How Punjab's Rural Women, Neck-Deep in Debt, Are Trapped in Microloan Cycles

RBI regulations to check over-borrowing or ghost borrowers have failed to deliver, catching women in a cruel cycle of taking loans to repay loans.

Mansa/Sangrur/Barnala: “I feel like ending my life but who will look after my kids,” says Sukhdeep Kaur, from Joga village in Mansa district. She took her first micro group loan of Rs 30,000 in 2016 to open a cosmetic shop.

Kaur soon took another loan, and then another.

Tempted with easy loans, she then joined other borrowing groups in the village. She availed herself of more loans before getting herself in a Rs 3-lakh debt from as many as seven different loan firms. She also took another loan of Rs 50,000 on her husband’s name.

Barring a few initial loans, the amount from which she spent on the shop, Sukhdeep says most of her loans which were paid in instalments were spent on household expenses.

Even before the COVID-19 lockdown, her repayments were irregular.

“But COVID-19 disturbed everything,” she said. She stopped repayments as earnings from her shop stopped. Her husband, who is an electrician, also could not find work.

Things have not improved, she said. Her monthly repayments are over Rs 10,000 whereas the family income at present is not more than Rs 15,000 a month.

Loan agents often visit her house and threaten legal action, she said.

Worse, she is not even aware of the outstanding amounts against each loan. “I do not know of the interest and penalties. Most of my loan cards were taken by group leaders,” she added.

Surinder Pal Kaur, another woman from the village is trapped in a similar situation. She is under a debt of Rs 3.2 lakh, thanks to loans taken from six different loan firms. For a loan of Rs 1 lakh, Surinder had to mortgage her plot.

Surinder said her loan amounts were spent on opening a tailoring shop and repaying earlier loans. But after the lockdown, earnings from her shop went down drastically and she had to even sell cattle to pay for her husband’s medical treatment.

“I am not in a position to pay house rent, leave aside pending debt,” she says.

Deepening rural distress

The microfinance sector claims to bring poor women out of poverty by offering them loans in groups. It is getting easier, even for those in Punjab’s poverty-stricken districts like Mansa, to get microloans now.

As of September 30, 2020, the number of women borrowers swelled to 12.88 lakh in Punjab with a total gross loan portfolio (outstanding principal amount) of Rs 4,387 crore, according to a statement from the communications department of Microfinance Institute Network (MFIN), an association of the microfinance industry in India and one of the two RBI-appointed regulators.

But the state that is already battered by the indefinite farmers’ protest outside Delhi’s gates, is also witness to sordid tales of distressed village women, who take loans for household necessities or repayments only to find themselves unable to repay them. In the post-COVID-19 world, this has only deepened rural distress.

In Narinder Pura village near Mansa, elderly Nirmala Kaur who cannot read or write, not only took microloans, but also collected a huge sum from over 20 women who took ‘ghost loans’ for her in exchange for Rs 4,000-5,000 commission for each loan.

Agrrez Singh, the sarpanch’s son said the matter was exposed just before the lockdown when these women approached village sarpanch Balbir Kaur alleging that Nirmala was not repaying their loans and in turn, loan recovery agents were harassing them.

Nirmala was then taken to the police station. Eventually, she sold her house to repay the loans. Her son Ravinder Singh said whatever the family earns goes to repay these loans.

Visibly upset, Nirmala, who now lives in a small house in a corner of the village, said that she has already repaid over Rs 5 lakh. Some people took a commission as high as Rs 10,000 from her, for a Rs 30,000 loan.

She said a single look at her house is enough to reveal that “everything” has been sold off. “I needed money after my son’s in-laws dragged us in a false police case. Even today, many in the village and recovery agents force me to pay more. I have no money now. I don’t even know how much more I owe. I am a poor lady. I request everyone to spare me now,” she added.

Ranjit Singh, a village resident, said that the poverty level in their village was always high. These loans not only deepened economic distresses, but have led to incidents of domestic trouble, also leading to violence on women.

“Women even sold their beds, gas stoves and gas cylinders to repay loans, yet their debt has not dissolved,” he said.

Also read: Hit by Indebtedness and Suicides, Punjab Farmers Worry New Laws Will Make Things Worse

In the Chotian village of Sangrur’s Lehra block, over-borrowing on microloans allegedly claimed the life of Dalit woman Sawaranjit Kaur.

Over-borrowing occurs when a person or a business has borrowed too much money and is unable to repay interest and principal amount due to the debt burden.

Her husband Palla Singh said that she was under a lot of stress due to multiple loans, perhaps eight or ten. She even took loans on others’ Aadhaar cards.

“I still wonder where all the money she took was spent. On the morning of September 9, 2019, she consumed poison and ended her life,” he said.

Swaranjit’s mother Jaswant Kaur said that since these loans were of short duration, she kept taking one loan to pay another and this was how she got neck-deep into debt.

“She sold whatever little jewellery she had to repay the loans. But the burden of loans exceeded far beyond her ability to repay it,” she added.

Jaswant said that on the day she ended her life, she appeared anxious. She had to pay Rs 20,000-25,000 to loan agents that day. She sought help from many in the village. “When she did not get any help, she took her life,” he said.

Jaswant Kaur (left) and Manjeet Singh (right) of Sangrur’s Chotian village hold a picture of Swaranjit Kaur, who according to her family ended her life due to over-borrowing from microloan firms. Photo: Vivek Gupta

“Loan agents often harassed us for recoveries after my mother’s death. But they stopped coming later,” said Swaranjit’s son Manjeet Singh.

The tendency of borrowers to take money to manage expenses rather than for income generation possibilities is seen elsewhere too.

In Barnala district’s Badbar village, Gurjeet Kaur is under a debt of five loans worth over Rs 1.5 lakh. She said she took loans as she needed money to bail her son out of jail after he was arrested in a drug case.

“He was not aware that a box he had picked up from a doctor’s house had banned tablets in it,” said Gurjeet.

“It has been a year since my repayments have got irregular. I explain to recovery agents that my husband and son are not earning much these days but they don’t listen and pressurise me for payments,” she said.

There are women like Jasbir Kaur of Sangatpura village near Moonak in Sangrur who used microloans to buy two cattle but they died of disease soon after, leaving her in debt.

Kaur who claims to be under a Rs 3 lakh debt now, said that the burden to repay initial loans forced her to take more loans and this is how she fell into debt.

Her husband Jeet Singh said they are not alone in this mess. There are several cases even of ‘ghost borrowers’ in the village, who use loans sanctioned on someone else’s Aadhaar card. Field agents also know of this, he said.

Last September, a video went viral in which people near Faridkot held back a loan recovery agent and bound him with ropes, alleging misbehaviour.

As seen in the video, the agent had been arguing with a woman who he claimed was using the money from four loans sanctioned in the name of other real borrowers. In the commotion, her husband kept insisting that there was no loan in his wife’s name.

Finally the woman confessed to ‘ghost’ borrowing and said she would pay up later.

Are regulations working?

Industry regulations to check over-borrowing or ghost borrowers fail to deliver.

The mess continues despite there being high-level introspection through the appointment of the Malegam committee in October 2010 that reviewed the working of the microfinance sector in the wake of a spate of microfinance-linked suicides by poor borrowers in Andhra Pradesh.

The microfinance model that traces its origin to Bangladesh was first pioneered in India through a self-help group-bank linkage model before private loan firms entered into the loan business (mainly for profit) and the mess began.

The committee report in 2011 talked about the protection of low-income borrowers “who lack individual bargaining power, have inadequate financial literacy and live in an environment which is fragile and exposed to external shocks which they are ill-equipped to absorb, therefore, they can be easily exploited.”

Based on the report’s recommendations, the Reserve Bank of India (RBI) announced a series of regulatory steps.

One that is vital for borrowers’ protection is that the private players now categorised as non-banking finance companies-microfinance institutions (NBFC-MFIs) can’t give more than two loans to the same borrower, who also can’t be a member of more than one joint liability group.

The industry that also includes lending by regular private banks, small finance banks and their private associate partners, must ensure that one borrower has no more than three active loans with a total lending limit in a rural area of not more than Rs 1.25 lakh (revised from Rs 1 lakh in 2019) and also household income loan eligibility of the same amount.

Rajinder Kaur of Herike village in Sangrur’s Dhuri tehsil opened a small cloth shop in her home in 2018 with a Rs 3 lakh individual business loan she took from an MFI at Rs 9,750 per month for 61 months.

She said that since income from the shop was not steady and her husband, who owns just two bighas of land, too fell ill, she started taking out small amounts of loans in a group with other women, to clear off pending dues.

By 2019, her gross loans touched Rs 5 lakh, including four from registered MFIs totalling Rs 1.65 lakh and two from a private bank and associate banking partner worth Rs 65,000.

She said most of her loans are unpaid. “I make repayments of as high as Rs 20,000 a month when my earning is not even half of it,” she said.

Jaspal Kaur of the same village faces a similar problem.

As per her list of lenders, she had taken Rs 1.95 lakh from five registered MFIs, Rs 67,000 from banks, apart from Rs 1 lakh of individual loans from another MFI.

On how she came under so much debt, she said she initially took out one loan for cattle. “When I was unable to pay it, I took another loan and this cycle continued,” she said.

“I could hardly use the money productively since there was a pressure of paying back instalments immediately after taking out loans,” said Jaspal.

The stringent payment schedule, according to Mushfiq Mobarak of Yale University, is one of the major drawbacks in the microfinance industry.

He mentioned in his 2019 article that since many microcredit programmes require that repayment starts almost immediately (in weekly or bi-monthly mode), and these strict requirements make it difficult for borrowers to use the money they receive for productive investments.

He also wrote that a series of careful, empirical evaluations in recent years have shown little or limited impact of microcredit on household welfare in developing countries.

Also read: Widows of Farmers Seek Visibility in Budget, Want Formal Support System

Loan market troubles

Branch manager Kamaldeep Singh (name changed) of an MFI firm posted in Sangrur said the loan market is working under acute competition.

In Sangrur alone, there are as many as 40-42 loan branches with every branch having loan distribution targets of not less than Rs 70-80 lakh a month.

“In many cases, we refused borrowers with multiple loan records but they got the loans from other firms,” he said.

He added, “Sometimes, the entire loan history of the borrower is also not seeded in the data of credit information companies like Cibil, etc. The borrowers don’t disclose their loan pendency either.”

“But then the onus is equally on the borrowers. If they took loans they were conscious of the fact that they had to pay it back too,” he added.

Harjinder Singh (name changed), a branch manager of a loan firm in Patiala, said that the tendency of multiple lending is more common among loan firms that have entered the Punjab market in the last couple of years.

They disburse loans even if one borrower already has four or five loans, he said.

He said this impacts overall loan recovery in the market as well. “Suppose we declare a customer ‘defaulter’. Why will he return money to us if he keeps getting loans from other companies,” he said.

“I believe that there must be 20-25% customers who are multiple lenders. But all this is happening due to competition in the market. Companies feel that once they give out the loans, they will somehow recover the money,” he said.

As per RBI guidelines, at least 50% of the loans should be used for income generation.

Further, MFIs must also ensure that greater resources are devoted for appropriate training and skill development activities for capacity building and empowerment after formation of the borrowing groups and also educating their borrowers on the dangers of wasteful conspicuous consumption.

Sundari, head of a borrowing group in Ganduan village of Sangrur’s Sunam tehsil, said loan agents are often asked as to why they did not stop village women from taking frequent loans knowing well that they mostly consumed loans for necessities.

“Many of them sympathise with us. But they insist on recovery since the loans can’t be written off after having been taken,” said Sundari, who has an outstanding loan of Rs 1.75 lakh from five loan providers including three registered MFIs.

She has formed a group of 40-45 women from her village who are heavily under debt, to ward off pressure from loan agents.

Sundari (in middle) along with other women in Balmiki colony in Sangrur’s Ganduan village says most women in her village are unable to repay loans and want government intervention. Photo: Vivek Gupta

Harjinder confessed in cases where borrowing is heavy, borrowers end up consuming loans in repayments, leaving little scope for income generation.

Kamaldeep said the field officers of loan firms randomly conduct post loan verification but a visit to every member’s house post loan disbursal is very difficult due to limited staff.

But such verifications are not often reliable, said Raj Kaur, who is in charge of a lending group in Badbar village of Barnala district.

She said many of their group members have used loans for house emergencies despite committing to buy cattle or opening shop in the loan agreements.

“No one made any verification later,” she said.

Jeet Singh of Sangrur’s village Sangatpura said that in case verifications take place, group leaders get a call from loan agents asking their members to borrow someone else’s cattle if they don’t have their own.

Sinder Kaur, who is in charge of a borrowing group in Sangrur’s Harike village, said that before the lockdown, each woman in the group was under tremendous social pressure to pay back instalments on time. The rule was that if any member defaults, the remaining group will have to pay for them.

“But after lockdown they are now visiting individual houses for recovery and harassing members. I want to tell these firms that my members took loans in a group and will pay in groups only but only after our financial position is improved,” she said.

A field agent of a registered MFI, who distributed loans in Herike village before his transfer to Talwandi Sabo, said, “She (Sinder Kaur) is misguiding her members and telling them not to repay loans. Many of them have paying capacity. If they have taken loans, they must repay it too,” he said.

Sinder Kaur along with other women borrowers of Sangrur’s Herike village say that firms paid them loans in groups, and they will repay in groups only when their financial condition improves. Photo: Vivek Gupta

‘Unlicensed’ lenders another cause of worry

As per RBI rules, there is a proper registration process for private loan firms wanting to operate as NBFC-MFIs. Further, they are encouraged to become members of at least one of two RBI-appointed regulators MFIN and Sa-Dhan. These also known as self-regulatory organisations (SRO), who have the responsibility to ensure compliance with RBI regulations.

During field visits, the reporter found that at least three active lenders were not on the list of authorised MFI lenders shared by both these regulators.

One of these lenders was involved in coercive recovery, otherwise banned as per RBI rules, which led to suicide of a woman, as alleged by a Dalit family of Bhasaur village in Sangrur’s Dhuri block.

According to the family’s complaint filed with Sangrur senior superintendent of police on August 26, 2020, it is alleged that Mulkit Kaur, a Dalit woman of the local Majhabi community, died by suicide on August 8, 2020, due to undue pressure of loan repayment.

Her 20-year-old son, Amarpal, said, “We are a poor family and mostly survive on odd labour jobs. My mother took two loans worth Rs 80,000 but this was used on household expenditure, leaving the family in debt,” he said.

He said their loan repayments were regular until COVID-19 came and there was no work for over a month. The earnings did not improve even after the lockdown.

Also read: Microfinance Operations Come to a Shuddering Halt in Lockdown Districts Across India

“Then by July, loan agents began pressurising us to clear pending dues. They often came home and insulted my mother. A day before she hanged herself, some agents came and threatened that they would take away household stuff,” said Amarpal.

Inspector Deepinderpal Singh, station house officer at Dhuri Sadar police station, which handled the complaint, said that loan officials were summoned but both parties entered a compromise.

But Amarpal said that the family was assured by police that the loan firm would give compensation, and also return the blank cheques that his mother gave at the time of the loan sanction. “But nothing happened later. Firm officials did not respond despite my repeated calls. There was no help from police either,” he said.

Labour unions demand loan waivers, stricter regulation 

Several Dalit labour organisations aligned with Left parties have been regularly conducting protests in Punjab, asking the state government to waive off pending micro loans and strict regulation on microfinance firms operating in Punjab.

On February 8 and 9, Punjab Mazdoor Mukti Morcha held protests outside the residences of Punjab finance minister Manpreet Singh Badal in Bathinda and Punjab education minister Vijay Inder Singla in Sangrur, primarily on the growing debts of rural women.

Bhagwant Singh Samaon, state president, Punjab Mazdoor Mukti Morcha said that these firms claim that they charge interest rates of not more than 20-25% per annum. But the overall impact of their interest rate is much higher.

“For example, every loan is disbursed after deducting file and insurance charges which is as high as Rs 5,000 on a loan amount of Rs 50,000. Even when half of the loan is pending, the borrower is refuelled with another loan again after deducting outstanding principal and these unwanted charges. So how come their committed interest remains of the level that these companies claim?” said Samaon.

He said that these loans are in no way helping the poor, rather they are creating a new sort of crisis in rural Punjab that will be uncontrollable in few years.

Bhagwant Singh Samaon, state president, Punjab Mazdoor Mukti Morcha, while addressing a gathering in Sangrur on the rising indebtedness among rural women in Punjab. Photo: Special arrangement

Lachhman Sewewala, president of Bathinda-based Punjab Khet Mazdoor Union, said that the microfinance model is a failed concept that has not benefitted the poor labourers or marginal farmers in the villages. Instead, they mainly became the prime target of these companies.

He said they conducted a survey of the state of labourers in Punjab in 2017 in which the expenditure on construction of houses (25%), illness (20%), weddings (16%) and domestic needs (15%) emerged as prime reasons for their borrowings.

“That time, borrowing from MFIs was on the third spot since these firms were new to the market. Now they have become prime lenders in villages, replacing local moneylenders in a matter of few years,” said Sewewala.

“But, has it made the lives of the poor better than earlier when they were under the debt trap of local moneylenders? The answer is no, because loan culture is not a solution to bring them out of poverty.”

Also read: Despite Penetration of Institutional Credit, Farmers Continue to Rely on Moneylenders

He said the government must ensure a better public health system so that people are not forced to borrow for treatment in private hospitals. The government must also focus on agro-based industries in villages so that these labourers get regular jobs and decent wages.

“Why can’t they get low interest credit for construction, like middle-class borrowers get?” asked Sewewala.

“Instead of these reforms, the government is bringing agriculture laws that will now surrender the rural economy to corporates, pushing further poverty in villages and further prepare fertile ground for these loan companies,” he said.

Ramvir, a 2009-batch IAS officer, who is deputy commissioner at Sangrur, and got several representations by MFI borrowers in the last several months, said that initially, during the lockdown, these complaints were of coercive recovery, but then these firms themselves announced moratoriums as per RBI instructions.

“Beyond this, we could not do anything since these MFIs follow self-regulation. But in a developing country like ours, such systems don’t work,” said Ramvir.

He said although the MFIs are needed to cater to poor borrowers, there is also a need for an autonomous government-regulated body to ensure better management so that issues of over-borrowing or indebtedness can be effectively addressed.

As per the RBI circular, the responsibility for compliance to all regulations prescribed for MFIs lies primarily with the NBFC-MFIs themselves. But the industry associations appointed as SROs will also play a key role in ensuring compliance with the regulatory framework.

When contacted, the communications and marketing department of MFIN, one of the two RBI-appointed SROs, declined to comment on over-borrowing, suicides and the practice of ghost borrowing in Punjab, although they shared case studies of various women claiming that they benefitted from micro loans.

It also claimed that since the economy of Punjab is primarily driven by agriculture and allied sectors, the impact of COVID-19 on Punjab has been relatively lesser. “For borrowers who are still finding it difficult to repay debts, we strongly advise them to be in close touch with their providers so that they can be supported,” it added.

Meanwhile, Mukesh Malaud, the convener of Sangrur-based Zamin Prapti Sangarsh Committee, demanded the state government bring a Bill to regulate these loan firms as the Assam government did last month after poor women there came under a similar and acute debt problem.

In Assam, these micro loans have become an election issue with every political party promising to write off these loans.

“We also want the Punjab government to bring such a law and waive off the outstanding loans of women here in Punjab,” he said

This story was reported under NFI Fellowships for Independent Journalists.