Borrowers from microfinance institutions (MFIs) in Andhra Pradesh were not aware that they were insured and that a part of the upfront deduction from the loan was going towards premium payment, according to the state government.
This intriguing fact came to the notice of the government authorities after a spate of suicides, mostly committed by the victims of multiple loans extended by MFIs because representatives of micro lenders allegedly coerced the defaulters.
B Rajsekhar, chief executive officer of the government-run Society for Elimination of Rural Poverty, said: “No borrower had ever received any mandatory annual statement or the premium receipt from any insurance company regarding his life cover, though every MFI had made upfront deduction from the loan towards the coverage of the loanee. Nor were they informed why the amount was being deducted.” The life coverage was equal to the loan taken by the borrowers, Rajsekhar said.
Following the suicides and public anger against the alleged coercive practices of micro lenders, the government had issued an ordinance in October 2010, banning MFI operations. As the officials also came to know that the death claim cheques were being taken by the MFIs, the rural development department had lodged a complaint against the insurance companies during the same time, said Rajsekhar.
“After finding out directly from the borrowers about the amount deducted upfront from the loan by the MFIs, we arrived at a figure of between 35 per cent and 65 per cent as the effective rate of interest being charged by these companies,” he told Business Standard.
About 120 poor borrowers had reportedly committed suicide under financial duress till MFI operations were banned. Teams formed by the rural development department had identified close to 98 deaths as being immediately triggered by coercion of MFI employees in the field. These teams had also worked with police to file complaints and chargesheets against the people allegedly responsible for the deaths of these men and women.
Recently, the MFIs had approached the high court and got a stay on the alleged harassment by the state government in the light of these actions.
