Where Angels Prey

Where Angels Prey is a novel by Ramesh S Arunachalam. Please refer to www.whereangelsprey.com for more information

Thursday, November 18, 2010

Can We Bring Back Ayesha’s Ammy?

Indian Micro-Finance Blog Team with Ramesh S Arunachalam

Locating the Nabee Saab household in Kurnool[i] is not difficult as it is near the Kabrasthan, the Muslim grave yard. And ‘Ayesha’, a 3 year old constantly crying for her Ammy, cannot go unnoticed, even as one enters the Nabee Saab house – a thin roofed structure, built on about 60 Sq ft of land. Standing outside the house is a 45-year-old person - who later turned out to be Nabee Saab - holding a sweet looking girl (about 3 years old). The tiny house, which is built of mud walls and some stone, has just 2 rooms – one where the entire family of 4 people (earlier 6 people) sleeps, lives and eats and another where the cooking is done and items are stored. There is a toilet outside.

The size of the house becomes more telling with the small girl’s constant crying for her mother Zaheera Bhee, who apparently committed suicide on 13/09/2010, as she was unable to make the repayments for the various loans she had taken. At least that is the cause provided by the family survivors…

It is in the above back drop that, Khaza (20), the eldest son of Zaheera Bhee and a painter by profession, narrated the pathetic heart rendering story…with some inputs from his father, Nabee Saheb.

Nabee Saheb, who is the head of this household, is a tailor and he has no stable income. He works in a tailoring unit nearby and payment of money for his work is based on the ability of the unit’s owner to procure work locally. As Nabee Saheb mentions, “By and large, I make around Rs 3000 to Rs 4000 a month (between Rs 750 to Rs 1000 per week and Rs 900 is common) but that is not assured as most of the young people are buying ready made garments these days. During festival seasons the unit gets orders from older people and in those months (which are not many in number), I would surely make Rs 4000 per month. In the lean months, I sometimes even get just Rs 2000 per month.”

Khaza adds, “I came back from Hyderabad become my mother and father wanted me to come and help out at home. My mother, Zaheera Bhee, used to do odd jobs in the town (like at the markets) and again, she did not have regular employment. So, my coming back helped as I was able to find work as a painter for 6 days in a week and bring home Rs 1200. However, this was not at all sufficient then because there were three other children to cloth and feed - Parveen (18) married and now gone with her husband, Muzambil (10) and Ayesha (3) – as well as several loan repayments to be made, day after day for weeks”.

Nabee Saheb reinforces this and argues that among the children, only Khaza has been able to support the family and his painting work fetches him Rs 1200 a week; he is also quick to add that Khaza can find work almost every week – and says that Khaza’s income is the most regular within the family - by the grace of God. Please see Table 1 hereafter for a summary of sources provided by the family

According to Khaza, his mother, Zaheera Bhee became a member of a women’s group in the neighbourhood and it was a five member group (what we call as a JLG in micro-finance parlance). The main (supposed) purpose of his mother (Zaheera Bhee) joining this group was to access a loan from the MFI for doing some business and meeting cash flow requirements but setting up of the business never really happened. Khaza further adds, “To my family’s surprise, we found that the group was a willing and easy source of loan money – even as the local money lender would hesitate to give us more money.” Thus, Zaheera Bhee along with her group members started taking loans for various purposes and there were no serious questions asked about the purpose of the loans and the family naturally felt happy all the while, taking and using the loans.  The details of the various loans taken by Zaheera Bhee[ii] are given below in Table 2

While Khaza claimed that the family spent the money (from various loans) for regular consumption purposes, Nabee Saab quickly added that a significant portion was also used for his daughter, Parveen’s, Nikha (wedding)! This apart, Khaza also clarified that any surplus loan money was kept safe and used for (any) unforeseen emergencies as well as repaying (if required) MFI loan installments that fell on successive days every week.

According to the family, there were quick or notional meetings on almost every day of the week for different MFIs. For example, Monday was the day of the meeting for SKS (Pedda and Chinna Loan), while Tuesday was for Spandana Spoorty MFI, Wednesday for Share, Thursday for one local MFI, Saturday for Asmitha and a day each in a month for Basix and Sriram. The meetings were to ensure that the member who borrowed, remitted the money to the group/centre leader/agent every week

Both Khaza and his father emphasize the fact that it has indeed been difficult to survive and pay the loan. They said that the strategies used by the family to repay include: a) Borrowing from another MFI or such source; and b) Borrowing from money lenders, even for 1 or 2 installments. Khaza further said that “it is only when my mother, Zaheera Bee, ran out of options that she committed suicide.” Now, he says that, “My father and I are also in a similar situation and do not know what to do, as we have no source to repay the loan”. With a weekly income in the range of Rs 2700, the repayment situation has always been a very critical one for the family, as Figure 1 below explains. As you can see from figure 1 below, with each successive loan, the family’s repayment pressure was building…and building up…

Now after the death of Zahera Bhee, the repayment pressure has increased as they have lost Rs 600 worth weekly income that was contributed by the deceased mother.

The family was rather unclear on the actual interest paid and they could at best, talk about the total repayment and hence, the bifurcation has not been done.

And as figure 2 above suggests, Zaheera Bee’s earnings were hardly enough to service the loans after the 2nd loan was taken. Even when the entire family’s earnings are taken into account (Rs 2700), servicing the cumulative loan repayments after the fifth loan leaves the family in a deficit situation.
Add to this the fact that the family of 6 had eating, living, clothing and educational expenses for the children – you can clearly see it is a no win situation and one really questions the basis on which several loans were given in the first place. That is the most critical issue, which needs to be explored and understood by the RBI sub-committee.

Further, as evident from figure 3 below, the family enters a deficit situation from the 5th loan repayment starts, when all family earnings are taken into account. When just Zahera Bee’s earnings are considered, then the deficit starts with the repayment of the 2nd loan.

The situation, according to Khaza is now worse as they have no income from Zahera Bhee and they also have the whole burden of the family including bringing up of the children.

Talking about the loan sanctioning process, an informed bystander remarked, “There are at least 10 such Micro Finance Institutions that are operating here. All of them have their field offices and anyone who wants a loan can approach group leaders. They will arrange the loan through the concerned agents (senior centre leaders) and MFI staff. There are no serious procedures nor is there any proper questioning on purpose and source of income before giving loans.  God alone knows how they hoped to recover loans after loans from such people, with poor livelihoods. Also, the loans are mostly used for consumption /consumer finance purposes and/or clearing old loans and there is a time until which these people can manage repayment. After that they have to either run away or take their own lives”. He further remarked that, “almost all the loans are scheduled as weekly repayments. It is compulsory that the borrowers pay the loan installment on the scheduled day of the week and the field staff/agents will not leave the borrower’s until and unless the installment is fully recovered. “

In fact, Nabee Sahib’s eyes are moist when he talks of the repayment process and says “that is what which drove my wife to suicide as she did not have the courage to face the group members, leaders and loan staff, without making payments and there was nowhere from which we could repay all the money…”. He further said that the “MFI staff and group leaders/members obstructed the normal life and work of my wife and family and thereby, forced us to repay, using several means including borrowing from money lenders at very high rates of interest (even 10% sometimes). They also threatened that they would resort to physical violence if money was not repaid on time and we all have been scarred. They also verbally insulted and abused us until they got the repayment on the specific day – they would continually follow us from place to place and abuse/pester us for payment and keep on embarrassing us in front of our neighbours, forcing us to somehow get and repay the money.”

The above case study raises several critical questions that the RBI Board sub-committee and RBI must look into and try to obtain answers[iii]:

1.      Multiple Loans and Indebtedness: How widespread[iv] are these multiple loans to the same client by different MFIs and others, in Andhra Pradesh as well as other parts of India? What is the average level of indebtedness of these micro-finance clients, with multiple loans from MFIs and others including banks, SHGs and informal sources? Is it as high as many recent reports seem to indicate – in ranges of Rs.1, 00,000 to Rs.2, 50,000 or even more? Where is it higher? In areas saturated by MFIs? Or fast growing MFI contexts? Or urban/coastal areas? Given the level of indebtedness and the livelihood options available to these clients, what assessment can be made with regard to the appropriateness of the multiple loans sanctioned (in terms of loan absorption capacity of the concerned client) by the different MFIs? How does the overall loan amount (for the multiple MFI loans) to a single (and same) client relate to any regulatory ceiling for classification as a micro-finance and/or priority sector loan? What are the regulatory implications for MFI and Banks, especially in terms of priority sector lending aspects? Have either the Banking Regulation Act and/or RBI Act been violated by the concerned commercial banks and/or MFIs as part of their multiple lending program?

2.      Sharing of Clients and JLGs: How extensive is the sharing of JGL clients across MFIs[v]? Is the reported trend of the same JLG being used by different MFIs on successive days true? If true, what are the implications of the same for the outreach data provided by MFIs and the priority sector lending data submitted by the banks to RBI? What are the resultant implications?

3.      Loan sanctioning process: What was the overall process by which the various MFIs sanctioned additional loans to the same borrower(s)? Who made the actual decisions of loan sanctioning and disbursement? Was the sanctioning authority aware of other loans that had to be paid back by the borrowers? If yes, what rationale was used to sanction the (additional) loan? If not, what does it say about the due diligence process at the concerned MFIs? How sound is the practice of the same MFI sanctioning a 2nd loan to the same borrower, just after 20 weeks into the 1st loan repayment? Is this not tantamount to refinancing (greening in common banking parlance)?

4.      Purpose of loans: For what purposes were the additional loans supposedly (and as per records) sanctioned by different MFIs to the same client (s)? Was there any utilisation check to determine if the loans sanctioned for ‘Y’ purposes were indeed used for the same purpose? This has significant priority sector implications as well.

5.      Credit policy aspects: How does this sanctioning of (additional) loans to a borrower with several other loans from several institutions/sources, relate to credit policies of the various MFI’s concerned? If credit policy was not followed, were there internal audits and did they reveal the same? If credit policy was followed, what does the policy say in terms of additional loans being sanctioned to clients who already have multiple loans from other institutions/sources? Does it approve, disapprove, encourage and/or discourage of an additional loan to the borrower, who already has several loans outstanding to other institutions/people? How does the credit policy view a client with multiple loans – as a serious credit risk or as a good client to whom many loans can be provided? What are the resultant implications for the credit rating obtained by these MFIs?

It would also be interesting to study whether the recent credit rating reports of MFIs did pick up the aspect of multiple lending, especially for the AP headquartered MFIs. It would also be useful to know, if and how this was factored into the rating grades.

6.      Loan repayment and sources: How did these MFIs hope to recover the money from the same client who had several loans with other institutions/sources? Was there a genuine assessment of the source(s) of repayment for the client? Based on this, was it possible for the client to repay all outstanding loans from that source (livelihood or total household income or whatever be the source etc)? For source of repayment indicated, how did it fare in reality? What sources were actually used by the client to pay back the loans? What supportive documentation exists with regard to specific sources being used for repayment in reality? Is there enough evidence in support of the claim that ‘additional (multiple) loans are generally sanctioned (sometimes, in sequence) so as to enable the clients to repay prior loans’? Or is this a totally baseless charge - motivated by other reasons – against the MFIs?

7.      Recovery processes: As per the credit policies of the various MFIs, what were the processes to be followed for recovering the loan from clients? Were these followed in reality? What about issues of recovery harassment by concerned MFIs that has been widely reported and also mentioned in this case study? Do the concerned MFIs follow the commonly adopted Zero PAR policy? If yes, was this applied to the present case and what was the resultant impact on the clients?

8.      Overall Impact on Client: What has been the overall impact of these simultaneous multiple loans to clients (and their families)? What has been the resultant impact in the respective villages and rural economy? How have these issues affected the local affinity structure, which is generally very supportive in rural areas?

9.      Role of Banks: What is the role of the concerned commercial banks in this whole aspect of multiple lending to same clients? Were concerned banks aware of the same? Did they approve it and/or encourage it or were they completely negligent/indifferent? What does this say about the due diligence process at banks and their responsibility towards priority sector lending as per RBI norms and circulars? Are there any legal violations in this regard? What safeguards can be built for the future?

10.  Implications for Micro-Finance: What implications does multiple financing of same clients by different MFIs have for the growth (achievements) of MFIs in the recent years? What implications does it have for the outreach and other data provided by MFIs to regulators and/or other agencies? Are there any legal violations in this regard?

11.  Implications for Priority Sector Lending: What implications does this multiple financing of same clients by different MFIs have for priority sector lending and the statistics provided therein by the commercial banks to RBI? What implications does it have given the fact that most bank loans to MFIs are indeed public deposits? Are there any legal violations in this regard?

I think it would be healthy to know facts as per questions above and it would also be useful to understand the rationale and processes by which multiple financing takes place, before arguing its merits/demerits. Therefore, it is imperative that the RBI sub-committee and Regulators understand the actual situation behind these multiple loans as I see this as the fundamental cause of the present problems in Andhra Pradesh – in fact, in my opinion, the present Micro-finance crisis in Andhra Pradesh and India cannot be solved, until and unless the issues of the supposed (excessive) multiple lending and resultant (high) level of indebtedness and (large) scale of sharing of JLGs/clients is practically sorted out...This case study and other suicide incidents have given us enough cause to study the multiple lending phenomenon and it is time we research this aspect, introspect with integrity and usher in appropriate changes to India Micro-Finance…that alone can and will restore its past glory…


[i] Exact place of residence has been withheld at request of client family, for security reasons. The case study has been videotaped…and the protocols are available
[ii] The family claimed that money lender loans were usually settled quickly as they had a very high rate of interest and also because they were usually small {often borrowed for paying small (MFI) loan instalments}.  We probed further but we could not get complete details on all informal loans taken by Zahera Bee and her family and their status, as there were no records what-so-ever. Khaza also said that his mother was the one who borrowed and therefore, they were unable to provide the specific details. It is however possible that the family also had some informal loans.

[iii] The RBI must look into and ascertain the facts from similar and other case studies – this case study is merely an attempt to highlight key issues and what has been said here is a faithful report of what the family stated to us. As such, the case study is a report of what the aggrieved family told us and must be taken as such. We have refrained from making any serious inferences on the case study thus far…. We also state that we do not attribute to any connection between the suicide and the MFI loans and what we have done is to merely report what the family said…
[iv] It would be very useful for the RBI sub-committee to look into the spread of this phenomenon and provide some estimates of its real extent, through appropriate sampling.
[v] Same as iv above


  1. Dear Ramesh

    Congratulations on the well researched articles on Microfinance. We will be interested in reproducing some of your articles partially.

    Kindly contact me on abhay@indiamicrofinance.com



  2. Ramesh
    Please accept my congrats in making every one to think about MFI.
    On one hand we are fighting with the options of money lender harassment and on the other hand about the failure of government in providing much required credit for the poor.
    Added to this we also have to live with the fact of politicians who want to hijack the government credit policies to convert as vote banks.
    In between these the poor people have not been educated about the much hyped financial literacy.
    The only answer is to bring in a massive financial literacy to the masses and I don't think that we can ever do that.