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Protecting the most vulnerable microfinance borrowers in India

Last week, a Bangladeshi court upheld the dismissal of Muhammad Yunus as managing director of the Grameen Bank, which he founded.

Mr Yunus won the 2006 Nobel Peace Prize for his work to provide banking to the poor and expressed his worry about the future of Grameen (which means ‘village’ in Bengali) and its borrowers. The dispute comes amid a climate of growing criticism about micro-lending and claims that some microfinance institutions (MFIs) are exploiting the poor. Offering banking credit to people who are too poor to access traditional services, social commentators are worried that some MFIs are lending to people who are unable to repay their loans.

Criticism of MFIs is particularly growing in India, the world’s fastest growing microfinance market where an estimated 30 million households have microfinance loans. Many of the banks’ customers are women, since as Mr Yunus observed when he set up Grameen, poor women are the most effective managers of scarce resources.

But whilst microfinance has certainly benefitted many women, some are being adversely affected. The Association for Women’s Rights in Development (AWID) is particularly worried about the vulnerability of Dalit women in India, those who are considered as ‘low caste’ or ‘untouchables’ under the old caste system. Historically, these women have been expected to perform the lowest of tasks in society, such as cleaning toilets and disposing of dead animals.  Though attitudes are changing slowly in some places, Dalits still face discrimination and many Dalit women have extremely poor prospects. According to AWID, over three-quarters are unable to read and write and my Dalit Girls remain vulnerable to sexual violence and abuse, for example under the ‘devadasi’ temple system which dedicates them to a life of prostitution.

When Dalit women take out small-scale loans, AWID is concerned that many do not understand the repayment terms and are not given enough advice by the lenders. Some banks also employ aggressive debt collectors for weekly repayments. In Andhra Pradhesh, this has led to a spate of suicides, several of them Dalit women who were unable to meet debt repayments.

The chairman of India’s MFI Network, Vijay Mahajan, has admitted that some organisations are encouraging “over-indebtedness [and] coercive recovery practices”. However, finance experts argue that repayment rates are generally over 95 per cent in India, indicating only a small proportion of borrowers struggle to repay their loans. Like Mr Yunus, most believe MFIs have the potential to help the poor. But to make sure this is the case for all borrowers and to protect the most vulnerable such as Dalit women, AWID says better regulation of the industry is essential.

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