Microfinance institutions push tribals into debt trap

Ravi Reddy

HYDERABAD: A number of Micro Finance Institutions (MFIs) have penetrated into the Scheduled Areas of the State by exploiting the innocence of the tribals and luring them into taking loans at hefty interest rates.

Throwing all rules and regulations to winds, these institutions are having a free run in the tribal areas and targeting illiterate women. In violation of the AP Scheduled Area Money Lenders Regulation 1960, the MFIs are carrying out their business and pushing tribals into debt trap.

According to the Regulation, no person or institution can carry on business of money lending in Scheduled Area unless they obtain a licence. That money-lending was assuming alarming proportions in several tribal areas of the State was evident when the then Khammam Collector V. Usharani wrote a letter to the government in February 2010 explaining the murky financial transactions of these MFIs.

In her five-page letter, (a copy of which is available with The Hindu), she named Share Microfin Limited, Swayam Krushi Sangham (SKS), Spandana and Undamma Bottu Pedatha as carrying out money lending business. She mentioned that these MFIs had obtained certificate of registration from the Reserve Bank of India to carry on the business of microcredit advances, lending money for agriculture, industries and market linkage developments.

They were working in Scheduled Areas by lending money and completely defeating the concept of Indira Kranthi Patham (IKP). “Their method of extending loans to the groups with small interests looks apparently simple, but is accumulating to compound interest as the term of repayment is weekly basis and coercive methods applied to recovery on the tribals amounted to harassment,” the Collector said.

“The innocent tribal families are taken easily in to the lap of these agencies and ultimately become bankrupt unable to repay the loans. Due to the coercive recovery methods, certain borrowers have committed suicide,” she noted. She said a huge amount of bank loans are pending forcing the bankers to refuse loans to the IKP groups.

In her report, Ms. Usha Rani observed that these MFIs were registered as Public Limited Company. They came very much under the purview of the definition of AP Scheduled Area Money Lenders Regulation 1960 but were carrying on money lending in scheduled areas. She pointed out that loans were given to tribals in the scheduled areas against security of movable and immovable property where the Land Transfer Regulation 1959 is in force. She accused the MFIs of working against the Agency laws.

Report sought

When contacted, B. Rajasekhar, Chief Executive Officer, Society for Elimination of Rural Poverty (SERP) said it was a fact that a number of agency mandals in Khammam were affected by the activities of the MFIs. He said a detailed report was being sought from the districts for necessary action.