Poor families are forced to borrow from private money lenders at exorbitant interest rates and suffer unspeakable abuse, harassment and violence in case of non-payment.

A migrant worker in Gurugram with his belongings on a bicycle Image for representation | PTI
Voices Debt Wednesday, July 08, 2020 - 13:05
Written by  Saroj Kumar Pattnaik

When a poor family falls afoul of loan sharks, they have no choice but to suffer unspeakable abuse, harassment and violence. That’s not all, the loanees have to repay the debt with an exorbitant rate of interest or get robbed of whatever little assets they have – the house they live in or the tiny piece of land they may possess.

Poor and low-income households in rural areas, marginal farmers and farm labourers, daily wagers women-headed families, sex workers and survivors of commercial sexual exploitation who live in and around red light areas generally depend on private borrowings to meet their needs. They belong to a socio-economic category of people who don’t have access to banks or financial institutions as they don’t have required collateral. And private money lenders who have a vice-like grip over the informal lending market take this as an opportunity to systematically push this section of people into a vicious debt trap.

In the time of COVID-19 crisis, when there is hardly any work or source of income, the dependency on borrowings have seen a surge especially among this section of people who are at the bottom of the pyramid. So has the business of private money lending.

From an assessment of around 230 families of survivors of human trafficking and commercial sexual exploitation in West Bengal and Andhra Pradesh, 140 families (nearly 59%) have taken some loans to cope with the crisis. What’s more startling is that many of them have taken the loans at an extremely high rate of interests that ranged between 5% and 20% per month. The assessment was done by a group of NGOs in the two states associated with an access to justice and leadership programmes.

The situation in red lights areas of Andhra Pradesh is worse. Out of 116 survivors of commercial sexual exploitation, 83 have taken loans in the past three months. Interactions with them have revealed another angle to this debt crisis – the business called “call money” in which a person can avail a loan by just calling to the lender over phone has been very active during these days. The lenders hand over the money to the borrower against a notarised document which is often without date and mentions a very low interest rate opposed to what the borrower actually agrees to pay, which is generally 20-30% per month. And if the borrower fails to repay on time, she or he has to go through severe harassment, coercion and blackmailing. In some case they were also forced into prostitution.

“This whole business of informal lending is a very well-syndicated one. One big financier has several small agents who deal with the borrowers and manage the lending and collection process, and get a cut out of that,” says Rammohan N, Secretary of HELP, an anti-human trafficking organisation which works with survivors of commercial sexual exploitation in red light areas of Guntur, Prakasham and Krishna districts of Andhra Pradesh.

Bhanupriya, a single mother and a survivor of commercial sexual exploitation, says, “I had to take a loan of Rs 10,000 as I was finding it very difficult to run my home. I was out of work and didn’t have money to buy groceries and medicines for my child. So, I had to take this loan.”

“I had to sign a notary paper agreeing that I’ll pay the amount with interest within a month. But I didn’t know that the lockdown would be extended so far,” she says, adding that the rate of interest on the notary paper is mentioned as “two per cent per month” but actually it is 20% per month and she received only Rs 8,000. In 2015, she had taken a loan of Rs 50,000 from the same financier for her son’s treatment. And the total amount she paid in seven months was Rs 1,20,000 – at an interest rate of 240% per year.

Rajani, another sex trafficking survivor from Prakasam district, says that she had to take a loan of Rs 15,000 during the lockdown as her husband, who used to drive a taxi, lost his job and she was unwell. “In February, I was very ill and required hospitalisation. I couldn’t get a bank loan. So, I called up a local money lender who gave me a loan of Rs 1.5 lakh at a monthly interest rate of 10%. But I’ve not been able to pay the interest amount (Rs 15,000) for the past three months. I’m not sure how I can repay this loan,” she narrates, adding that this lockdown has come as a “curse” for people like her.

According to activists, the loan sharks in the region are very aware of the economic conditions of the people, especially of women in the sex trade. They offer them loans knowing fully well that they would not be able to repay within time, and hence can take the opportunity to sexually exploit them. “In some cases, they also force these women to trade their minor daughters or younger sisters to get some interest payment relief,” says Rammohan.

The control of private money lenders over informal credit market is not just limited to red light areas, it’s spread all across from rural villages to small towns to urban slums where the majority of the population lives below the poverty line. Aatmaram Markandey, a labour trafficking survivor from Chhattisgarh, says that a number of people in his village are now looking at private lenders as their last resort. “I myself have borrowed Rs 5,000 by mortgaging a gold ornament. I had to pay back the amount within a few months.”

“We have received 15 kg rice and 1 kg dal from the government per month since April. How can we live with that? We also need vegetables, oil and many other essential things like medicines for our family. That’s reason why I had to borrow,” he shares.

On the other hand, many people in red lights areas of Andhra Pradesh have not received ration supplied through the public distribution system (PDS) because they don’t have ration cards, neither have they received the financial assistance announced by the government since most of them don’t have Jan Dhan bank accounts. Therefore, they had to take loans despite knowing that they will have to pay a heavy interest rate.

“The problem is not only pertaining to one particular region or community, it affects people across a socio-economic category – the daily wage earners, the marginal and landless farmers, the unskilled or semi-skilled workers, sex workers, etc,” says Roop Sen, researcher and co-founder of Sanjog.

“Majority of people belonging to this class do not have savings. And their lack of social security prevents them from building financial capital. They have no land, no assets and hence no collaterals. And since they cannot avail loans from a financial institution, they resort to private money lenders when in need, and fall prey to the debt trap,” he adds.

Things won’t change unless there is a mechanism wherein people are provided with the required food and other items during the time of crisis like the current pandemic. For which a better distribution system and inter-state coordination is essential.

According to Vijay Mahajan, founder of the NGO Pradan and the BASIX Social Enterprise Group, the long-term solution to the debt crisis in India lies in creating some income generation opportunities for all so that people don’t depend on borrowing for their survival.

“If you look at the NSS survey income-expenditure index, the consumption expenditure of the bottom 20% of our society is much higher than their income, and it is true for a very long period of time. In that kind of a chronic deficit situation you are bound to borrow to survive, and vulnerable to get into some sort of bondage. And the extreme type of that is trafficking and sexual exploitation,” he says.

He also points out that a number of programmes for the poor have been initiated, but the operating reality is almost all programmes are mopped up by the upper end of the poor or the non-poor and the bottom two deciles are left out. “Microfinance institutions (MFIs), for example, are an effective model to help the poor and low-income groups revive their economic condition. But even in that people who are unable to make the minimal mandatory deposits or take small loans are not included,” he explains.

According to him, India should initiate large-scale targeted interventions like the Ultra-Poor Graduation Programme by BARC in Bangladesh in which vulnerable households are identified and provided with some income-generation assets, such as livestock and farming tools, through which the families start a basic and sustainable livelihood. Another good example, he cites, is the Kudumbashree programme of Kerala that aims at lifting the poorest of the poor up to a stage from where they can access other welfare schemes.

“It does not require much redesign as there are existing models. It can be replicated across the country with some monitoring mechanisms to evaluate the starting situation of the household and periodic growth. Then the MFIs can be introduced, opening up their access to microcredit and small business loans. And if this is done in a systemic way, I’m sure the poor of the country will be free from debt bondage,” he adds.

These are pragmatic and long-term solutions that the government should think strategically and implement in collaboration with the local governments, communities and civil society groups. Once we have systems in place, it will be easier to reach out to the vulnerable groups and help them come out of their dire situation even during disasters like the current COVID-19 crisis.

“Disasters are in fact great opportunities to think creatively and come out with innovative ways of dealing with people’s problems. The old traditional methods of crisis management will no longer be effective when the entire country is grappling with a catastrophic situation,” says Amar Nayak, a disaster management expert and ActionAid’s Global Humanitarian Adviser.

“The government should discuss with all relevant stakeholders and come up with robust frameworks that cover each and every citizen. And it’s not a difficult thing. We need to revive and strengthen rural employment, focusing on agriculture-based livelihood opportunities and creating value chain, strengthening our public distribution system. Vulnerability mapping and ensuring immediate direct cash transfers during disasters and an effective monitoring mechanism could go a long way in addressing many of the problems,” he adds.

And to put a curb on private money lending and their harassment, the government has to find a realistic system of rural credit where banks and non-banking financial institutions should come forward to provide financial relief to the distressed lot without much hassle.

Also, states should strongly implement their “money lending” laws that prohibit and impose penalty on money lenders for charging exorbitant interest rates and intimidating and harassing the debtor for non-payment or delay in payment.

If we are able to do all this, activists believe, we can surely help the poor not fall into any further debt traps.

Saroj Kumar Pattnaik is a freelance journalist associated with grassroots organisations working on the issue of human trafficking in India.