MICRO-CREDIT Don’t throw the baby with the bath water

Nobel laureate Muhammad Yunus, the founder of Grameen Bank, which is generally considered the first modern microcredit institution. 

1 June 2019

Micro-credit has been a blessing to tens of thousands in Sri Lanka and for millions the world over. The year 2005 was named the year of Micro-credit. Professor Muhammed Yunus was awarded the Nobel Peace Prize in 2006 for his efforts towards poverty alleviation through Micro-credit.   

But today in Sri Lanka Micro-credit has become a bad word. How come?   
All micro-credit initiatives historically in all parts of the world evolved out of a development initiative. Even if there was a stand alone micro-credit provider which was a very rarity it was more of a social action initiative rather than a commercial venture.   

All micro-credit initiatives historically in all parts of the world  evolved out of a development initiative. Even if there was a stand alone  micro-credit provider which was a very rarity it was more of a social  action initiative rather than a commercial venture

However, in the mid two thousands, a few profiteering, registered finance companies entered the micro-finance space and followed the micro-credit methodology religiously without understanding its ethos.   

This resulted in multiple loans and over indebtedness of the poor.   

When I ventured into this field way back in 2002, one of the principles in our organisation was that we would NOT enter and start working in any village or may it be urban or rural if there was any other entity other than Sanasa and Sarvodaya.   

For the benefit of those who do not know about Sanasa and Sarvodaya, these two micro-credit and development oriented entities have served our nation for more than half a century in thousands of our villages.   

But with the entry into this space of a few Profiteering Finance Companies who would open branch offices in every town wherever there were other micro-credit providers.   

Are we an idiotic nation to tolerate this kind of exploitation? What is  stance of the government and the Central Bank in these operations? Are  we waiting for a dozen suicidal deaths to take place for the government  to take action like what happened in Jaffna?

A micro-credit provider who is based in Hatton recently told me that there were 22 micro-credit providers in Hatton. Could you believe this? Hatton which is not a big town by any standard has 22 micro-credit providers.   

Into this fray there entered another animal. This is the sophisticated money-lender, who function as ‘XXX Credit Limited’ under the guise of a micro-credit provider. Unfortunately the regulatory authorities recognize these predators too as micro-credit providers. Why do I call them sophisticated money lenders? Their loans are short term (60 to 90 days) with the repayment installments being collected daily, making the installment quite small and seemingly affordable and they issue receipts at the time of recovery using a posh machine. The only hitch is that when you calculate the interest it works out to 120% per annum!

So today when it is reported that on an average one poor woman has four to five loans, which she is required repay once a week, it is not a lie but a sad reality.   

So these poor financially illiterate people who got out of the clutches of the money lenders (who were charging them 10% to 20% per month) by seeking refuge of the micro-credit providers have now been forced to go back to them so that they could settle the weekly installments to the micro-credit companies.   

So these poor financially illiterate people who got out of the clutches  of the money lenders (who were charging them 10% to 20% per month) by  seeking refuge of the micro-credit providers have now been forced to go  back to them so that they could settle the weekly installments to the  micro-credit companies

But the circus does not stop there. Now there are international money-lending operations who have entered the market openly advertising via social media that they make money available at astronomical rates too! But who cares?   

Are we an idiotic nation to tolerate this kind of exploitation? What is the stance of the government and the Central Bank in these operations? Are we waiting for a dozen suicidal deaths to take place for the government to take action like what happened in Jaffna?   

The Golden Key saga of yesteryear bears ample testimony of what happens to both people and their money when the regulators turn a blind eye. I am sure that none of us wants a repeat performance of that, do we?   

So, in conclusion I sincerely hope that you will understand that Micro-credit and Micro-credit Providers are NOT the problem. It is the few profit-oriented Finance Companies, who have entered this market and distorted this sector. That is the problem along with the ‘XXX credit limited’ type of sophisticated money lenders who are now joined by the social media-promoting international money lenders who are NOT micro credit providers by any stretch of the imagination.   

So let’s protect the micro-credit industry and the micro-credit provides who have been diligently working towards eradicating poverty in our country during the past few decades and let us get rid of these errant entities who have entered this development-oriented industry and make sure that these unscrupulous types do not enter this space ever again.   

Let us not throw the Baby with the Bath water!