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Now that Dr. Yunus is at the helm of the interim government, it is incumbent upon him to revisit and put things straight in the microcredit sector so that none can trade on poverty and exploit the poor
writes
Atiqul Kabir Tuhin
The impact of microcredit on small borrowers can be good, bad or, in some cases ugly with tragic consequences. But one thing is clear that microcredit has not sent poverty to the museum; rather, it has ensnared a majority of the poor borrowers even deeper in the trammels of poverty. Two recent suicide incidents have once again brought to light how microcredit can entrap its supposed beneficiaries in a vicious cycle of debt, ultimately leading them to commit suicide to escape this treacherous trap.
In a chillingly tragic incident in Paba Upazila of Rajshahi on August 15, a poor farmer, Minarul Islam (30), hanged himself after killing his wife, Monira Begum (28), their son Mahin (13) and daughter Mithila (3). In a suicide note, Minarul wrote that a crushing debt burden and grinding poverty had driven him to this desperate act.
Just days later, in Mohanpur, Rajshahi, another farmer named Akbar Shah (50) was found hanging in his betel-leaf garden. He too was reportedly distressed over loan repayments and the low price of his crops. Police recovered loan documents from over a dozen NGOs from the homes of both farmers.
These are not, however, isolated incidents. Rather, they have been occurring at regular intervals for decades. A suicide epidemic caused by debt distress has also been reported in other countries, such as India, which have replicated Bangladesh's microcredit model.
The gravity of the situation and the prevalence of this problem can be understood from the words of a local representative in a Rajshahi upazila. In an interview with a national Bangla daily, he stated, "About 75 per cent of the people in my upazila have taken loans from NGOs, and once the repayment begins, it never ends."
Yes, once people fall into this trap, few can permanently throw away this albatross around their neck. The reason is that microcredit has a self-perpetuating character. First, loans are saddled with an interest rate of about 20 per cent, which can rise to 35 per cent or even higher because of compound interest.
Compounding the problem is the fact that repayments on loans begin from the very first week, which gives borrowers almost no time to establish an income-earning enterprise. To cover the installments of first few weeks, borrowers often have to resort to taking out a further loan from a different NGO. Thus, much of the repayment of the loan is in fact fresh loan in disguise, contracted from other agencies to pay off the old debt and save the borrower from default. Thus in many cases the recipients far from getting enriched find themselves stuck in a vicious cycle. To free themselves from this trap, many of them end up selling their cows, farmland and homestead - the very last valuable possessions they have.
The original objective of microcredit is to reduce rural poverty by enabling people to establish small businesses or raise livestock and poultry. However, in many cases, rural people are taking loans to meet family emergencies or to simply cover daily expenses, with some even squandering the money on online gambling. Loans are often disbursed without verifying whether the money will be used productively, if borrowers are already in debt elsewhere, or if they might require repayment rescheduling after a disaster. For many NGOs, the goal seems less about poverty alleviation and more about profiting from interest payments.
This is not what Dr Muhammad Yunus envisioned when he pioneered microcredit in the 1970s. He wanted to empower poor rural women, not to entrap families in a cobweb of debt. Now that Dr. Yunus is at the helm of the interim government, it is incumbent upon him to revisit and put things straight in the microcredit sector so that none can trade on poverty and exploit the poor.