Jump to content
House Price Crash Forum
Sign in to follow this  
Dave Spart

India's Micro-Finance Suicide Epidemic

Recommended Posts

Related to house prices, perhaps not, but a salutory lesson in the social cost of credit booms nonetheless.

http://www.bbc.co.uk/news/world-south-asia-11997571

India's micro-finance suicide epidemic

By Soutik Biswas

BBC News, Medak, Andhra Pradesh

In his grotty, two-room brick home, all that remains of Ketadi Ramchandra Moorthy is a laminated colour photograph sitting on the cold cement floor.

Two months ago, the 40-year-old carpenter dropped dead after a heart attack at a bus station in Hyderabad, some 70km (43 miles) away from his rural home in the south-east Indian state of Andhra Pradesh. He had travelled to the city to beg friends for cash to pay loans he had taken over the course of a year from private micro-credit firms. A broken man, he had been heading back empty-handed to Gajwel village in Medak district. A government report said Mr Moorthy had suffered a heart attack "due to pressure put by the micro-finance institutions for repayment". "He was so stressed out that he just collapsed and died," says his wife, K Karuna, 36. More than a third of the 30 million households that have taken micro-credit in India live in Andhra Pradesh. The majority of the borrowers are women.

Borrowers' revolt

But the small loan has turned out to be a big curse for many in the state. More than 80 people have taken their own lives in the last few months after defaulting on micro-loans, according to the government. This has triggered the worst ever crisis in India's booming micro-finance industry. Scenting votes, opposition politicians have encouraged borrowers to halt repayments - micro-finance companies have given out 80 million rupees ($2bn; £1.3bn) of loans in Andhra Pradesh. Banks, in turn, have stopped lending to micro-finance companies and fear they may not recover some $4bn in loans.

"Multiple lending, over-indebtedness, coercive recovery practices and unseemly enrichment by promoters and senior executives [of micro-credit companies] has led to this situation," says Vijay Mahajan, chairman of India's Microfinance Institutions Network. India's micro-finance crisis mirrors the 2008 subprime mortgage meltdown in the US, where finance companies threw cheap and easy loans at homebuyers until prices crashed and borrowers were unable to sell their homes or pay their debts. But the difference in India is that the borrowers are even poorer, with zero social security. Mr Moorthy's story is a tragic example of how micro-loans - annual interest rates vary from 24-30%, compared with the 36%-120% charged by usurious money lenders - can lead impoverished, ill-educated people to ruin. This defeats the supposed purpose of micro-credit, with all its talk about improving the lives of the poor. In 2002, Mr Moorthy took a loan worth $350 from a micro-credit company to build his $2,210 home. Half of the money came via an interest-free loan his wife - who rolls tobacco leaves for a living - took from her employers. A moneylender chipped in another loan worth $440 that is yet to be repaid.

Ultimate price

In May 2008, micro-credit salesmen descended in droves on Mr Moorthy's village and he took a second loan worth $330 to pay off small debts to his neighbours. This second loan, the family say, was paid off within a year. Undeterred by the debt trap he was falling into, and persuaded by aggressive micro-credit agents, Mr Moorthy borrowed $660 in three loans from as many companies. These were to pay for the education of his three children, including a college-going son, and, again, to repay previous debt. When he died in October, he had been defaulting on the latter three loans for up to 20 weeks. Mr Moorthy's annual earnings, say his family, usually never exceeded $110. "Loans have been given to rural people without checking whether they had the capacity to repay," says Reddy Subrahmanyam, the state's most senior rural development official. The government estimates families that have taken micro-loans in Andhra Pradesh have an average debt of $660, and an average annual income of $1,060. This means more than 60% of their fragile, uncertain income is being spent paying off loans. Two months after his death, Mr Moorthy's family struggles to survive, pawning jewellery and depending on the generosity of caring neighbours and vote-seeking politicians. The eldest son, K Ramanachari has had to give up the college education that cost his father so much. The 19-year-old has found a job ferrying tobacco leaves on baskets once a week, earning about 100 rupees ($2.2) for a day's work. Mrs Karuna rolls tobacco leaves during the day and then, if she is lucky, finds farmwork in the evenings. All this fetches her less than $3 on a good day. She pawned her silver and gold jewellery, worth nearly $200, to keep a roof over her children's heads and send them to school.

Appendicitis to suicide

Two leading politicians, including the state's main opposition leader Chandrababu Naidu, have lent her $1,100, which she plans to deposit in a bank.

"Big or small, loans kill. I will never take up another loan," says Mrs Karuna. Sometimes a loan taken to save a life can end up taking a life in the debt-stricken villages of Andhra Pradesh. Mylaram Kallava, 45, hanged herself from the ceiling of her mud hut in the neighbouring village of Ghanapur after she defaulted on four micro-loans amounting to $840. The loans were taken to pay for medical treatment for her 17-year-old daughter's appendicitis and her eldest daughter's pregnancy, which ended in a miscarriage. The nearest government hospitals were more than 70km (45 miles) away, forcing Mrs Kallava to seek private treatment which was well beyond her means. The three loans were taken in July last year - Mrs Kallava was in default for just two months when she killed herself. It did not help that her grave-digger husband, Narsimhulu, 55, was in poor health and found work only now and then. The federal jobs-for-work programme in the village stopped in August, leading to an acute shortage of employment in the area, locals say. "I could feel that my mother's tension was building up when she began defaulting," says her daughter, Sangeeta. "She was unable to get work. "Her co-guarantors in the group came to the house and asked her to explain. I think she felt ashamed." For seven days before she took her life one weekday evening, Mrs Kallava had been unable to find any work. The micro-loan recovery agents were due to come knocking by the end of that week.

She did not wait for them.

This is the first in a two-part series by Soutik Biswas on the micro-credit industry in India.

There's never been a better time to bye.

Share this post


Link to post
Share on other sites

Related to house prices, perhaps not, but a salutory lesson in the social cost of credit booms nonetheless.

http://www.bbc.co.uk/news/world-south-asia-11997571

There's never been a better time to bye.

I wonder why people would choose to hang themselves rather than deal with the nice friendly loan collectors from the micro-lending industry? What could be so stressful about a nice chat over a cup of tea that it would cause someone to have a heart attack?

And here was I thinking the microloan industry was so everyone in India could buy a sewing machine, so in time they too could become sweatshop overlords, when in actual fact it appears that micro loans are being used like credit everywhere else - to prop up the borrowers flash lifestyle...you know, for things like education, food and medical care. Speaking of medical care, does no one give a thought for the poor grave-digger mentioned int he article who only gets occasional work these days - a travesty which can be entirely laid at the door of the World Health Organisation and "do gooder" charities.

Good grief. Isn't it wonderful how the most noble of ideas can be corrupted by bankers?!

(On a slightly more serious note, the article confirms what I've always suspected: there must be plenty of unhappy stories pertaining to micro-credit especially as the credit collection arm of the enterprise is probably rather nasrty. I suspect the only difference between these micro credit organisations and usurers is the interest rate.)

Share this post


Link to post
Share on other sites

We've been here before in history, will the people of the nations ban usury and banish the moneylenders?

It is in Islam and was in Christianity for 700 years.

In case you didn't know the people who thought up this idea of micro-lending were awarded the Nobel Prize.

http://www.google.com.sg/search?hl=en&&sa=X&ei=yhMLTbm-NonxrQezp4jnCw&ved=0CBsQBSgA&q=nobel+prize+microlending&spell=1

Usury cloaked itself in a veil of respectability. <_<

Merry Christless.

Edited by Dave Spart

Share this post


Link to post
Share on other sites

http://www.nytimes.com/2010/11/18/world/asia/18micro.html?_r=1

The crisis has been building for weeks, but has now reached a critical stage. Indian banks, which put up about 80 percent of the money that the companies lent to poor consumers, are increasingly worried that after surviving the global financial crisis mostly unscathed, they could now face serious losses. Indian banks have about $4 billion tied up in the industry, banking officials say.

“We are extremely worried about our exposure to the microfinance sector,” said Sunand K. Mitra, a senior executive at Axis Bank, speaking Tuesday on a panel at the India Economic Summit.

The region’s crisis is likely to reverberate around the globe. Initially the work of nonprofit groups, the tiny loans to the poor known as microcredit once seemed a promising path out of poverty for millions. In recent years, foundations, venture capitalists and the World Bank have used India as a petri dish for similar for-profit “social enterprises” that seek to make money while filling a social need. Like-minded industries have sprung up in Africa, Latin America and other parts of Asia.

But microfinance in pursuit of profits has led some microcredit companies around the world to extend loans to poor villagers at exorbitant interest rates and without enough regard for their ability to repay. Some companies have more than doubled their revenues annually.

Nice to see the poor of the world being exploited at every opportunity.

Share this post


Link to post
Share on other sites
No more Mr. Nice Guy: Indian bankers suit up for war on debt defaulters

By Swati Pandey

MUMBAI | Sun Jun 2, 2013

State Bank of India (SBI) (SBI.NS), Bank of India Ltd (BOI.NS) and Bank of Baroda (BOB.NS) are also preparing to name and shame corporate borrowers which are not paying them back, bank executives told Reuters.

This aggressive tactic for dealing with bad debt marks a major departure from the traditional laid-back approach of Indian state lenders.

Weighed down by stressed loans of nearly $150 billion - equivalent to more than 10 percent of bank assets in the country - and against a backdrop of the slowest economic growth in a decade, Indian banks are bringing an unprecedented intensity to their recovery efforts.

more http://www.reuters.com/article/2013/06/02/us-india-banks-debt-idUSBRE9510EM20130602

Share this post


Link to post
Share on other sites

The banks who made these loans should collapse if they can't continue and the debts written off. It's the only way to change this behaviour.

People should rise up and default.

Share this post


Link to post
Share on other sites

The banks who made these loans should collapse if they can't continue and the debts written off. It's the only way to change this behaviour.

People should rise up and default.

Its a Zombie revolt.

Debt is a curse. It means you owe someone...Man to Man, there is shame in not paying back for 90% of the population.

However, Man to machine.....there can be no shame, any more than you feel bad about taking your old banger down the scrap yard.

Banks lend you bits of paper, paper with promises of more paper...there is no shame in default, likewise, the bank will feel no shame in throwing you on the Street when it doesnt get its paper back.

However, when debts you feel are owed you mount up and debtors feel no need to pay you, as agreed, causes you, wanting to keep your lifestyle intact, to start pressurising your debtors.

They in turn, probably equally relaxed with their debtors, start to feel the weight of the debt, so they too pressure their debtors, and this continues all down the food chain to the poor who used debt to make progress.

Money IS the root of all evil, from the secretly swearing Bank boss to the suicide in the bus stop.

And yet little more is produced, whether everyone is cursed with debt pressure, or not.

Financialisation gives people the illusion of success.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.