Krittivas Mukherjee / Reuters
India: Almost every farmer across India’s arid cotton-bearing central plateau is a hostage, in one way or another, to a profitable mega-business of illegal moneylending.
Families have lost land, farmers have been asked to prostitute their wives to pay off debts and, when all else has failed, borrowers have killed themselves to end their misery.
An inescapable cycle of debt is fuelling one of the worst agrarian crises facing India, a crisis that has seen some 150,000 farmers commit suicide since 1997.
Yet the public image of menacing debt collectors does not entirely reflect the views of the region’s three million farmers. The rapacious moneylender, who plugs the gaps in rural financial services, is also the man they can turn to in times of need.
Last month, India’s government announced a $15-billion loan waiver for small farmers borrowing from banks, but experts say the efficacy of the scheme is badly diluted because it leaves out those borrowing from moneylenders.
“Moneylenders are now an inextricable part of the rural economy,” said S. Parasuraman of the Tata Institute of Social Sciences. “So much so the bank has become secondary, or even redundant, for a small farmer.”
Moneylenders have been around for generations, but their business has boomed ever since India’s economic priorities shifted, with globalisation, from agriculture to industry. The arrival of high-cost seeds and pesticides has added to the debts.
A Necessary Evil?
Indeed, one or two crop failures, a sudden health expense or a marriage in the family have become that much more perilous in a livelihood where the risks are already high.
Officially, almost half of India’s nearly 100 million farming families are in debt. Of these borrowings, almost 30 percent are said to be in debt to private moneylenders, although farmers’ lobby groups say the ratio is many times higher.
Prakash Uike grows soybeans and works as a labourer in a nearby town two days a week to pay moneylenders who gave him $200 two years ago. At $25 every two months Uike’s loan should have been covered, but by some wily calculations of the loan-shark he continues to be in debt.
“I have had to mortgage my land to him,” said Uike, an emaciated man who looked older than his 47 years. “But at least he has given me a loan.” Virtually every cotton farmer in these parts, for instance, needs the assistance of someone like Yakub, a veteran moneylender who gave only one name. Typically, he charges 30-40% interest on a four-month loan.
He collects his dues at harvest time, but exacts an extra premium, compelling farmers to sell their cotton to him at a price lower than it fetches on the market, pocketing the profit.
As collateral, the borrower signs away his land title that gives Yakub the right to collect the property at any time.
Most deals are illegal because the moneylenders don’t have licences, a crime punishable with a $25 fine. Usurpation of property invites three months in jail, but convictions are rare.
Farming distress has attracted a new breed of moneylenders. Anyone with some disposable money - from shopkeepers, government officials and policemen to village teachers - lends in the hope of making a killing.
In this dusty town, about an hour’s flight from Mumbai, India’s financial capital, almost every shopkeeper lends at a premium. Their names are known to everyone in town, though few are willing to point them out for fear of reprisals.
Nowhere Else To Turn
But rural credit and indebtedness is far from being a simplistic usurious lender-farmer spiral. Even though farming supports 60 percent of India’s 1.1 billion people, it contributes only a fifth of gross domestic product and accounts for only around 15 percent of bank credit.
Marginal farmers hardly get formal credit because they almost never have any collateral. Other farmers are often underfinanced by banks, forcing them to turn to private lenders whose usurious interest rates bind them to a never-ending cycle of debt. “I have nothing left to mortgage to banks, so they will not give me credit,” Uike said. “Where can I go then?”
In fact, bank interest rates are high as well, especially for rural borrowers. At interest rates ranging 13-14 % for a crop loan, it is cheaper to borrow to buy a small car than to purchase seeds. Sometimes farmers have to bribe bank officials for a loan.
Predatory lenders are only part of the problem. Health-care and education costs have risen dramatically in the past few years, while income from cotton has slumped.
And then there is the growing obsession with the luxury goods that now consume much of the farmers’ incomes. Television has given even the poorest a glimpse at the world outside.
“People get upset if I tell them to curb the tendency to borrow unwisely,” said Kishor Tiwari, a farming activist. “The propensity is to go with the flow, the pocket permitting or not.”
Two years ago, a senior local government minister advised people to “skin alive” moneylenders. No one responded.
If you hurt the sahukar (moneylender) you hurt the farmer, villagers said, and the clampdown on loan-sharks fizzled out.
In every village, moneylenders are reviled, and their business seen as thriving on squeezing out the blood of poor farmers. Yet, villagers know there is no life without the loan-shark. “We stay alive because the sahukar gives us some money,” said Jyoti Sanjay Jiddewar, whose husband killed himself unable to pay moneylender.
“I still have to deal with them otherwise we will starve.”