Caught in a debt trap

By Arthur Wamanan
Anandhi (name changed) and Dilhani are two women living in two different parts of the country. The former resides in the interiors of Kilinochchi while the latter is from Dingiriya, Chilaw, a few hundred kilometres south from Anandhi. They do not know each other or of their existence. But, both are victims of a common scheme that have placed both in helpless situations.

They are in debt and are struggling to pay off their loans obtained from microfinance institutions. Both obtained loans with good intentions and with greater hopes. But both have fallen victims to circumstances beyond their control and are compelled to struggle to pay off their loans.

Since of late, issues connected to microfinance institutions have come to light, especially in the North and East, after several suicides were reported owing to the constraints faced by the borrowers. The problems for both are the same. But the situations they are in are different to each other.

In the North

Microfinance institutions gained popularity in the Vanni in the aftermath of the war. These institutions capitalized the situation of the people who were all affected by the war and had to rebuild their lives from scratch. The issues pertaining to microfinance and loans came into being after many who had borrowed from such institutions had failed to repay their instalments.
Anandhi is a housewife with three children. Her husband was injured during the final stages of the war.

Her family has been involved in business activities even before the terminal stages of the war had begun. The business which flourished before started to lose momentum. Anandhi was forced to borrow money to develop and sustain the business. She started borrowing money from anyone she could in order to sustain the business.
By now, she has borrowed money from at least nine lenders and does not have the income needed to pay off the instalments.

In the South

Dilhani on the other hand had obtained a loan along with five others to help out another villager. She is now in a fix as the person for whom she had borrowed the money has fled the area. “There are 18 people who had helped this individual. The individual has fled with the money and we are left helpless,” she said.

“Now the finance agents are behind us to repay the money. These agents usually give the money without conducting a background check and the financial ability of the borrowers to repay the money,” she explained.  Even though the seriousness of the problems are almost the same in both instances, the problems in the Vanni is more devastating simply because these victims are those who lost everything due to the war. They hoped that their lives would be better with the money borrowed. But, now they have ended up fighting for their lives.

Victimized

Anandhi is just one individual out of hundreds who had obtained loans from institutions for their living. “Many of the victims of microfinance institutions are women. The agents of these institutions target the women and make them obtain loans,” said Wijeratnam Thavasri, a key member of the Consortium of Non-Governmental Organizations in Kilinochchi, which looks into issues faced by women. Thavasri, who is also a member of the women’s network in Kilinochchi pointed out that this had caused a lot of social issues in the region. “What happens is that the borrowers are unable to pay their instalments and are compelled to borrow additional loans to repay their original loans. In the end, they are burdened by the multiple loans and the interests which skyrocket several fold when they fail to settle one instalment,” she said.

Thavasri also mentioned that many of them were not aware of the content of the contract documents as they were not clearly explained to them when money was given. “The borrowers need to be educated on the content so that they would not fall into problems,” she said.

Domestic and social problems

Thavasri pointed out that many of these victims were rendered helpless as some of them were breadwinners of their families while others had obtained loans without the knowledge of their husbands and family members. “There have been instances where husbands have left their wives and families as the loans were obtained without their knowledge. In some cases, the families have relocated to other places to avoid public embarrassment,” she added. The other aspect Thavasri pointed out was that the women were often humiliated in public. “The borrowers often dread the presence of the agents. There are those who come at odd times and stay at their homes for a long time and publicly humiliate them. They do not even think about the children who watch while their parents are scolded in public. Some have contemplated committing suicide due to the embarrassment,” she said.

Speaking on the issue, Executive Director, Centre for Women Development, an organization based in the North which looks into the welfare of women, Saroja Sivachandran pointed out that the culture of borrowing money has increased in the war affected areas after the war due to the financial constraints faced by the people who had lost livelihood and property.

She said that the Centre would be conducting a survey this month in the North, especially in Kilinochchi and Mullaitivu Districts to collect information on families affected by debt. “Many of these women are from the interior villages of the war affected areas and do not have a steady income. That is why they are vulnerable,” she said.

Call for assistance

Government officials in both Kilinochchi and Mullaitivu have taken certain steps to address the issue and assist those who cannot repay their loans.
Both District Secretariats have made arrangements to obtain the details of those who had obtained loans and are unable to repay them. Speaking to Ceylon Today, Government Agent of the Mullaitivu District, Roopavathi Ketheeswaran said that they had allocated a certain percentage of funds from the budget to assist those who seek small loans for their livelihoods.

“We are in the process of collecting information pertaining to those who need money. We will not be able to provide big amounts. But we can help with small loans depending on their needs. We have a certain amount of money allocated to help them from the budget allocated to us by the Treasury,” Ketheeswaran pointed out.

Awareness campaign

Ketheeswaran also pointed out that there was a need to conduct awareness. “We hope to conduct awareness campaigns in parallel with the assistance programme. We have to educate the people on the risks pertaining to microfinance companies. They also need to know that multiple borrowings without a stable income would destroy their families in every sense. We will start this programme in the coming weeks,” she said.

Finance Ministry
steps in

The Government, while acknowledging the issues faced by the borrowers from microfinance institutions, has also pointed out that the lack of regulatory measures to govern these institutions has also aggravated the situation islandwide.  A spokesperson for the Ministry of Finance and Mass Media said there was a move by the Finance Ministry to control and regulate microfinance institutions islandwide.
Accordingly, the government would bear the cost needed to pay the interests of loans of less than Rs 150,000.