Committee for the Abolition of Illegitimate Debt

Dear colleagues and friends,

I am pleased to have the opportunity to share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. this message on the occasion of 8^th South Asian CADTM Regional Meeting. The topics discussed during this meeting are indeed important ones and while sometimes simply perceived as financial or economic matters, we know that debts are rather part of a complex dynamic, with human rights at its core.

I conducted a visit to Sri Lanka in September 2018. One of the objectives of this visit was to study the integration of human rights standards into the financial sector, with special emphasis on microfinance. I observed that, while the microfinance scheme had the objective of lifting people out of poverty by enabling them to sustain their livelihoods, it was many times far from serving this purpose in reality. In fact, my report highlights that women borrowers from (but not limited to) conflict-related areas have been affected in extreme ways, many becoming victims of reckless lending, over-indebtedness and outrageous exploitation, greed and abuses from a number of lenders.

While some women seek loans to build a business, many of them do not succeed in their projects – which is not surprising, given the lack of an enabling environment for micro and small enterprises (such as extremely high interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. ), coupled with very modest economic growth. Others seek loans to cover the basic consumption needs for their families or borrow to pay off previous loans. It is common to see women owing multiple loans to different lenders at the same time. The seriousness of the situation highlights the importance of taking urgent governmental action regarding all types of lenders, regardless of whether they are officially registered as such.

After this mission I decided to devote a whole thematic report to the issue of private debt and human rights. This report actually aims to assist in understanding – and also to unravel, denounce and offer recommendations to tackle – human rights violations in the context of private debt, focusing specifically on individual and household debt offered by a range of lending actors, whether operating in formal or informal settings. Now that the report to the Human Rights Council has just came out, I would like to share with you some of its main findings, arguments and recommendations.

Individual and household debt accounts for a significant portion of private debt in most countries, and may be the result of a series of economic measures, such as privatization or austerity measures, or labour market flexibilization, which drive down the wages of unskilled workers and fuel inequality.

Studying the negative human rights implications of a wide range of private debt typologies and more specifically, microcredit, health, education and housing-related debts, abusive collection practices, including the criminalization of debtors, consumers and migration-related debts, and debt bondage, the report also focuses on the root causes of private indebtedness over the world. In particular, I have observed that there are actually two drivers of the rising private indebtedness.

On the one hand, there is the flourishing supply side of finance, with deregulation and increasing financialization being its facilitating instruments; and on the other, the reconfiguration of many human needs for social reproduction that become unmet financial needs paralleled by a colossal failure of the State to ensure economic, social and cultural rights for all.

While the rising of private indebtedness can at the same time be considered the symptom of wider human rights issues, population resorting to debt to access food, housing or education, States failing to abide by its human rights obligations, human rights violations can also result from the lending activity itself. In this regard, my report sheds light on a number of concerning practices from a human rights perspective. These include reported “hospital detention” for non-payment of medical bills or arrest or detention for informal borrowing and lending for the purpose of petty trading Market activities
trading Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit. , for instance. In addition, abusive lending and collection practices of all sorts have been putting individuals in very difficult situation, exposing them to a series of potential human rights violations.

Furthermore, the financial industry technology, which increasingly and aggressively facilitates credit through digital means, including mobile application, leading to overborrowing, constitutes a highly unregulated sector. In this context, policies and entities aiming at protecting consumers’ rights and providing “financial literacy” are seen as playing a key role in mitigating the potential impact on human rights of over indebtedness and abusive lending practices. One can wonder about the actual usefulness of financial literacy for those who can, sometimes, only rely on debt to fulfil basic needs and access to food, education or housing for instance.

In summary, the report establishes that private debt can both be a cause and a consequence of human rights violation. In this context, it concludes that private lending should not be promoted or pushed as a way to compensate for the State’s obligations to protect, promote and fulfil human rights.

In addition, personal or household financial and other costs associated with the repayment of debt should be at such a level that the attainment and satisfaction of human rights are not threatened nor compromised. Contracting and repaying debt or defaulting on repayment should not entail human rights violations.

The report stresses that increasing financial inclusion does not automatically result in real life improvements, more enjoyment of human rights, more sustainable development or less inequality if not part of a greater initiative, promoting progressive structural reforms. It is obvious that a number of States (and international financial institutions) support debt-financed spending at the expense of the provision of public goods and services. It is not surprising that microfinance, for instance, being the global flagship of financial inclusion to alleviate poverty, has been widely promoted by powerful global financial stakeholders which, in turn, are not very enthusiastic about engaging in more structural discussions on progressive taxation, tax fraud, care economy or other forms of enhancing State revenues and regulation to improve social welfare programmes and ensure access to a number of essential services.

The report formulates a number of recommendations including:

• To regulate and monitor all lending activities, formal and informal, ensuring that contractual terms, in particular 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. rates and other non-interest charges, supporting or enabling technology for banking and financial services and the means to collect debts do not violate borrowers’ human rights;
• To ensure that legislation prohibits the enforcement of debts where there is evidence of misrepresentation, fraud, mis-selling, coercion, unfair terms, harassment or other abusive practices by lenders or debt collection agencies;
• To prohibit the criminalization of debtors, ensuring, for example, that their political rights cannot be any way limited because of their debt status.

Thank you very much and I wish you all a fruitful discussion.

Juan Pablo Bohoslavsky
12 February 2020

See the report at:
 Financial institutions complicit in impact of austerity measures on human rights, says UN expert