also rare cases where agents attempted to run away with the money of the women. As another woman from Sultanpuri narrated, two boys of SKS ran away with Rs 32,000 of thirty women. Since these agents were known through local contacts, the women got together and have so far recovered Rs 10,000 from the agent. They have also resolved to continue the fight to get back the rest of the money.

When asked about how they manage to pay weekly instalments they state that they often have to take loans to pay instalments. In one case a woman from Mangolpuri had kept her fridge, two cylinders and all other household goods as collateral with a local neighbour in order to borrow money to pay her dues. She almost had an empty house. Sometimes these companies also force the women to deposit some of their home electronics or valuables as deposits if they or their joint liability groups are unable to repay the instalment. In another instance a woman from Sultanpuri reported that agents from Basix - Smriddhi had threatened to get goons to her house if she did not pay her instalment in time. She had to borrow money from her neighbours and make the payment. This pressure of timely repayment has reinforced rather than broken the vicious debt-trap in which the women find themselves. It has also created a cycle of continuous indebtedness on which the country wide survey by the AIDWA may throw greater light in the coming days.

BREAKING THE UNITY OF

WORKING CLASS WOMEN

Social networking and pressure are the main strategies used by the MFIs to contact new borrowers and also use social pressure to recover money. Most of the women come in contact with MFIs through people who they have known in some social context or the other. They also form JLGs with other women who are either their relatives or neighbours. One crucial difference between these JLGs and other self help groups is that the groups formed by the MFIs do not require any savings by the women. Rather these groups act as guarantors for individual loans granted to women. This means that all women in a particular group certify that they will repay each others loans in case the woman is not able to pay her instalment. Such an obligation puts the every day relationships of women under tremendous pressure. When a woman fails to pay her instalment she gets into conflict with other women and is some times forced to withdraw from her daily social interactions. Thus one woman narrated how she is now confined to her house and has stopped meeting her friends because she will be hounded by women to pay up her dues.

Hence we see that the experience of JLGs poses a challenge for the democratic women’s movement. The earlier experience of self help groups formed and run by the democratic women’s movements in other states was that they fostered a unity amongst women and prepared them for further struggles. In contrast the JLGs sow the seeds of conflict rather than unity amongst women. They also have the potential to force them into a debt trap and attempt to make them permanently dependent on MFIs, the new money lenders of the neo-liberal era. In this context pressure needs to be put on governments to extend its SHG-bank linkage programme to urban areas. This will help women to access cheap credit, marketing and training facilities so that they can pursue sustainable alternatives for income generation.  The women’s movement also needs to strategise how the formation of self help groups can further the campaign against the coercive and unfair practices of the MFIs and further the struggle for a more socially just credit system.