How microfinance has become a central issue in Assam ahead of polls

According to experts, haphazard regulation of the MFI sector may be tantamount to throwing the baby out with the bathwater

All over Assam, small groups of women have banded together in organisations that seem to have mushroomed overnight. They have different names but a common target: Microfinance companies. 

‘Death by debt’ was spoken of in hushed whispers in the state, but became a political issue important enough for the state government to pass (in flagrant violation of Reserve Bank of India norms) the Assam Microfinance Institutions (Regulation of Money Lending) Bill, 2020’ on December 30 last year with the stated intention of “protecting economically vulnerable people from microfinance institutions (MFI)” and money lenders.

This Bill sought to restrict the maximum limit of borrower indebtedness (significantly lower than the prescribed regulatory limit), the number of MFIs lending to a borrower, and specifics on permissible recovery activities. Some of these provisions directly challenge the authority of the RBI, which regulates banks and non-banking financial institutions (NBFCs), including NBFC-MFIs.

Microfinance has become a central election issue in the state that will go to the polls in April-May.

On February 5, 2020, Dibrugarh saw a unique procession of women. Thousands of women walked to the magistrate offices in Moran and Mahamara, and handed over a memorandum seeking permission to commit suicide over the conduct of recovery agents of MFIs and their high interest rates. The memorandum said the shame of recovery agents entering the homes of women who had taken loans, harassing them, and the high rate of interest pushed them into a nightmare from which there seemed no escape.

Leader of the Opposition Debabrata Saikia recently wrote a letter to the Assam Governor Jagdish Mukhi and urged the government to do away with the weekly or fortnightly system of loan repayment. He said many borrowers have been forced to resort to distress-sale of livestock, power tillers, two-wheelers and even land to make weekly or fortnightly repayment. Some women have had to sell gas cylinders given to them by the government under the Ujjwala Yojana to service the debt. Many have borrowed to repay the existing loans, falling deeper into the debt trap, Saikia said. State Finance Minister Himanta Biswa Sarma said he was shocked that some of “my sisters had to compromise their chastity to repay MFI debt. This is unacceptable”.

Amulya Neelam, who work on microfinance issues with NGO Dvara, says the problem is one of regulatory design. The first state that reported an MFI delinquency crisis was Andhra Pradesh in 2010, when the state government passed an Ordinance to control the lending activities of banks and NBFCs in the state. A year after the Ordinance, the Indian microfinance sector saw a decline in both overall loan portfolio and number of borrowers by around 20 per cent, and a significant decline in the average household consumption in the state. “Such knee-jerk reactions to instances of harassment by microlenders of over-indebted households deprive low-income households who have a legitimate demand for credit. It also begs the question of why citizens must shift to formal credit if basic protections cannot be provided to them in their interactions with lenders,” she says, adding that as Assam seems to be following a similar path, “it is incumbent upon the RBI to reflect on the issues plaguing the sector”.

Congress MP from Kaliabor Gaurav Gogoi says the problem — low income, unemployment, and debt — is deeper and generic. “Our manifesto committee is debating the matter. We will waive debt for the most vulnerable sections of society. The Northeast is big in the piggery sector and farmers have lost a lot because of an attack of the African swine flu. We are demanding the state government compensate them.” 

He says it is because issues like this are not addressed in time that people fall into the clutches of moneylenders and MFIs. This is also because Assam has on an average landholding of about 1 hectare and the cash-rich industries of tea, oil and fertiliser are in a decline. 

State Congress president Ripun Bora is more forthright. “We will waive the loans of farmers, especially the loans taken by women from microfinance institutions,” he says.

However, experts warn that the politics of it apart, haphazard regulation of the sector may be tantamount to throwing the baby out with the bathwater. “Political parties in Assam are now calling for loan waivers of microloans. Such political decisions may further worsen delinquencies, credit culture, and future credit prospects of borrowers,” says Neelam.