After farmer suicides, Vidarbha heading towards micro-credit disaster
Agricultural experts predict that farmers and small businessmen in Vidarbha will soon run into a vicious debt trap, as spurious micro-finance institutions (MFIs) spring-up in the region. These institutions target needy farmers, who have no choice but to take loans despite high interest rates.
Anna Banks, as these quick lenders have been nicknamed in Vidarbha, originated in neighbouring Andhra Pradesh - 'Anna' is the colloquial term for a south Indian man in some parts of the deccan. Yavatmal, the farm suicide capital of the country, has been an easy gateway for micro-finance institutions (MFIs) that already have a strong presence in Andhra Pradesh. Farm experts are wary that Vidarbha, which has only just seen a decline in farmer suicides, may soon see not only peasants but also petty traders once again running into a debt trap due to the proliferation of MFIs, which they say have supplanted the local, usurious private moneylender.
Maharashtra ranks fourth in terms of loans granted by MFIs in the country, trailing Andhra Pradesh, Karnataka, and Tamil Nadu, where the loans given stand at Rs 5, 235 crore, Rs 2, 557 crore, and Rs 2, 387 crore respectively. The tally in Maharashtra stands at Rs 967 crore, with 30 MFIs operating in this state according to data posted at the website of Sa-Dhan's, a federation of MFIs. Sources say a chunk of the business comes from Vidarbha and Marathwada regions, which share borders with Andhra Pradesh.
Though MFIs have had a presence in Vidarbha for some time now, the year 2007 - when the mega farm debt waiver was announced - provided a major business opportunity for these institutions to spread their base in this region, which was scarred by farmer suicides. Even as huge amounts of farm loans were waived away, making even defaulters eligible for credit, it took time for the banks to offer fresh loans. In the meantime, the cost of cultivation had gone up and there was a high demand for credit, which was quickly provided by these Anna Banks.
Activists say it did not take time for them to mushroom in Yavatmal because certain parts of the region are so close to Andhra Pradesh that MFI agents operating there had already established an informal rapport with locals here. Farmers got services at their doorstep and agents even set up shops on roads - money was instantly available after just a basic verification of credentials. These MFIs quickly replaced local private moneylenders who were perceived to be harsh and often grabbed the defaulters' land. But the interest MFIs charge is steep - as high as 32 per cent for a year and a half.
"You want money for tilling land or buying a fancy motorbike - Anna Banks are always there to help. However, they are prompt in recovering the amount too, with tough-looking agents knocking on your doors on due dates. The first installment is deducted when the loan is disbursed and the borrower ends up paying almost 1. 5 to 2 times of the loan amount for a tenure of just a little more than a year, " says Kishore Tiwari, a farm activist running Vidarbha Jan Andolan Samiti at the Pandharkavda tehsil of Yavatmal.
Self Help Groups (SHG) became easy poaching targets for the MFIs. Public sector banks had already helped the setting up of a large number of SHGs in this region, with the highest concentration in Pandharkavda. The campaign began in 2003-4 as a move to counter moneylenders, but ended up being exploited by the MFIs. The lists of SHGs were easily sourced and their members were co-opted as clients of the MFIs", says Tiwari.
Farm activist Vijay Jawandhiya, based in Wardha, says the MFIs have reached up to his district too. "They charge interest rates in the range of 27 per cent to 30 per cent, on loans in the range of Rs 10, 000 to 20, 000. Apart from farmers, petty businessmen in the villages have been given loans, " he reveals. Jawandhiya says this can fast lead the farmers into a debt trap if not checked in time. He suggests that the local money-lending business should be legalised by capping the interest at 18 per cent and anyone who has surplus money should be allowed to lend in villages.
G Ramachandran of BASIX, a Hyderabad-based MFI, says that they charge up to 24 per cent interest, but operate on a thin margin of 2 per cent. The cost of funds is pegged at around 12 per cent and operating costs at 10 per cent. This, he says, hardly leaves any scope for a reduction in rates, which have already been cut by 400 basis points in April this year. Lately, the firm is also trying to come up with value-added services by providing market linkage to the cotton-growers of Vidarbha. Under this, the MFI will scout for buyers on behalf of the farmers. There are pension and insurance schemes offered through the MFI as well.
Ironically, the Reserve Bank of India, which has a full-fledged office at Nagpur, does not have figures on bank credit available for farmers. Despite the bank being involved in farm-crisis mitigation measures, the rural planning and credit department of the apex bank said it does not maintain any such data. "It is not our mandate to provide such information on a regional basis as it could lead to skewed perceptions,” said a senior official here.