District Secretary takes up micro loan issue with non-banking institutions:

Financial institutions stoop to low-down tactics

By P. Krishnaswamy

With over 120 non-banking financial institutions competing in the Batticaloa district in disbursing micro loans to conflict-affected families, it has now become a major problem instead of being a blessing, to many of the families and also to the State institutions concerned, authoritative government sources told the Sunday Observer.

Ms P.S.M. Charles

Hired field officers of the financial institutions go to the doorstep of the families to disburse loans 'over the counter' on flexible terms and conditions, which tempts families to take loans from more than one financial institution without considering their capacity to repay and when it comes to repayment the institutions take recourse to stringent and unethical measures which cause family disputes, rifts and even leads to suicides in some cases, the sources said.

Speaking to the Sunday Observer, Batticaloa District Secretary (GA) Ms P.S.M. Charles said that they do have an issue with the micro finance companies that had given loans to poverty-stricken families in the district. Complaints were received over the course of the last two weeks from many families on problems that they were encountering due to the stringent loan recovery measures of the institutions and finally she summoned representatives of the institutions for a meeting, she said.

She further said: "The issues relating to the problems encountered by the families over the repayment of the loans were discussed with the participation and support of the Regional Manager of the Central Bank, Abeyratne Dharmakeethi. We reached an understanding with the finance companies on working in coordination under guidelines given by us on both the recovery of loans and disbursement of loans. The last meeting was with the Lanka Micro Finance Company.

They agreed to work in coordination with us on elimination of poverty and other social issues among the local communities under conditions and guidelines provided by us.

They had agreed to most of our conditions. By next week we will be submitting a concept paper on this and we will provide them the guidelines for working in the villages.

"This is a good initiative in relation to the activities of the micro finance companies. We expect the other micro finance companies also to join the process and work under our guidelines. There are about 122 micro finance companies operating in the district and the loan amount disbursed to the villagers by them may be running into hundred of millions."

Sources of the Central Bank dealing with non-bank financial institutions told the Sunday Observer that the beneficiaries of the micro loans from the micro finance companies have encountered problems in repaying the loans because they had obtained loans from more than one company without considering the possibilities of generating income to repay the loan.

Furthermore the interest rates of the micro finance companies are much higher than that of the banks and they provide loans on short-term basis.

There is a competition among the non-bank financial institutions in disbursing loans, the sources said.

They hire field officers to go to the doorsteps of villagers to disburse loans on easy repayment terms.

In many cases, one spouse had taken loans without the knowledge of the other and finally it resulted in family disputes, separations and even suicides, the sources said. Such incidents were reported also from the Matale district, the sources said.

They had conducted awareness programs in March this year in all the four Divisional Secretariat areas of the Batticaloa district on the hazards of taking loans without taking into consideration the consequences and possible ways of generating funds for repayment, the sources said.

They held meetings with the many of the non-bank financial institutions on this matter. Ways and means of helping the local communities has also reduced the interest rates and flexible repayment arrangements were discussed at the meeting, the sources said.District Manager of the Commercial Credit S.Sivakanthan said that they are operating in Batticaloa since 2010 and they have over 12,000 members in the Batticaloa district alone.

The total loan amount disbursed by them may be in the tune of Rs. 300 million and a large majority of those who took the loans have applied for fresh loans after repaying the loans that they took, he said.

Heeding requests of the government authorities they have reduced the interest rate from 28 percent to 22 percent in respect of the SME sector and have also agreed on flexible repayment terms.

Representatives of some other micro finance companies told on conditions of anonymity that it was true that there have been incidents of suicides but they were not due to problems in repayment of the loans but instead they were due to family disputes and other financial issues.

Speculations that they were harassed by filed officers of the finance companies is also baseless because in that case the law enforcement authorities would have instituted action against the suspects.

To their knowledge 95 percent of the people who took loans had either settled the loans and have applied for fresh loans or have been regular in their repayments, they said. Most of the finance companies have been operating in the Batticaloa district since 2010 and they have contributed towards the economic welfare of the people and have not encountered any major problems, they said.