Elukkara, a village near Aluva in Eranakulam district of Kerala, is claiming to be the first village in the state to have completely eliminated money lenders and freed debtors from the shackles of loan sharks, all thanks to Elukkara Service Cooperative Society. On the back of Kerala government’s Operation Kubera launched in May 2014, Elukkara becomes Kerala’s first "Kubera Vimuktha Gramam", meaning Kubera-free village.
Syed Kunju, President of Elukkara Service Cooperative Society saya that the scheme was a lifeline to the debtors in the village. “Elukkara is a small village and the people aren’t very well-off. They usually tend to borrow during festival time and in June, when the school reopens. We introduced a scheme of zero interest loans, to save the villagers from debts they had put themselves into," he says.
When Nizar, an autorickshaw driver approached the cooperative society for a loan of 2 lakh in January for his daughter’s marriage, the society refused the loan due to his record of not having paid back an earlier loan. When members of the society spoke to him, he revealed that he had been threatened by private money lenders to repay the money borrowed. Nizar had already paid a huge sum of money to the money lenders, which accounted for just the interest. The issue was settled following the co-operative society’s intervention with the help of the police.
Sainaba, a housewife from Elukkara has a similar story to tell. Neck deep in debt, she availed the zero interest loan in January this year for her daughter’s marriage. “We usually had to borrow from private money lenders, even though they charge high rates of interest. When the cooperative society introduced such a scheme, it came as a relief for people like me, who have no collateral security to offer, but only a membership of the society."
Earlier this year, a notice issued by the society asking its members to report to them if they have taken loans from private money lenders brought to light 67 such cases. Affluent and financially strong people in the village offered to invest in the society without demanding interest, which helped the society get more funds to lend. Malayalam film director Sibi Malayil was the first person to invest in the zero interest investment scheme. As many more people came forward to make investments in the zero interest rate investment scheme, around Rs. 1 crore was collected. The society has since then been able to resolve all their debt.
Kunju proudly says that the society has surplus funds even after meeting the requirements of the people. The society has decided to utilize the surplus amount in two ways. One, by continuing to lend at zero interest rate apart from regular loans, and two, a new scheme of distributing 10 autorikshaws and charging a sum of Rs. 240 a day. After three years, the drivers would be able to repay the net amount of the auto and claim the vehicle for themselves.
“Private money lenders threaten people to repay the exorbitant rate of interest by resorting to harsh means. That is where the society comes in, which is based on mutual trust and negotiation”, the President says. The society too, faced threats from the local money lenders.
The system of microcredit has been experimented across the country with the intention of eliminating poverty. Microcredit, the extension of very small loans to borrowers lacking collateral security, has proved beneficial to borrowers. However, in ‘The miracle of microfinance? Evidence from a randomized evaluation’, a research paper published by Abhijit Banerjee, Esther Duflo, Rachel Glennester and Cynthia Kinnan in association with the Centre for Micro Finance conducted between 2005 and 2010 that evaluated a group lending microcredit program in Hyderabad points out a common sentiment among critics, of microcredit system merely being a replacement to the money lenders. “Skeptics see microcredit organizations as extremely similar to the old fashioned money-lenders, making their profits based on the inability of the poor to resist the temptation of a new loan," says the report.
But Elukkara Service Co-operative Society takes this a step further. The loans granted by the society can be considered remarkable in the sense that it eliminates the normal tendency of the borrowers to borrow more to repay existing loans, that being the sole reason for the never-ending debt trap. The zero interest policy ensures that the principal amount is repaid as soon as possible.
However, every borrower incurs a 2% service charge on the zero interest loan. The society allows the borrower to repay a fixed amount once every week, through the society’s innovative e-branch service. The online branch that operates in a Maruti car collects the installments every week that saves the borrower the trouble of physically going to the society. “It is also a way of instilling the moral responsibility in people to repay the loan since we do not resort to other means to revive the money”, said Syed Kunju.