The role of micro finance companies offering loans to the poor has come under the lens even as a farmer, under pressure to repay his debt, committed suicide in Nizamabad district on Wednesday. In Guntur, a woman attempted to end her life, as she was upset over her humiliation by MFI (micro finance institution) agents. And in yet another case, two members of a self-help group were booked in Srikakalum over the suicide of a woman on Tuesday.
Private micro finance institutions' (MFIs) vision of "eradicating poverty" is far removed from reality, say finance experts. They say MFIs are no better than moneylenders, who lend to the poor at a higher rate of interest, or almost the same as a moneylender, and turn this into a profitable venture. Banks, which are meant to reach out to the rural poor but choose to fund MFIs instead, have only contributed to the debt crisis the poor are facing in Andhra.
The controversy sparked by suicides and harassment of the rural poor by micro finance institutions has the Self-Employed Women's Association (Sewa) founder and Ramon Magsaysay award winner Ela Bhatt worried. But some of the steps being proposed by CM K Rosaiah to check the MFIs like limiting the interest rates charged by the MFIs to 8% and make as non-bailable offences the employment of coercion and unethical practices to recover loans from the rural poor appear to be far from reality.
"The MFIs are charging an interest rate of up to 50% at present. And they themselves are taking loans from banks at more than 11.5%. How can the state persuade RBI to ensure that MFI interest rates for loans be restricted to 8%? Secondly, the unlawful practices resorted to by the MFIs can be dealt with by the existing sections of IPC. The government should work out effective steps instead of making such populist assertions," said a micro finance expert.
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