'Modern' Sahukars

The offices of India’s largest microfinance company in Khammam, Ranga Reddy and Vizag districts of Andhra Pradesh have been ransacked by activists of the Communist Party of India (CPI). The CPI’s state secretary, K Narayana, has demanded that the government file criminal cases against those microfinance companies that have been fleecing their poor borrowers by charging exorbitant interest rates and have been humiliating defaulters. The state government has reacted by issuing an ordinance to regulate and monitor the functioning of microfinance institutions (MFIs), prompting the Microfinance Institutions Network (MFIN) to challenge the law in court. Are the MFIs what they claim to be – agents of “empowerment” of the poor? Or, are they “modern” sahukars/mahajans?

Indeed, the declared mission of microfinance companies is to “empower” the poor, especially women, by providing access to collateral-free loans for their micro-businesses – in agriculture, livestock, trade (e g, vegetable vending), proto-industry (e g, basket weaving and pottery), services (like beauty parlours), and so on. But can a poor household sustain annual interest rates on micro-loans of the order of 27% to 31%, or more, if one were to add on the hidden charges? The MFIN’s president, Vijay Mahajan, doubts if there is any connection between the suicides of some of the loan recipients and the loans taken, but the fact of the matter is that some of their poor clients, facing acute financial distress, have committed suicide.