J.A.A.S.RANASINGHE Colombo 05 Courtesy The Island

Leading businessman, Dudley Sirisena (DS) President’s brother, at a recent meeting in Polonnaruwa is reported to have said that Micro Finance Companies (MFCs) are like leeches that suck blood of the poor people’s livelihood income, and consequently, the rural economy is in a serious state of indebtedness unable to repay their micro loans. This indebtedness malady is reported to be so critical that the vulnerable rural farming community, especially women who were mercilessly exploited by the MFCs, have been prompted to sell their properties as a last resort, according to DS.

This controversial onslaught has caught the attention of the Government, regulatory financial authorities as well as the social and print media, and hence it cannot be easily ignored as mere rubbish. In the absence of any responses to the contrary by the Central Bank or MFCs or their representatives, the general public tends to think what DS said was the truth, the whole truth, and nothing but the truth.

Thus the assertion of DS, in my view, will definitely have a domino effect (rippling effect) in financial circles, and the immediate response of the Government over the exploitation of this vulnerable segment took an unprecedented reaction within one week, by introducing relief measures to extricate the women who fell prey to the obnoxious coercion practices cleverly manipulated by some of the MFCs.

MFCs are an integral cog of the national economy and its existence and rapid extension to the rural economy, thus fulfilling the aspirations of the poorest of the poor who are unable to provide collaterals in obtaining credit facilities for income generation activities was manna from the heaven, when this mode of facility was introduced two decades ago. As a result, Microfinance became a buzzword in the Sri Lankan Credit Market as an effective tool for poverty reduction and socio-economic development. But, its impact on the alleviation of poverty has to be re-visited in view of what is disclosed by DS.

Having been battered by the 30-year-old war, mostly the landless people affected by it lacked financial support to rebuild their lives and income generating activities. The prolonged droughts, as well as incessant rains and floods, have equally contributed to the debt cycle of the vulnerable borrowers. The income generating in many districts were decimated, thus pushing the debt-ridden people to a pathetic situation. The resultant scenario was that the households, especially headed by women were particularly affected, compelling them to seek microfinance loans simply to survive, in the absence of any support from the government.

The commercial banks and organized financial sector were reluctant to extend credit facilities to the war affected people immediately after the war, and the then government’s concentration was to re-build the infrastructure, and the livelihood income generation projects took a back seat in its rehabilitation agenda for this marginal community.

The MFCs, having realized the business potential prevalent in this sector, successfully moved in by offering numerous micro-facility products without collaterals. If DS’s contention is correct, my stance is that poverty has become a big business for some the MFCs, to subject the marginalized segment to debt traps by way of exploitative microfinance lending products and schemes.

As a matter of fact, several researches undertaken by the Universities, Professional Organizations, Central Bank, Commercial Banks, ARTI etc in regard to the roles played by the MFCs in the last two decades, have revealed no adverse findings against the MFCs to the extent of social upheaval, as alleged by DS.

However, being a successful businessman who have closely interacted with the rural masses, the serious allegation he made against the MFCs are mind boggling and warrant retrospection in the light of the latest revelation. Moreover, the criticisms levelled against the MFCs should have spurred those financial institutions to critically examine whether they have inevitably become blood suckers of the nation at the cost of the rural masses and built up financial empires.

There seems to be an element of truth in what DS emphatically stressed, and the government intervention to bring financial relief to the heavily debt-ridden people, manifestly proves that the question of indebtedness among the rural masses has crossed the Rubicon!

Prime Minister in a public gathering held at the Weerasingham Hall, Jaffna, has offered a relief package to those affected by the Micro Finance institutions, and this initiative itself discloses the extent to which the rural economy is embroiled in the vicious cycle of poverty and indebtedness, as a result of the exploitation by the MFCs.

The Finance and the Media Minister has disclosed that the some of the MFCs had charged exorbitant interest rates as high as 200% per annum, cornering the poor people to an unending cycle of debt. No wonder the chaotic situation manipulated by some of the MFCs would have ruined the marginal segment of the rural community, thus causing them not only economic hardships but also psychological distress.

Empirical studies carried out on the impact of the Micro Finance reveal that Micro Finance has proved to be an effective and powerful tool for poverty reduction, the improvement of the quality of life of the rural community, and the role played by the Micro Finance Companies in this drive should be applauded. But how come, they have become blood sucking institutions, threatening the very fabric of the rural society relatively within a matter of few years, is the question that remain to be answered. The Government has correctly identified that the enactment of new Micro Finance Act will be a panacea for all the financial ills of the rural economy at this juncture.