One November morning in Assam’s Charaideo district, a man set up camp outside the deputy commissioner’s office, threatening to not leave until his request was fulfilled. Mukul Khaklary, 35, who had a stiff left arm and a limp in his left leg, wanted the deputy commissioner, the district’s administrative head, to forward a letter he had written to the President.

It was an application seeking permission to kill himself.

In his two-page letter, Khaklary, a trained classical singer, chronicled his almost surreal list of misfortunes: a mysterious illness a couple of summers ago that left a part of his body paralysed stiff; a series of road accidents over a span of days earlier this year that left his eight-month old child dead, his five-year old daughter severely injured and Khaklary’s already frail body further battered.

Yet, the immediate cause that triggered Khaklary’s dramatic step that morning was something else.

To keep the household afloat and pay for her husband and child’s medical expenses, Khaklary’s wife had taken several loans from microfinance companies. Since these loans do not require any collateral, microfinance companies lend only to groups, usually of women, who serve as guarantors to each other. In other words, if one woman defaults, the others in the group automatically become ineligible for subsequent loans. As Abhijit Sharma, a Guwahati-based economist and a pioneer of microfinance in the region, put it: “To ensure that you behave, I use the logic of peer pressure.”

In the family’s case, the peer pressure became “mental torture”, said Khaklary. So much so that his wife had to flee home with their daughter. “Every day the women from the group would come home and give us full pressure,” said Khaklary. “I sold everything I had: land, cows, pigs, to try to repay the loan, but it just wouldn’t be enough. Now, I have nothing left; my wife is also gone. They have destroyed my life.”

Mukul Khaklary outside his home in Charaideo district in Assam. Photo: Arunabh Saikia

A microfinance crisis in Assam

The plains of Upper Assam abound with such stories: lives and families being torn apart because of microfinance loan debts. Even the Microfinance Institutional Network, the self-regulator for the sector, has rung the alarm bells.

According to an internal report of the body, indebtedness of micro borrowers in Assam is more than double the national average of 3%. Indebtedness is calculated as the percentage of borrowers with debts exceeding Rs 1 lakh, the cap beyond beyond which microfinance companies could not lend to an individual until October 2018 when it was revised to Rs 1.25 lakh.

In the five Upper Assam districts of Dibrugarh, Golaghat, Jorhat, Sivasagar and Tinsukia, indebtedness is even higher – at 11%, it is almost four times the national average.

Village after village, town after town in the area is filled with accounts of death, disappearances and distress triggered by microfinance debts.

In Dibrugarh’s Amguri, a picturesque village ensconced by rainforests, 19-year-old Antalekha Bora jumped into the Dehing river, her 18-month-old son, Xuntu, tied to her bosom, in May 2016. Her mother-in-law, Lakhi Bora, recalls her stomping off from home that day after a heated argument about the family’s burgeoning debts. It was “meeting day” – when the group would assemble and everyone would have to pay their installment amount.

According to Lakhi Bora, her daughter-in-law was upset that she did not have the required cash to pay off loans she had taken to help her husband. “I don’t want to be insulted again; you don’t know the taunts we have to face if we can’t pay on time,” Lakhi Bora remembered Antalekha Bora saying before taking off in a huff.

In Kopohua village, close to the oil town of Nazira in Sivasagar district, 55-year-old Niroda Gogoi, too, had gone out of home one September afternoon in 2018 to never come back. It was, yet again, payment day.

Her family found her dead body in a sewer three days later. The family’s explanation is the same: She did not have the installment amount that she owed the group. Tellingly, the family discovered that she had not gone to the meeting as she had claimed when irate members of the group turned up at their home to enquire about her absence. Six months later, Niroda Gogoi’s 26-year-old daughter Pallabi Gogoi died after allegedly consuming a bottle of farm pesticide.

According to her husband, Jintu Gogoi, Pallabi Gogoi had debt in excess of Rs 1 lakh when she died. “I am still repaying her debts,” he claimed.

Niroda Gogoi's son and grandson at their home in Kopohua village. Photo: Arunabh Saikia

Microfinance in India

The microfinance industry emerged in India in the 1990s as a response to the changed priorities of banks in the post-liberalisation years. With banks focusing their efforts on growing business in urban areas, private microfinance institutions rushed in to occupy the vacuum in rural areas.

Unlike banks, they would lend without collateral and paperwork. The interest rates were higher than banks but the short repayment periods would offset that. On paper, it was a tailor-made solution for the rural population’s small loan requirements.

Over the next two decades, the sector grew rapidly, but hit a roadblock in 2010. Andhra Pradesh, the epicentre of India’s microfinance success story, was besieged by bad loans and a string of debt-related suicides. The shockwaves were felt across the country, forcing the Reserve Bank of India to step in.

By the end of 2011, a set of guidelines were put in place. To avoid a repeat of the crisis – which had been triggered primarily by overlending – caps and ceilings on the number and amount of loans were codified.

Yet, a decade later, the crisis in Assam shows these guidelines have failed to deter malpractice.

Why Assam now?

For one, Assam’s agrarian economy has created high demand for micro-loans. “The state is a fertile ground for microfinance companies because we have a history of small land holdings,” said Joydeep Baruah, an economist with the Guwahati-based Omeo Kumar Das Institute of Social Change and Development. “So cash requirements are low and it makes no sense to borrow from conventional banks where such loans come with a high processing fee.”

According to the Assam Human Development Report 2014, almost 85% of the state’s farmers own less than a hectare of land.

The microfinance crisis in Assam, Baruah said, was just another manifestation of the rural distress in the country. “Unlike the bigger states, you don’t hear about farm loan waiver demands here,” he said. “Because people simply don’t take these big loans.”

Sharma said the situation was exceptionally grim in Upper Assam because the “cash industries” of tea, oil and fertiliser that the people in the area have been traditionally dependent on were in decline. “So, people seem to supplementing their declining incomes with this new source of microfinance loans – which is not really an income at all,” he said.

Upper Assam’s tea garden lines – as labourer colonies are called in local parlance – are replete with troubling accounts of microfinance debts.

The story of Chotu Tanti and Kalpana Tanti stands out. The couple were “casual labourers” – temporary employees – at a garden near Nazira town. As work became infrequent and the wages inadequate, Kalpana Tanti started taking microloans. But with no source of steady income, she resorted to fresh loans to pay off older ones. Her brother-in-law said she had outstanding dues running over Rs 1.5 lakh spread over “at least four” loans.

One day in October, with the debts and defaults piling up, angry women from Kalpana Tanti’s group, aided by some young men, allegedly stormed their one room-house and took away its tin roof. Such raids by group members to seize the belongings of defaulters seems to be a fairly common practice, according to local accounts.

The Tanti family has since fled the area.

“The ghost of microfinance got them,” said Chotu Tanti’s brother Suten Tanti.

Suten Tanti with his family at their home. His brother, Chotu Tanti, and sister-in-law, Kalpana Tanti, used to live next door. Photo: Arunabh Saikia

Breaking the rules

This is another factor that could explain the severity of the indebtedness in Assam.

The guidelines of the Reserve Bank of India stipulate that not more than two microfinance institutions should lend to a specific customer at one time. But 24% of microfinance borrowers with loans over Rs 1 lakh in Assam had loans from more than three lenders.

Interviews with women and bank officials in rural Assam throw light on how the system was rigged – by lenders and borrowers alike.

In Charaideo’s Sungi Lukurukhan, Pahi Chetia had outstanding loans amounting to Rs 2.5 lakh from as many as six different lenders as of December 2019. Chetia said she borrowed to raise capital for her husband’s vegetable business – which never quite took off. Essentially, she was taking one loan to pay off another.

But how did she convince microfinance institutions to lend to her, considering she had a history of defaulting and no credible source of cash-flow? According to Chetia, she did not have to as much as break a sweat. In fact, the lending banks showed her the way: go to an internet café and digitally alter your voter ID card number. In their records, they were lending to a Pahi Chetia with no credit history at all. Chetia played along only willingly.

Now, having run out of places to borrow from and under pressure from her lenders as well as her group members, Chetia is desperate for a way out. “We have sold everything from our gas cylinder to cycle,” she said. “Now all that remains is the house we live in.”

Identity manipulations to circumvent the RBI guidelines seem to be rather common. In the adjoining Tokolimora village, Bijumoni Gogoi said she submitted different documents to different lenders: her voter card for a few; her Aadhaar card for the others.

Microfinance professionals in the area admit that “there are sometimes mistakes” while disbursing loans. “People sometimes submit different documents, so one person could have different credit reports,” said Prodyut Hazarika, who manages the Nazira branch of the Bandhan Bank, one of the biggest microfinance lenders in the state. “Besides, there is a KYC problem here so we cannot always verify.”

KYC or Know Your Customer is a mechanism by which banks obtain and corroborate information about customers’ identity and address. This, some say, is because most people in the state are yet to link their bank accounts to their Aadhaar cards.

Ronejit Bhattacharya, manager of a branch of the North East Small Finance Bank Limited in an Upper Assam town, said some companies lent “without due diligence”. “There are too many players these days because they see a profit in the sector,” he said.

A group of women from Charaideo's Tokolimora viillage who are now struggling to repay their loans. Photo: Arunabh Saikia

A target-driven approach

But are these lapses in due diligence always inadvertent? Bhattacharya said his bank did not incentivise its agents for bringing in more customers, but added, “In the private sector, there are always targets.”

Even strong proponents of microfinance like Sharma concede that “overenthusiasm” and “greed” are at the heart of the crisis. Lenders often loaned indiscriminately because “there is an incentive linked up,”’ he said. “While it is true that people borrowed willingly and would often demand more loans, lenders should have been more careful,” said Sharma.

That apart, experts say microfinance institutions exploit a regulatory black hole to steer clear of the rules. The RBI guidelines that put a cap on the loan and number of loans apply only to Non-Banking Financial Company-Micro Finance Institutions. However, the sector is starting to be served increasingly by regular banks. According to the Microfinance Institutional Network, regular banks account for 4 % of the microfinance landings in the country – the single largest share. “While many lenders follow the indebtedness cap, some don’t,” said a spokesperson of the Network. “This leads to customers getting indebted beyond Rs 1 lakh.”

Sometimes, though, the spokesperson said lending errors were indeed unintentional. The spokesperson explained, “Data to credit bureau is refreshed in 7-30 days’ cycle. This means that lenders do not always have real-time view of her total leverage, leading to additional funding by lenders.”

Pahi Chetia (centre) with other members of her borrowing group. Photo: Arunabh Saikia

A trap

Many women admit that they succumbed to the lure of easy loans and borrowed indiscriminately. It did not help, they say, that microfinance companies organised intensive outreach programs on a routine basis encouraging women to apply for loans.

“They would show us this dream – that these loans were our passport to a good life,” said Moni Bora. “But I have to admit it is also my fault that I kept borrowing when I knew my husband was just wasting it.”

Bora had taken a string of loans in the hope that her alcoholic husband would start a business. But he deserted her last autumn after having spent all the money on drinks. She and her two school-going children had to flee their home in Pahuchungi village after the women in her group turned hostile towards them. This included Bora’s sister-in-law. “When I sent my boy to the ration shop to buy some rice, she slapped him and snatched our ration card,” she said. “She still has not given it back to us.”

Bora’s attempts to start a new life in a neighbouring village was also allegedly sabotaged by her peers in the group. “I had got myself a job in a tea-processing factory, but they landed up there too,” she claimed. “They called me all kinds of names and told my employers that I was a thief who would run away from there too.”

Bora was fired the same day.

Forced to return home, Bora found that several things the family owned was gone – the gas cylinder she had received under the Pradhan Mantri Ujjwala Yojana, utensils, a gunny bag of rice grains. When Bora confronted a neighbour, who was also part of the same loanee group as her, she reportedly said, “Sir told us to get hold of whatever we could to raise the money you owed.” She was referring to the loan agent in charge of the group.

An ‘addiction’

Debt-ridden and cornered, women in rural Upper Assam are now banding together and petitioning the government to step in and ban microfinance institutions from the state. “The kind of torture that we have had to face for defaulting is unspeakable – it is dehumanising,” said Antara Dutta of the Jagrata Mahila Suraksha Samaj, a group of affected women.

But Sharma warned of such drastic measures. “You cannot throw the baby with the bathwater,” he said. “You have to remember that microfinance brought in cash when there was none and a lot of people have benefited from it.”

Tighter regulations, stricter penalties for erring lenders was the more pragmatic way forward, said Sharma.

Microfinance Institutional Network pegs the existing gross loan portfolio of microfinance institutions in Assam at about Rs 2,500 crore.

Several of its current detractors admit that they have in the past indeed profited from these loans.

Yet, most women are now acutely wary of them. “It is like an addiction, “said Pompi Malakar, a homemaker in Charaideo district’s Sapekahti. “It feels good initially, but leaves behind a trail of destruction.”