Debt, Distress, Suicide

17 August by Ahilan Kadirgamar


When someone takes their own life, it is the ultimate consequence of great distress. But the specific causes for such tragic endings are never clear, and are often compounded by a myriad set of factors. How does one understand the struggles of a woman, her choices and her actions, in a world strewn with exploitation and indebtedness? On August 10, 2020, a popular newspaper article titled, ‘Micro finance loans tighten noose: Another Jaffna woman commits suicide’, reported the suicide of Surendrarasan Mariarata, (51), in Urelu, Jaffna. A visit to her day-wage labouring village quarter, conversations with her mourning extended family in her half-built decrepit home, and the sympathetic comments of her neighbours, revealed not just facts about the difficult weeks and days culminating in her suicide, but also a tragic life of hardship over decades.

Mariarata had married at the age of 21 towards the end of the Indian Peace-Keeping Forces period in 1990, and a few months later, her husband was shot dead by the LTTE. Her only son was born a few months after the death of her husband. Unable to make ends meet, she went to work in Singapore as a house maid in 2003. And for the next decade and-a-half she worked abroad supporting her mother and her young son. In late 2017, she was hospitalised with dengue fever in Qatar, where she last worked overseas, and returned to Jaffna. With her health having considerably deteriorated including with diabetes and other complications, she could not go abroad for work. Despite having supported her son, mother and other relatives with her earnings over the long years of work abroad, not to mention the foreign currency earnings the country gained through her labour, she had no savings by the time she returned. She took to producing food, mainly string hoppers for orders, for those who lived in her vicinity. But as her son’s family got deeper into debt with his sub-contracting work, she first took a micro-finance loan, received a bank loan and then registered for another micro-finance loan that was not granted. As her family explained, she cared much for her three small grandchildren and worried much about the future of her three unmarried nieces who lived next door. Even as she found hard to make ends meet, despite regularly producing food, she was declining with health issues and expressed her sorrow and dejection to others. Then two weeks ago, she took the step of ending her life by consuming insecticide, and lost her life some days after in the hospital.

 MICROFINANCED VILLAGE

Two neighbours who were friends of Mariarata, along with her, belonged to a self-help group. They spoke about their long association with her, and how over the years, they remember her coming back and leaving for work abroad. In recent times, she used to confide to them about her sense of hopelessness. They tried advocating on her behalf for a housing scheme, Samurdhi and other government support. But until that day, they never thought she would take her life.

The loan schemes for daily collection start with Rs.10,000 and require Rs.200 daily payment for 60 days, which in reality amounts to an annualised interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rate of 240%!

These two articulate friends of Mariarata, through their self-help group support fellow women in their village to take small loans, which they had initiated as a way of keeping people from falling for loan sharks, and to ensure their own funds stay within the community. The self-help group called the “Five Rupee Group” requiring each member to save a minimum of five rupees has now a few lakhs in savings, and was started five years ago as they saw micro-finance companies invade their village. While the number of micro-finance loans have reduced in their village over the last two years, despite all their efforts at advocacy, they say their fellow villagers still go for micro-finance loans when they desperately need funds. They claimed that two micro-finance companies providing year-long loans with weekly installment payments and two others providing 60-day loans with daily installment payments are still functioning in the village. The loan schemes for daily collection start with Rs.10,000 and require Rs.200 daily payment for 60 days, which in reality amounts to an annualised interest rate of 240%! And according to the two women, even during the Covid-19 crisis and despite their arguments with debt collectors, borrowers were pressed to make payments. Even as income from daywage labour for masonry work and agricultural work has been declining in their village, they insisted that banning micro-finance would be the first step towards redeeming their community.

 GLOBAL PROJECT

Today the lending portfolios of Micro-Finance Institutions (MFIS) are worth a combined US$124 billion. But the industry is in trouble. Covid-19 is straining its finances

Interestingly, it is not just in Urelu that micro-finance was being talked about last week. The August 15, 2020, issue of the weekly magazine coming out of London and reflecting the views and analysis of the global business elite, has two articles on micro-finance; one on micro-finance and the Covid-19 crisis and another on the microfinance industry in Cambodia. I quote below that article, ‘Covid-19 is causing a microcredit crunch’ with a subtitle, ‘Lenders deserve relief, belief and a dose of red tape’: “In the 1990s and 2000s microcredit was one of the next big things in development finance. In 2006 Bangladesh’s Grameen Bank and its founder, Muhammad Yunus, won the Nobel peace prize. The industry’s champions developed a grand ambition. Letting the poor borrow and invest, they argued, would unleash their inner entrepreneur and allow them to earn their way out of poverty. … Today the lending portfolios of Micro-Finance Institutions (MFIS) are worth a combined US$124 billion. But the industry is in trouble. Covid-19 is straining its finances. Repayments, usually done in cash and in person, have plummeted, yet the banks and investors which provide the MFIS with funds still expect money.

A crunch looms. … From insurance to leasing, a lengthening suite of services has turned microcredit into micro-finance, adding new players to the fray. A mishmash of regulators have struggled to keep up. Patchy regulation and lots of loopholes have become a serious problem as the industry’s high repayment rates—well above 90% on average - have lured for-profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. lenders, some of which demand land titles as collateral Collateral Transferable assets or a guarantee serving as security against the repayment of a loan, should the borrower default. , charge extortionate rates and use heavy-handed tactics to collect payments. From Congo to Kosovo, scandals have surfaced.” In this way, even that weekly magazine article acknowledges the global problems with micro-finance but places its faith on the industry’s recovery with shorter-term financial support to lenders and longer-term measures of regulation. The article on Cambodia in the same issue, describe the ballooning of micro-finance and its consequences: “Almost 2.2 million of Cambodia’s 10 million-odd adults have a microcredit loan outstanding, according to the Cambodian Micro-finance Association (CMA), an industry group. The average debt is US$3,320 - roughly twice the country’s annual GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
per person. Credit is growing by 40% a year. … Government surveys show that the proportion of people who are landless rose from 32% in 2009 to 51% in 2016. Among the many reasons given for selling land, one of the most common was to repay debts.” The article also discusses the response of the Cambodian Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx
to impose an interest rate cap of eighteen percent per year in 2017, and the opposition of the Cambodian micro-finance industry and the criticism of a World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

report of that interest rate cap.

 CREDIT ALTERNATIVES

While we may never pin down the cause for the tragic suicide of Mariarata, her friends call to address micro-finance should be a wake-up call for all those concerned about the social and economic future of so many marginalised communities around the country like the one in Urelu.

The Covid-19 disaster induced economic depression is going to hit the day-wage labouring people the most, and in their desperation they are bound to fall for loan sharks, both the formal variety of the micro-finance companies and the informal variety of money lenders. What is the solution and what is the alternative? As the Cambodian Central Bank has done, should and can a hard eighteen percent interest rate cap be imposed? Or should micro-finance be banned as Mariarata’s friends urge? The marginalised will require social welfare support as well as affordable credit, and alternatives are urgently needed. Banks have low interest credit schemes, but those rarely reach day-wage working people.

Self-help groups can work, but they depend on the initiatives and foresight of community leaders. In the North, there is the rich history of the co-operative movement, and they have to an extent stepped up to address the indebtedness crisis with micro-finance over the last two years, but as in Mariarata’s village there was no active Thrift and Credit Co-operative Society. The global financial establishment may for some time continue to place their bets on regulating micro-finance and promoting it as they did during the heyday of neoliberal globalisation. But as the global order itself faces a crisis, and questions about microfinance emerge from unexpected quarters, is it not time the Sri Lankan Government took action and supported alternatives such as the widespread co-operatives credit services that preceded the neoliberal era? But that we know, may well depend on the struggles of the people and how they organise themselves.




Source: Daily Mirror

Other articles in English by Ahilan Kadirgamar (8)

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