Originaly Published on: https://ceylontoday.lk/news/rural-debt-from-scratch-to-gangrene
By Sumanasiri Liyanage
At the moment of writing this article, the farmer women who had formed an organisation called the Collective of Micro-Credit Victimised Rural Farmer Women have been engaged in a ‘satyagraha’ in Hingurakgoda against the micro credit institutions that have entrapped the village poor and the Government that totally neglected the issue of micro credit victims the Election promises made by the Government politicians during the two election in 2019 and 2020 notwithstanding. They have started a Satyagraha campaign on 8 March on International Women’s Day. These women are determined that they will not end their ‘satyagraha’ unless and until the Government gives a reasonable solution, not another promise, to their problem. They claim this illegitimate debt should be cancelled. If the debt is not cancelled, it will not be paid, and they are ready to take the full responsibility for their actions. As one woman jokingly told me the Government may construct 24 lakhs of new prison cells for them since the number of micro credit victims are around 2.4 million.
Rural indebtedness has been a perennial issue in Sri Lanka and many other countries in the Global South. Even studies done during the colonial period have showed that the rural peasants were heavily indebted as there was no formal organised sector that provided loans in order to fill the financial gap that existed between the cultivating period and the harvesting period. As a result, money lenders cum merchants filled the financial gap of the poor peasants charging them exorbitant interest rates and loan conditions. There were cases that this resulted in a transfer of land from the poor peasants to village level merchants cum money lenders making poor peasants landless. This story was well recorded.
However, this phenomenon of rural indebtedness was simple and easy to be grasped.
As a consequence of it, the village social structure was subjected to gradual but definite polarisation, rich and poor. Nonetheless, an interesting thing to note is that the larger portion of surplus that was generated in villages remained inside the village except and in spite of the conspicuous consumption of village level elites.
Although the same dynamic is still at work and farmers are continuously subjected to the pressures of loan sharks at village level, a new dimension has been added to the problem of rural indebtedness making it today a more complex issue. It is imperative to examine what new features had been introduced into the phenomenon of rural indebtedness. First, the involvement of women to earn a supplementary income to the household since their income from paddy cultivation is not adequate to meet the family expenses that grow with the market deepening. Second, with the involvement of women in more commercially linked operations called self-employment, the need of credit arose for initial capital as well as working capital. This was where micro-credit emerged. After the initial success of the Grameen experience in Bangladesh, micro-credit schemes based on small group became a kind of panacea of poverty alleviation. The international financial agencies also praised micro-credit as a solution for rural poverty and underemployment. Thirdly, the provision of micro-credit transformed from a system that is based on small savings groups to specialised micro-credit companies.
These changes have made rural financial market more and more complex. While the merchant cum usurer capital dominates in paddy agriculture, micro-credit companies started to play a leading role in the market of the supplementary income provision predominantly led by women.
From a Complex System to Complex Problems
Micro-credit is portrayed as an all-embracing solution to the problems of rural economy in the global south by international financial institutions and local Governments, the newly emerged rural financial market creates more issues than it has resolved. A large proportion of women have been entrapped in a vicious circle of financial relations so that getting out of it in itself has become an issue. In Sri Lanka it was estimated that the lives of around 2.4 million people were affected by this menace. It was reported that more than 200 people including children lost their lives failing to pay back money to micro-credit companies.
As this is the harvesting season, these loan sharks are hyperactive in the dry zone in Sri Lanka threatening and forcing farmer households to pay back loans. Why are these loans called illegitimate? A simple idea of morality says that a debt cannot be defined as a legitimate debt if the lender refuses to reveal clearly the terms and conditions of loans to the debtor. Let us read the fact. All the loan documents are in English so that the terms and conditions of the loan agreement is not fully revealed to the less powerful party, the debtor. In many cases, the rate of interest is cited as a weekly rate that appears to be attractive (for example, say Rs 2 per week for Rs 100), but when calculated as a yearly rate the rate of interest is exorbitant. Similarly, according to the enforced agreement the loan repayment begins at the time of the loan is approved. Hence, the basic moral reasoning that the creditor also has an equal responsibility in loan repayment is totally neglected, instead the debtor is forced in to accept new loans to pay back the old ones. Here the entrapment takes place.
The net result appears to be that micro-credit has not contributed village poor to come out of rural poverty and dependence but to exacerbate those ills. As David Graeber has forcefully shown in his excellent book Debt: The First 5000 Years, these debts are illegitimate, and no moral argument supports their repayment. There is no level playing field. Let me finish this note by quoting Graeber at length.
“From this perspective, the crucial factor, and a topic that will be explored at length in these pages, is money’s capacity to turn morality into a matter of impersonal arithmetic-and by doing so, to justify things that would otherwise seem outrageous or obscene. The factor of violence, which I have been emphasising up until now, may appear secondary. The difference between a “debt” and a mere moral obligation is not the presence or absence of men with weapons who can enforce that obligation by seizing the debtor’s possessions or threatening to break his legs. It is simply that a creditor has the means to specify, numerically, exactly how much the debtor owes. However, when one looks a little closer, one discovers that this two elements – the violence and the quantification – are intimately linked. In fact, it’s almost impossible to find one without the other.”
(The writer is a retired teacher of Political Economy at the University of Peradeniya. )