“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.”
The movement’s success is visible in villages such as Oravakallu, where women have used credit not only to alter their lives but also to shape the community’s future, building a new school where children will be taught English.
“When money started coming into our hands, we became fearless,” said Ramakka Lakshmana, 60, who is illiterate and owns a small mango orchard.
Meanwhile, micro-credit companies are also trying to reinvent themselves. Delegates met at a New Delhi conference recently and vowed to set up a complaint-handling system, treat borrowers with dignity and not choose profits over the women’s prosperity.
“When you are dealing with poor, illiterate or semiliterate borrowers, you have to do away with the goal of achieving 100 percent loan-recovery rate,” said R. Prabha, an adviser to Sa-Dhan, a micro-finance company that evolved a code of conduct for the industry. “You have to have a policy to deal with genuine and willful default.”
A few companies have begun looking at different business models — such as giving loans against women’s gold jewelry — in an effort to survive in the state.
Next month, India’s federal reserve bank is expected to announce new national regulatory guidelines for micro-credit firms. But the Andhra Pradesh state law is unlikely to change, say officials.
Under the new state law, firms must submit to a maze of bureaucratic scrutiny before they can give out a fresh loan.
“It was a free-for-all earlier,” said Aviligonda Govindappa, a rural development official in Kurnool district. “We need to ensure that village women’s need for credit is not exploited.” The state government has said it will also soon set up its own finance institution for small loans.
State law now prohibits loan recovery officers from visiting a woman’s home, stipulating that debts can be collected only in the presence of other women.
“When I go to ask for loan repayments, I sit in the village school or the council building and wait for the women to turn up,” said Pamula Pedanna, a manager with the micro-credit company Spandana Sphoorty. “Earlier, they would wait for me on the assigned date with money in their hands. Nowadays, they don’t come even after I send word.”