Agony of small-time borrowers
View(s):
These issues, which have confronted society and governments for many decades, came to the fore again this week when they were raised in Parliament by opposition legislator Gajendrakumar Ponnambalam who focused on the plight of people in the north being hunted down, threatened by money-lenders and losing their properties and assets as they are unable to pay back loans. In the same week, Central Bank Governor Prof. W.D. Lakshman, addressing a meeting in Jaffna, referred to similar issues of how unscrupulous debt collectors were hounding borrowers in the north and other parts of the country.
According to some reports, at least 150 people have committed suicide due to threats by lenders and their inability to pay back small loans, while there are at least 10,000 such unregulated financial entities.
I was about to sit at the computer and write about unregulated financial institutions when my trend of thought was distracted by the sounds of laughter near the margosa tree where the trio had gathered for their regular weekly ‘gossip’ session.
“Than Sri Lankawe harak marana eka navaththanna yanawa (Now they are banning cattle slaughter in Sri Lanka),” said Kussi Amma Sera. “Neethi kriyathmaka karanne nethuwa, harak mas kana eka adu karanna, minisunwa denuwath karanam wada hondai (Rather than enforcing laws to reduce beef consumption, it should be done through awareness),” noted Serapina. “Maalu saha kukulo marana ekath navathvaida danne ne (They may also ban the killing of fish and chicken)” said Mabel Rasthiyadu, adding: “Mokak-hari mas/maalu vargayak, ape kema wala avashyai (We need some type of meat in our meals).”
While imported beef would be permitted, when you look at Sri Lanka’s consumption pattern, it is fish and chicken that account for most of the proteins eaten in Sri Lanka, followed by beef.
In front of my computer, I was also having my breakfast of hoppers and fish curry this Thursday morning, when the phone rang. It was ‘DOSAI’ Danny, my verti-clad friend from Trincomalee. “How are you my friend,” I greeted him with enthusiasm. “Fine, fine….we haven’t spoken to each other for a long time,” he said. “Yes, yes, what can I do for you,” I asked.
“Well I have been reading about finance companies and micro-finance companies and many people in Trincomalee are also facing numerous problems from these companies as they are unable to pay back their loans. On one side, depositors are finding it difficult to recover their money while in the case of borrowers, they are unable to pay back loans and are subjected to all kinds of threats by the lenders,” he said, sounding worried.
“Have you also invested in one of these companies?” I asked. “Yes, I have and it’s hard-earned money, hoping to get interest that would be higher than what you get from banks or registered finance companies. I was foolish enough to be dazzled by high interest rates,” he said.
I told him that he should have been more careful and after discussing other issues in the country like the advent of a new government etc, we ended the conversation.
After hemming and hawing for many years, the Central Bank finally established the Microfinance Act in 2016 to better regulate micro-finance companies. However, up to date only four companies have been registered under the Central Bank as at March 30, 2020. They are Berendina Micro Investments Company Ltd (Colombo); Lak Jaya Micro Finance Ltd (Pannipitiya); Dumbara Micro Credit Ltd (Mirigama); and Sejaya Micro Credit Ltd (Nugegoda). There are thousands more that are yet to seek registration and out of the purview and control of the Central Bank.
In a mid-2019 study by the Centre for Poverty Analysis (CEPA) on micro-finance practices and their impact on women, it was stated that while micro-credit lending is not a new concept to Sri Lanka, questions have been raised regarding the demerits of such lending, not only on the financial burden placed on women, but also as a social issue with major repercussions. In the public domain, these concerns have been raised specifically in relation to the proliferation of micro-finance institutes in the former war-affected North and East. Since the end of the war, CEPA’s own research has consistently highlighted rising debt and its impact on female borrowers and their households.
“Microcredit helps women establish a microenterprise, of which the income is expected to meet the consumption, education and health needs of their family members, especially the children. But these fundamental principles are eroding in the face of high competition among the lenders to reach the same pool of borrowers,” CEPA said, adding: “Officials from lending institutions act as powerful enforcers, despite being outsiders to the local community. Subtle and overt threats in the form of verbal abuse and refusal to leave the residence of female borrowers were common strategies adopted to compel women to repay their loans. These practices, therefore, coalesce in pushing women into multiple borrowings in order to stay ahead of the creditors.” The debt burden then increases by multiple borrowings to pay back loans, similar to what governments in Sri Lanka do, borrow to pay back foreign loans.
Despite these associated problems, CEPA said that women continue to borrow from private institutions largely because of the challenges encountered in accessing the state-run banking system which is their first preference.
The problems faced by depositors of registered and unregistered finance companies like The Finance Co or Golden Key for example are legendary and chronicled on many occasions in these columns and the Business Times. Amidst all these concerns by depositors, there is some good news.
The Regional Development Bank (RDB), a state-owned licensed specialised bank, is now being transformed into a fully-fledged micro-financial institution to assist the rural poor and alleviate poverty, according to a report elsewhere in today’s Business Times. It says the RDB will concentrate on micro-finance with the aim of rescuing the rural poor being caught up in a debt trap and abject poverty.
At that moment, as I was winding up my column, Kussi Amma Sera brought in my second mug of tea (very rarely do we drink tea in a cup, unless guests are around), saying: “Ada wahinna yanne (It’s going to rain today).” I replied with a nod, reflecting on the first few weeks of the government which have resulted in many changes and developments like the proposed 20th amendment to the Constitution which will restore sweeping powers to the President.