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State legislators in India have implemented strict new microfinance laws due to allegations that as many as 30 people committed suicide because of coercive lending methods, the AP reports.Lenders have not taken the news well, and a group of India’s largest microfinancers – including SKS, which is backed by Sequoia Capital and George Soros – have filed suit against the government in an attempt to block the new laws.
They say the new orders will “severely disrupt business,” and they are skepitcal of the suicide link.
SKS says 17 of the 30 reported suicides were clients, but that they also had loans from other microfinance institutions. The company says it does not use coercive recovery tactics.
The company’s spokesman, Atul Takle, also made another compelling point: SKS had no arrears with those who killed themselves. He said:
“[S]o where is the question of coercive recovery tactics?”
“I personally don’t think a person would take her life for 225 rupees ($5.08) a week.”
He referred to two instances in which the client was facing marital problems.
The state with the new laws, Andra Pradesh, is a microfinance hub, where SKS has 2 million customers. The company’s stock is already down 6.4 per cent in the wake of the changes, which include compulsary lender registration with the state government, requiring borrowers to make weekly repayments, and restricting the sum of interest payments so that they don’t exceed the loan.
Now, if lenders are found to be coercing their customers, they face a $2,257 fine and jail time.
One lender said the legislation “hits at the heart of my business model.”
For me to go to the village and make a collection is one reality… To expect a poor woman to go 7.5 miles away to make the same repayment to me is another ballgame altogether.”
India’s Reserve Bank is establishing a committee that will look into alleged microfinance abuses.