The Nation – December 25, 2013
How were government’s various microcredit schemes — launched in 2002 — doing? They decided to check, and after 6-7 years, conducted a field study, getting information from the horse’s mouth, namely ‘beneficiaries’. The report was sent to both the World Bank and Planning Commission. What was discovered was unpalatable, so Ms. Shehnaz Wazir Ali constituted a committee to look into the matter, and the release of funds to all microcredit institutions was stopped till it took a final decision.
But the committee, jointly headed by Mr Shaukat Hameed Khan and Dr Zafar Altaf, was abruptly dissolved by the Ministry of Finance after meeting only once. But people talk: it became clear why the report was hushed up.
All microcredit institutions including NRSP, Khushali Bank, Microcredit Bank, Kashf Foundation, etc. get their allocations from the Pakistan Poverty Alleviation Fund (PPAF) which is part of the Ministry of Finance. The World Bank lends to PPAF at half percent interest, which in turn lends to microcredit institutions and banks at 15%.
That’s bad enough. The focus is only on lending and getting the money back with interest. It’s not concerned with questioning how poverty can possibly be alleviated with usurious, ill-thought-out, unrepayable loans, inevitably inviting ruination. There is no justification for this exorbitant markup rate when the poor have no collateral.
Genuine poor-friendly loans demonstrate this as a lame excuse. The Akhuwat Foundation, a microcredit NGO created 13 years ago, lends to the poorest without collateral, and charges no interest whatsoever, just a one-time small fee. It neither borrows from abroad nor at home, yet attracts philanthropists and donations. It combines volunteerism with employees to provide interest-free loans, uses no-frill offices including mosques and churches which otherwise lie unused inbetween prayers, extends advice, help with business plans, and personalized moral support.
To date, AKHUWAT has lent out over six billion rupees, with recovery rates of over 99% — because borrowing was made just and manageable. The founder, Dr. Amjad Saqib, knows what he’s doing. A former civil servant who previously managed the Punjab Rural Support Programme, he was troubled by the 20% interest it imposed.
When NRSP lends 10,000 for example, the borrower is actually left with only 7,500 after insurance, ‘savings’ and paperwork charges; yet markup is charged on the full 10,000. To meet criteria, borrowers become members of community organizations of 12 to 15 members each. In one area, about 90% of the population – some 3000 individuals, about one-fourth of them women — received loans.
Six months later, on the dot, on repayment date, NRSP officials arrived to take back. But harvest time had not arrived! Irresponsibly, NRSP had not timely planned nor properly advised them. The farmer owed 11,500 for 10,000 borrowed at 30% interest. They were unable to pay. NRSP then offered rescheduling of loans …. provided farmers borrowed from an NRSP-appointed ‘investor’ so that they could pay back NRSP.
This was a new twist that smacked uncannily of IMF: borrowing more from another party at cut-throat rates to pay back previous dues. But was it even official or legal? Who knows? For 5000 for one week they had to repay 7000. For 10,000, it was 14,000. After the helpless villagers borrowed from Peter (the “NRSP investor”) to pay Paul (NRSP), it then obligingly rescheduled loans, this time for 15,000. But 14,000 out of that went back immediately to the so-called NRSP investor! That left farmers with only 1000!
This happened a third and a fourth time when crop failure recurred, and interest payments and bank deductions rose further. By 2009 most were heavily in debt by one lac or more. They had to sell their precious livestock, trees, modest jewellery, household effects, and even the little land they had, in an endless vicious cycle. They were never rich before, they said, but they were at least self-sufficient. Now they were destitute: worse off than ever before, unable to educate their children or be properly fed. Small wonder Islam prohibits Riba.
NRSP also made false verbal promises of bringing development – tubewells, grain godowns, turbines, metalled roads, dairy farms, shops, etc. — provided enough locals took out loans first. It never happened.
There is greater risk and major difference with agricultural loans – and therefore consideration is necessary – compared to small entrepreneurial loans. Cultivators are dependent on weather and rains, among other factors. When a drought hits, they earn nothing that season. When it persists for several years, they can be wiped out.
The poorest peasants don’t even know how to handle unaccustomed amounts of money. Cultivating one acre or less needs 3 to 6 thousand rupees. Instead of being given that or a bit more for essential consumption, one hapless couple was obliged to take a fixed 10,000, but wasted the rest. Matters were made worse when both husband and wife were needlessly lent 10,000 each, which scaled up unproductive spending. It led to selling standing crops cheap before ripening.
There were complaints of manhandling, of police being called in, NRSP representatives seizing household effects until payment was made, and loan sharks pushing families to sell off their daughters into prostitution to pay off debt.
An unending cycle of debt started. Borrowers of eight villages of UC Mehrab Goth ended up owing 30,000,000 to NSRP which turned subsistence farmers into paupers. It may have worsened rural-urban migration, crime and even suicide. The situation was as bad in Tharparkar, as reported by a leading Karachi paper.
It’s hard to comprehend why any government should take loans from World Bank or any other institution when money is strictly for local use involving no foreign expenses (unless the World Bank conveniently considers its very act of unnecessary lending as ‘foreign expertise’), and when the government can allocate it like it allocates fortunes in non-productive salaries and perks, or the State Bank can create the necessary money itself.
The last thing any government should do is borrow from international loan sharks for lending to national profiteerers, in turn lending to local profiteerers in cahoots with local loan sharks. Far from being put out of business, they find their racketeering streamlined for them. It’s a chilling, terrifying experience to find those in power to be so cold, callous, inhuman.
If anything requires suo moto notice, then such institutionalized exploitation does. Because impoverished victims have no other recourse to justice.
This article was published in The Nation on 25 December 2013