A study of microcredit over-indebtetness in India

A rash of suicides amongst microcredit borrowers in the Andhra Pradesh state of India has raised concerns of putting the poor in further bondage. Politicians in India have labeled microcredit banks as "predatory" even lumping in some good banks into the group. Most within the microcredit industry agree that some reforms and regulation do need to be made to prevent the poor from being over-extended with micro-debt.

The Consultative Group to Assist the Poor has conducted a survey to see how lending practices were different in Andhra Pradesh than in the rest of India. They asked borrowers questions such as if they felt they took on too much debt, were burdend by repayments, and if they had to skip meals to repay. The survey found more yes responses in the town where the crisis took place than in other areas.

From the CGAP Microfinace Blog, writer Karuna Krishnaswamy gives us the conclusions of the study.

It is interesting that despite large incidences of repayment stress, only 2% of the clients in the mass default towns reported that their economic lives had become worse after taking MFI loans. Close to 89% said that their household condition had improved because of increased income generation from business and due to lower interest rates of MFI loans compared to outside options, while 9% reported no change. While we should not draw strong conclusions from these self-reported responses, it provides a perspective in the discussion on how much is too much debt for borrowers.

What can MFIs do?
We find that those who report no repayment stress or regret have an average monthly loan repayment to household income ratio of close to 40%. This is consistent across the five questions. While there is a large variance in the values of this ratio around the mean, the average of 40% may be a useful guiding figure in the Indian context.

Augmenting the loan application form to ask a couple of simple numeracy questions will help identify some high risk clients at low cost. Asking the customer a simple verifiable question such as how much can she repay every week given her stated current monthly income and expenses is easily done. If she gets it wrong, she could offered a smaller loan and monitored more carefully. This further implicitly places more responsibility on the customer to borrow responsibly.

National Microcredit meeting begins in India

A national conference of microcredit lenders is underway in India. It's the first time that leaders have gathered together since the controversy in Andhra Pradesh. A year ago several microcredit borrowers in the Indian state committed suicide. Authorities alledge that the victims were over-indebted to microcredit and killed themselves because they were unable to pay their loans. The suicides began a government effort for more regulation over microcredit and many banking leaders say they welcome it.

From the Wall Street Journal, writer Vibhuti Agarwal describes collected some quotes from the conference.

Jayashree Vyas, of Sa-dhan, the industry association that sponsored the conference, also underlined the need to get “closer to the clients and ensure ethical lending and recovery practices.”

Many microlenders said it was vital to have national-level regulation.

In a report released in January, India’s Reserve Bank proposed certain measures that could form the basis of such regulation, including capping interest rates for loans to save borrowers from exploitation.

The Economic Survey that was released last month also directed the government to take steps to ensure that borrowers understand the terms of contract when they borrow from microfinance institutions.

Shashikant Sharma, a senior bureaucrat in India’s finance ministry, promised that microfinance was high on government’s agenda for financial inclusion.

“The sudden and rapid growth of microfinance institutions has given rise to lending malpractices. A strong and effective regulation of the sector is therefore imperative to put the sector on the path of providing inclusive growth,” he said.

India, the suicide capital of the world

When there was a rash of suicides occurred in India amongst microcredit borrowers, government stepped in with new regulations to reform microcredit lending. Statistics indicate that the problem of suicide in India is not limited to microcredit borrowers. India is the suicide leader of the world with over 121,000 people taking their lives in 2009. The people who often commit suicide in India include farmers in debt, women without many rights, and students who are love sick.

From the Inter Press Service, writer Sujoy Dhar tells us about one professor who is studying the issue.

"India has become the suicide capital of the world," says Daya Sandhu, a counselling psychology professor at the University of Louisville in the U.S.

As a Fulbright-Nehru Senior Research Scholar at Guru Nanak Dev University in Amritsar, India, Sandhu spent five months in India last year researching suicide trends in the country.

"While I was in India from January to June 2010, I was troubled to read headline news almost on a daily basis about students, farmers, and housewives hanging themselves, jumping before trains, taking poison, and committing self-immolation," says Sandhu.
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In India, one farmer committed suicide every 32 minutes between 1997 and 2005, according to P. Sainath, a writer on Indian poverty who calculated the statistic from National Crime Records Bureau figures.

Farmers and students are most at risk.

According to the latest statistics of India’s National Crime Records Bureau, 127,151 people in India committed suicide in 2009. This indicates an increase of 1.7 percent over the previous year's figures.

Suicide is a great social leveller in India, Asia’s third largest and one the world’s fastest growing economies with a projected GDP growth of 8.6 percent from 2010-11.
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Sandhu says that though the media highlights the issue, the Indian government turns a blind eye to the problem at all levels - local, state, and national.

"There is no awareness about depression in India," says Sandhu.

Interviewing a large number of students in India, Sandhu found academic pressure, parental expectations, marriage tension and relationships to be the primary causes of suicide among young people.

"I was stunned that all the students I interviewed mentioned that at least 70 percent of them have a prem rog (love sickness) and they live loveless lives," Sandhu said. "They do not feel anchored anywhere. There seems to be no genuine parental love, but only conditional love. They are also strictly prohibited to engage in romantic love, as there is no dating system."

Afghanistan women burning themselves alive to escape

Forced marriages, abuse and neglect is almost commonplace for the women of Afghanistan. For many women there is no easy way out from it. It is taboo to talk about any problems at home and shameful to your parents if you leave a forced marriage. Authorities turn a blind eye to the abuse and medical help for depression is difficult to access.

So for some of these women, suicide is the only way out. With indoor stoves in about every home, the easiest way to commit suicide is by burning yourself.

From the New York Times, writer Alissa Rubin visited a hospital that has treats as many as 10 burning victims a day.

The hospital here is the only medical center in Afghanistan that specifically treats victims of burning, a common form of suicide in this region, partly because the tools to do it are so readily available. Through early October, 75 women arrived with burns — most self-inflicted, others only made to look that way. That is up nearly 30 percent from last year.

But the numbers say less than the stories of the patients.

It is shameful here to admit to troubles at home, and mental illness often goes undiagnosed or untreated. Ms. Zada, the hospital staff said, probably suffered from depression. The choices for Afghan women are extraordinarily restricted: Their family is their fate. There is little chance for education, little choice about whom a woman marries, no choice at all about her role in her own house. Her primary job is to serve her husband’s family. Outside that world, she is an outcast.

“If you run away from home, you may be raped or put in jail and then sent home and then what will happen to you?” asked Rachel Reid, a researcher for Human Rights Watch who tracks violence against women.

Returned runaways are often shot or stabbed in honor killings because the families fear they have spent time unchaperoned with a man. Women and girls are still stoned to death. Those who burn themselves but survive are often relegated to grinding Cinderella existences while their husbands marry other, untainted women.

“Violence in the lives of Afghanistan’s women comes from everywhere: from her father or brother, from her husband, from her father-in-law, from her mother-in-law and sister-in-law,” said Dr. Shafiqa Eanin, a plastic surgeon at the burn hospital, which usually has at least 10 female self-immolation cases at any one time.

The most sinister burn cases are actually homicides masquerading as suicides, said doctors, nurses and human rights workers.

“We have two women here right now who were burned by their mothers-in-law and husbands,” said Dr. Arif Jalali, the hospital’s senior surgeon.

Increase of female suicides in Afghanistan

From IRIN, a troubling increase of suicides amongst women and girls in Afghanistan.

Former Deputy Health Minister Faizullah Kakar recently completed a study (published in Dari) indicating that rising numbers of women and girls aged 15-40 are attempting suicide in Afghanistan. His findings were presented at a news conference in Kabul on 31 July.

The study, based on Health Ministry records and hospital reports, said an estimated 2,300 women or girls were attempting suicide annually - mainly due to mental illness, domestic violence and/or socio-economic hardship. “This is a several-fold increase on three decades ago,” said Kakar, currently a health adviser to President Hamid Karzai.

Social disorder, loss of loved ones, displacement, food insecurity, poverty, illiteracy, drug addiction, and lack of access to healthcare services - all caused or aggravated by over three decades of war - also played their part, said Kakar.

Kakar says about 1.8 million women and girls in the 15-40 age bracket have “severe depression”.

His findings have not been confirmed by the Ministry of Public Health (MoPH) or the Ministry of Women’s Affairs (MoWA): A gender-based violence database maintained by MoWA has recorded over 1,900 cases of violence against women and only 37 suicides in the past two years, but it is based on reported cases only and is therefore assumed to underestimate the true situation.

There are indications from other sources, however, which back up Kakar’s thesis.

The number of patients seeking treatment at a mental diseases hospital managed by the NGO International Assistance Mission (IAM) in the western province of Herat has been rising steadily over the past few years.

“We receive about 50 patients every day,” said Khadim Hussain Rahimi, an official at the hospital, adding that the number was significantly higher than in 2000 when the hospital was opened.

Also, of the over 100 cases of self-immolation registered at the burns ward of Herat City Hospital over the past 15 months, 76 had died, officials said.

“A lot of the women who commit self-immolation or suicide suffer from mental disorder,” said Mohammad Arif Jalali, head of the hospital’s burns ward.