Microcredit Suicides in Andhra Pradesh
Cooperatives run by women are the way to protect marginalized Indian women from the worst aspects of the commercialization of microcredit, says SEWA leader Ela Bhatt and Indian development volunteer Vithal Rajan.
To the shock of many anti-poverty activists in India, this October in Andhra Pradesh (AP), more than 50 women borrowers committed suicide after being harassed by microfinance institutions (MFIs) when they couldn’t pay their loans on time.
This alarming tendency first surfaced four years ago, when about six AP women in default on loans, also ended their lives. The Andhra Pradesh government responded by closing down branches of four different microfinance institutions. See chapter 26 in my book. But a few months ago, some of the same institutions were accused of exploiting vulnerable tribal groups.
Commercialization of microcredit and the race for profits to the detriment of social mission is what is causing this catastrophe.
An article in the New York Times and other international papers pressed the panic button about abuses in the microfinance industry bent on growing at any cost.
Like the American banks that pushed poor Americans to take subprime mortgages they could not afford, some MFIs have been equally unethical. Consequently certain women found themselves with a burden of loans from more than one institution. When the women defaulted on payments, loan officers hounded them to the point that they ended their lives.
The Andhra Pradesh government has moved in to curb the worst practices. To control MFIs, the Reserve Bank of India, is working on some new comprehensive microcredit legislation.
Sustainability is the core problem. Microcredit cannot survive on donor money. Some profits are required. But the question is how much?
Recently I had a talk about this with Ela Bhatt, head of the Self-Employed Women’s Association (SEWA). She was in North America for meetings and to pick up a special award, and she took some time off to visit family in Hamilton.
Ela Bhatt launched SEWA in 1972 when she started to organize the most marginalized women of Ahmedabad in the state of Gujarat into occupational cooperatives.
Now there are 102 self-sustaining cooperatives run and funded by the grassroots women themselves. The women were also successful in launching their own cooperative bank that operates without grants and has succeeded in providing medical, accident, and disaster insurance along with pensions.
A committed Gandhian who has never lost sight of SEWA’s original social mission, she has in my view done the most in India to empower marginalized women to fight poverty largely through cooperatives that they themselves control.
More than one million women are now SEWA members, half of them in the state of Gujarat. I spent four months in 2008 meeting women that have launched collective enterprises that are propelling them into the mainstream market. See chapters 9 and 21-25 in my book.
In her view, the cooperative model provides the safest and most secure way for marginalized poor women to break out of poverty.
This must also include, she emphasizes, professional training, which SEWA provides through a managers school. Overarching poverty alleviation and community development goals should also help the women acquire assets such as housing, land and equipment in their own names, and a comprehensive package of financial services.
Vithal Rajan, who has been working as a development volunteer in Andhra Pradesh for more than 25 years, also believes the cooperative model is the only answer.
In a recent article in India’s Economic and Political weekly (download PDF document) he advocates extensive use by women in Andhra Pradesh of the Mutually Aided Cooperative and Thrift Act (MACT).
This way, he says, the “middlemen structure of the MFI” can be cut so that banks “deal directly with poor village women, creatively extending the concept of ‘banking correspondents’ to that of ‘barefoot bankers.’”
In Andhra Pradesh, the NGO Gram Abhyudaya Mandali, which has helped 45,000 women create cooperatives under the MACT act, is an good example of how women can be empowered through cooperatives.
Now 15,000 marginalized women owners of milk buffalo have launched their own full-fledged dairy with them as shareholders. See my Chapter 20. But Gram cooperatives also won a contract to run a sand contract that proved to be lucrative. See Chapter 19.
It would appear, however, that equity is becoming a permanent factor in the growth of MFIs. Several MFIs in India are planning Initial Public Offerings, for example.
Although she favours the cooperative model, Ela Bhatt believes that there has to be room for a variety of concurrent economic activity.
“We have to be careful that we don’t throw the baby out with the bathwater,” she said in a discussion about the microcredit crisis. “We can’t let the government take it over. That won’t work either.”
But to protect marginalized women from excessive profits and also to encourage keeping those profits within India, she advocates the creation of an equity fund by Indian government that could be used by MFIs for development purposes.
Read a discussion on the Indian situation by Mary Ellen Iskenderian CEO of Women’s World Banking.