Indian micro-credit crisis puts poor women in a bind

Budhavaripeta, India — Husaina Abdul Nabi turned to micro-credit companies in the past six years to buy a noodle-making machine, pay her disabled husband’s health bills and send her children to school.

But a crisis in India’s private micro-credit industry — fueled by a spate of suicides blamed on abusive lending practices here in the southern state of Andhra Pradesh and a subsequent legal clampdown — is driving women like her back to traditional village moneylenders.

(Rama Lakshmi/WASHINGTON POST) - NAGALUTI , INDIA:   Lakshmidevi Narayana, 50, runs her own grocery shop which she bought with microcredit a few years ago, in Nagaluti, India.

“There have been no new loans for the last six months. Women are getting desperate now and have no other option,” said Nabi, 40, who runs a business in this hamlet making Indian-style noodles to support her family of six. The moneylender made Nabi pledge her family jewelry and charges her 120 percent interest on the loan.

“The moneylenders are back in demand now,” she said. “They are drinking our blood.”

Analysts say they worry that the prevailing climate of distrust, default and desperation in Andhra Pradesh, which has the highest number of micro-lending businesses in India, may have reversed a decade of work toward the goal of financial inclusion for poor women.

Inspired by Grameen Bank, the Bangladeshi Nobel Peace Prize-winning institution that launched the micro-credit revolution, millions of poor Indian women have organized themselves into groups since the mid-1990s to qualify for small, uncollateralized business loans. India’s formal banking system, with just 30 percent of its branches in rural areas, has long been inadequate to meet the credit needs of most rural households.

In the past few years, scores of for-profit companies have sprung up across rural Andhra Pradesh, handing out small, easily obtained loans. The industry grew at a rate of 70 percent annually, but loan recovery practices were often coercive. The state government attributes at least 93 suicides to abuses and has imposed a strict law that observers say has brought the industry to a halt.

“If there are a few road accidents in the night, you don’t ban all nighttime traffic,” said Vijay Mahajan, the president of the Microfinance Institutions Network and the head of Basix, one of the oldest micro-lending companies. “There is no doubt that there was widespread wrongdoing by three or four companies, but the new law is draconian.”

The political backlash against the companies has also triggered widespread willful default by women across Andhra Pradesh, where about $1.5 billion in unpaid loans has accumulated.

“When the loan recovery officers come to the village, we chase them away,” said Ramanamma Annayya, 35, of Nagaluti village, who runs a granite mine and wears a man’s shirt over her floral-printed sari. She has four unpaid loans. A woman in her village killed herself in September by drinking pesticide after micro-credit companies harassed her when she defaulted.

“Now we want the government to write off all these loans given by the private companies,” Annayya said.

That trend worries many who built the movement.

“It took us so many years to demonstrate that poor women are creditworthy too,” said Vijay Bharati, a woman who developed women’s self-help groups in 27 villages. “But the women who were so regular in repaying for the last 15 years are now waiting for a waiver of their loans. This is damaging our movement.”