Tuesday, 21 December 2010

Debt Kills

Micro-Finance Becomes Big Business

Debt has been driving farmer suicides in India over many years, but now the southern Dravidian state of Andhra Pradesh - an area already notorious for so-called Naxalite insurgency - is in the spotlight over renewed misery, whose proximate cause this time is that great white hope of development luvvies; microfinance.

Years before Muhammad Yunus and the Grameen Bank received that, now increasingly politicised and jaded accolade of the Nobel Peace Prize, micro-finance, or the lending of small amounts of money to poor, often female recipients, for them to develop small businesses, was heralded as a saviour. It became very fashionable.

As ever though with such panaceas, they have simply provided more plausible and attractive clothing for common human rapacity.

The problem of rural indebtedness was already horrendous. P.Sainath wrote in Counterpunch that the decade to 2007 had seen over 180,000 Indian farmers driven to suicide:

"What do the farm suicides have in common? Those who have taken their lives were deep in debt – peasant households in debt doubled in the first decade of the neoliberal “economic reforms,” from 26 per cent of farm households to 48.6 per cent. We know that from National Sample Survey data. But in the worst states, the percentage of such households is far higher. For instance, 82 per cent of all farm households in Andhra Pradesh were in debt by 2001-02. Those who killed themselves were overwhelmingly cash crop farmers – growers of cotton, coffee, sugarcane, groundnut, pepper, vanilla. (Suicides are fewer among food crop farmers – that is, growers of rice, wheat, maize, pulses.) The brave new world philosophy mandated countless millions of Third World farmers forced to move from food crop cultivation to cash crop (the mantra of “export-led growth”). For millions of subsistence farmers in India, this meant much higher cultivation costs, far greater loans, much higher debt, and being locked into the volatility of global commodity prices. That’s a sector dominated by a handful of multinational corporations."

Small Debt Becomes Big Debt

“Is there a bubble being created? Are most microfinance institutions chasing the same customer? Are we pushing the customer — the poor woman — into a debt trap? Would this lead to suicides?" asked Dr MS Sriram in May this year.

The answer to all four questions is yes.

"As a pioneer in organising women’s SHGs, Andhra Pradesh provided an opportunity to MFIs to provide small loans to lakhs of rural women who are otherwise denied credit by banks. As MFIs expanded operations in the state, they targeted individual borrowers too. In recent years, many MFIs turned into for-profit organisations in a race to make a quick buck begun. MFIs are now under fire for charging exorbitant interest rates and using strong-arm tactics to collect interests." says the Indian Express, with an on the ground report of impoverished rural Indian women being first lured into debt and then terrorised.

What Milford Bateman calls "the distressing and entirely predictable situation in Andhra Pradesh", is that "today, AP is now second only to Bangladesh as the most microfinance ‘saturated’ place on earth, with a full 17% of the population in possession of a microloan account. That this represents a massive over-supply seems clear …"
"And there can be no doubt whatsoever what the real driving force behind the current crisis is: it is clearly, and overwhelmingly, a result of the largely ideologically-driven move to commercialise microfinance."

So can anything be rescued from this terrible situation? Some people keep hoping so ...

TitferTip: NEF and TaxResearch.

1 comment:

  1. If we trace this problem back to its root we will find something else. Where debt is a proximate but important cause.

    The primary cause will be higher rent for the use of land to which someone else has exclusive right. Landlords are living off the labour of the farmers. And this is what causes the problem, in the end.

    All farmers will be paying rent before they can start working.

    The better the farmers become, the more the landlord will be able to take in rent.

    All gains go to the landlord no matter how much the finance helps improve production. In the end. This is known as the law of rent.

    The loan will only be enough just to pay the rent. It will not be invested in capital goods to aid in greater production. Because rent will go up in proportion to the increased production. And wages will fall relatively.