“Live only in a village that has a money lender, a physician and a perennial river …” is the ancient wisdom of Sumati Sataka. Ever since money replaced barter economy, money lending at a fair rate has become the essence of modern life. Everyone needs to borrow to tide over a contingency or to invest in a venture.
And yet in 2002 we have no sensible lending practices or established thrift and credit institutions to serve the bulk of our population. For the more educated and well heeled, we have banks. Of course their service and lending practices are not much to write home about! But that is another story.
Dear reader, almost certainly you have domestic help. On inquiry, you will learn that most of them are heavily in debt. They would have borrowed from a usurious moneylender either to take care of a sick mother or to get a daughter married or for a pilgrimage. Where we would complain about a 16% bank interest or shy away from a 18-24% private loan, these poor, ignorant and helpless workers borrow at ‘Rs. 5 per month’ – which translates to an annual interest of 60%. Some borrow at even higher rates. They might have borrowed only Rs 5000 for a wedding - but end up paying Rs 250 – 300 every month. Compounded every month, the real interest rate is 75% or more per annum! This is a lot of money for a worker earning only Rs 1000 – 2000.
The answer lies in creating thrift and credit institutions. Most of the poor splurge when they have a little extra cash. They neither have access nor are aware of simple savings mechanisms and hence when they need cash they borrow at high interest. If we can pool their surplus cash this would be adequate to serve their credit needs.
This is exactly what organizations like Cooperative Development Foundation of Hyderabad are doing. Members of a neighbourhood pool their monthly savings of Rs 30 - 50 per household. They are eligible for loans up to three times their savings. When a loan request is made, the members who are familiar with the situation confirm that there is genuine need, and then decide on the amount and rate. Usually the interest rates are about 24% per annum (Rs 2 per month). You will be surprised to know that the recovery rates are almost 100%.
In Warangal and Karimnagar districts 386 such thrift cooperatives have come up with a total membership of 83,000 and savings of Rs 17 crores! Every month they are adding over Rs 36 lakhs to the kitty! The impact on the local community, rural economy and social and political fabric has been profound. Many poor, obscure men and women are now highly respected leaders. What is more, over 48000 members are women!
In Hyderabad there are lakhs of unorganized workers who are now in debt trap for want of a credible thrift and credit network. Their total debt may be of the order of Rs 100 crores, and the monthly interest they pay would be Rs 5 crores! And yet if their savings can be harnessed, they can lend themselves, and pay no more than Rs 2 crores per month as interest. This is the kind of work which transforms lives.
Great acts of piety and fear of god are of no consequence unless practical work is done to improve the lot of our own people. A worker with no money or social security and consumed by the anxiety of having to confront his money lender, will be listless, inefficient and desperate and soon turn to crime and violence. We need to help organize thrift societies in each neighbourhood. What is more, they do not need outside resources. All it takes is a bit of our time, energy and management skills.