Committee for the Abolition of Illegitimate Debt

“The mother was 28, her children were 4, 2 and 1. We are investigating the case. We suspect that their death is related to the pressure of having to repay a huge debt,” a police spokesman told The Hindu. The young woman’s husband committed suicide about a month ago, unable to settle loans, police said.

‘Acute problem’

“We are increasingly hearing about the acute problem of debt, especially from women’s groups. Banks and microfinance companies go to virtually every doorstep and thrust these loans upon naïve people who are struggling to make ends meet. And then, they harass families to repay them,” said N. Vethanayahan, the Government Agent of Jaffna.

After Sri Lanka’s civil war ended in 2009, many banks and microfinance companies opened branches in the war-hit north and east, giving out loans to families in dire need of money for basic sustenance in the absence of income sources. The 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. are as high as 70%, and force borrowers to take new loans to service their existing debt, according to officials. Not just in the north, but the island’s Eastern Province has also recorded cases of debt-ridden individuals trying to sell their kidneys and some even committing suicide, as their debt trap deepens.

Addressing the issue

Recognising the prevalence and seriousness of the problem, a high-level team from the Central Bank travelled to the north earlier this month for discussions with stakeholders to evolve responses to address it.

“Today’s incident shows us the magnitude of the issue. We have decided to intensify our awareness drive immediately. We cannot afford to lose another life because of loans,” Mr. Vethanayahan said, adding that the heavy burden of outstanding debt and the aggressive recollection strategy of companies is pushing people to the edge.

Observing that predatory debt is “contagious”, Jaffna-based political economist Ahilan Kadirgamar said: “What began as high 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. microfinance loans is now pushing people to even mortgage Mortgage A loan made against property collateral. There are two sorts of mortgages:
1) the most common form where the property that the loan is used to purchase is used as the collateral;
2) a broader use of property to guarantee any loan: it is sufficient that the borrower possesses and engages the property as collateral. their homes to money lenders. We need a holistic solution, including affordable rural credit and a cap on interest rates.”

Source: The Hindu

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