Where Angels Prey

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

Friday, November 12, 2010

What is Coercion in Repayment; A Client Perspective from Indian Micro-Finance

Ramesh S Arunachalam
Rural Finance Practitioner

We have been hearing the term coercive repayment and this is what we have understood from our interaction with about 52 microfinance clients in the field in India, during the last 6 weeks. These items represent a compilation of what several clients (especially, those with multiple loans) and/or their families told us[i] as we talked to them in various places in Andhra Pradesh, Tamil Nadu, Karnataka, Orissa and West Bengal:

Client A: “The fact that fieldworkers/agents came day after day (for week after week) and pressured me to pay back is itself a sort of harassment and coercion. As I (and family) do not have serious livelihood means, we have to either borrow from another MFI (this would help consumption and also repayment for some time) or borrow from money lenders (at even 10% per month) to pay them and get them off our backs. The idea is WE HAVE TO SOMEHOW PAY THEM or they will not leave. When all options of borrowing run out, we either have to migrate or die. This is what is happening to other women and may happen to me someday soon”

Client B’s Husband: “My wife who committed suicide, had taken 8 loans and had to pay back 2 loans on Monday, 1 Tuesday, 1 Wednesday, 1 Thursday, 1 Friday, 1 Saturday (every fortnight one), and 1 once a month. There was no respite during the week and on Saturday, she felt happy that Sunday was the next day but that was short lived as we had to make payments from Monday again and the whole cycle continued…When one has to pay loan repayments on 6 days a week and people will not leave without collecting payments, it is downright harassment.”

Client C: “The collection agents/staff came and stayed put with us until we paid the installments and this built our pressure as they would be watching us, often passing snide remarks and insulting us. They would even ridicule our children and basically try to embarrass us – so much so that, we would even not hesitate to go to a money lender and get the installment amount as a loan at 5-10% rates of interest and send them off.”

Client D: One MFI had the practice where by if the 1st staff did not return within a stipulated time of 2 hours, other staff will successively join him. Soon, by 10/11 AM, there could be 4/5 people sitting near our house and making all sorts of insulting remarks. They also publicly shamed us in the village. I once ran here and there and finally paid them off at 4.30 PM in the evening and I was traumatized at the end of it all. Now, I dread their coming every time…

Client E’s Husband: “Some collection agents were really rude-after my wife committed suicide.” They came and said, “If you cannot find means to repay, then you should send out your two beautiful daughters, and get them to earn money by other means (prostitution…) and then repay to us.” One of them even said, “If you cannot do that, send them to me and I will use them and pay off your installments. They are very beautiful and would be able to earn a lot. I wept as I heard this…”

Client F: Another client says she is unable to bear the harsh language of MFI staff and, as a result, was pressured to take loans from local money lenders @4% interest per month to pay back installments. She also claimed to have sold off her jewels to repay MFI loans as staff were abusing her, whenever they came to the village for collections.

Client G’s Husband: One client’s husband said that the staff said, “We do not care if your wife died. You better pay when we come back tomorrow”. The husband further said that, “I had to borrow at 12% to pay them the next day as otherwise, they had threatened to chain me to the Big Tree, outside of the village and make me a laughing stock”.      

Client H: Another client said, “The earlier support (SHG) groups have now become pressure groups that insult. So there is no respite and harassment is 24x7 as group leaders and other members live at the village itself and they obstruct participation in village activities if the loan installments have not been paid. You just cannot get away without paying as they have a lot of local influence and can do anything…”  

Client I: A client remarked that in the case of defaulting members, if the defaulter did not repay the loan over dues, the group leaders and MFI centre leader simply took over the defaulter’s assets into their possession and then, they repaid the loan amount by liquidating it.

Client J: A client said that, “once at the time of weekly repayment, there was a death in the neighbour’s house who was also a member and the collections agents told the bereaved family that unless she paid the last two overdue installments, they would not allow the body to be lifted or rites to be performed. Then, the client claimed that, she went to a money lender in a nearby bigger village and got an emergency loan at 7% and helped her neighbour pay back the installment”.

While the above is by no means a scientific study, it nonetheless provides some (initial) indication into the kinds of coercive mechanisms that could be used at the field level (not exhaustive) by some MFIs and it does converge with the findings of previous research into coercive repayment (APMAS and others). These have been compiled into key coercive recovery strategies that could be used by some MFIs and these are summarized below:

Strategy # 1 - Life/Work Obstruction: Field workers, agents, centre leaders and/or group leaders/members may hinder and obstruct the normal life and work of clients and/or their families and thereby, force them to repay, using several means (borrowing from money lenders, take over assets etc) that may not necessarily be in the clients’ interest and one which could cause undue hardship to them

Strategy # 2 - Threats: Collection agents/field workers could threaten the clients that they would resort to violence and/or physical abuse if money is not repaid; they may also carry the threat out, if money is not forthcoming from the clients;

Strategy # 3 – Verbal Abuse: Field workers/agents may (verbally) insult, abuse and/or intimidate the borrowers and their family members and get the repayment

Strategy # 4 - Following the Client and Pestering: Field workers/agents could continually follow the borrowers and their family members from place to place and pester them for payment and keep on embarrassing them, until the money is paid;

Strategy # 5 - Repossession and Sale of Property: Sometimes, the centre leaders and/or group leaders/other members may even take over property owned or used by clients and sell that and take the repayment

Strategy # 6 - Satyagraha Outside Clients House/Place of Work: Field workers/collection agents could sit outside the house or places of work (like fields/shops) for hours and hours and keep on harassing for payment and leave only after they get it

Strategy # 7 - Embarrassment Strategy: Field workers/collection agents may sometimes even talk to business customers and/or guests of the clients and embarrass clients and thereby get them to repay

Strategy # 8 - Physically Take Over Assets/Documents as Collateral: The centre leaders, group leaders and/or other members could forcibly remove assets/documents of the borrower (like ration card etc.,)  and not return it until the repayment is made by client

Strategy # 9 – Physical Intimidation: Field workers/collection agents may physically intimidate the clients and get local toughs to rough them up once or twice, so that repayment is forthcoming thereafter 

Several questions arise from the above discussion and the RBI sub-committee would surely have to look into the (range of) mechanisms that have been and are being used by (some) MFIs to collect loans at the grass-roots. 

A rigorous scientific study will have to be commissioned and undertaken by a neutral set of people and only that can reveal the real extent to which such coercive tactics and strategies are used by (some) MFIs on the ground...

[i] There are Video Clips/Recordings Available of what clients said for the record.


  1. Ramesh --
    Thanks for this. It could launch an important conversation about exactly what are and are not acceptable collections practices. The Smart Campaign encourages microfinance institutions in a given country to talk together about collections practices and develop some explicit standards, something that no one has been willing to bring out into the open until now.

  2. I believe the best way is to arrange for monthly payments instead of weekly ones.

  3. Ramesh, thanks for this post. You might qualify to be the first one to have the courage to write what has been know to those in the sector, but never written before. Commercial banks in India only curtailed their harsh collection practices, after someone had the courage to expose those practices. Your efforts deserve kudos, IF they result in action by authorities and thus helping the helpless.
    What is amazing is that the 10s of 1000s who work in the sector and are part of the "Collection Machine" are keeping mum. Understand that it is a livelihood question when you work for the sector. But those with a conscience, who left the sector after seeing the circus that it had become, why are they not speaking up. Many ways of doing it - the safest (if one is worried about upseting old friends) - is to share your thoughts through these blogs.

    Hope to see some more Julian Assange's in India...

    And you, Ramesh, keep up your efforts. You may or may not get the Nobel from Sweden, but the weakest of the weak from India, will send you a Nobel from their hearts.