A tsunami of debt is building up in Tamil Nadu – and no one knows where it is headed

G Venkatasubramanian trots out some astonishing numbers. Over the last 15 years, he and his fellow researchers at Pondicherry’s French Institute have been studying debt bondage among families in 20 villages in Tamil Nadu. Half of these settlements are in the coastal district of Cuddalore, and the others are in the adjoining district of Villupuram.

Their study is throwing up some puzzling changes in how much these families borrow – and how. In 2001, the average annual income of these families was Rs 16,000. Average debt was Rs 10,000. Come 2016, annual income has risen five-fold to Rs 80,000. Average debt, however, stands at Rs 250,000. This is a 25-fold increase.

How these families borrow has changed too. Earlier, only land-owning communities – Mudaliars, Chettiars or Reddiars – lent money. But now, said Venkatsubramanian, the Scheduled Castes are increasingly lending and borrowing among themselves. “A family will borrow Rs 50,000 and lend Rs 25,000,” he said. At the same time, communities that once looked down upon moneylending are entering the trade. The Nadars of southern Tamil Nadu, for instance, have begun lending in central and northern parts of the state.

On the AP Microfinance crisis

a few months ago, papers and tv channels in andhra pradesh began reporting that women who had taken loans from microfinance companies were killing themselves. after 2005-06, when there had been similar reports of suicides amongst MFI borrowers back in 2005-06 (see this), this was the second such outbreak.

the whole thing was surprising. while media reports were blaming multiple borrowings and rising indebtedness, both have been around in the state for a while now. For instance, the 2009 State of the Sector report for microfinance had pegged the penetration of microfinance loans among poor households in the state at an astounding 823%. So, why this sudden rash of suicides and the distress they suggest? Had some tipping point been reached? Or was there some external shock?

In my chats with the borrowers and others, I found that the immediate trigger seemed to be a slowdown in labour markets — heavy rains hurt agri employment, NREGA (a national rural employment scheme) employment was hit due to a Central government missive that resulted in Andhra capping NREGA at 100 days, etc. But also that the crisis itself is not wholly of the MFIs’ making. What Andhra has is a wider failure in credit delivery (leave alone financial inclusion), and both Serp and the banks are to blame as well. Essentially, the banks lent far less than what the groups were entitled to, the MFIs proliferated, this explosion in credit delivery resulted in a fraying of relations amongst village women, and some women, given no support for livelihood building, resorted to NREGA to keep up with repayments. When NREGA was capped, and labour markets slowed overall, matters spilled out of control.

This, of course, is journalistic research. Anecdotal in parts and nowhere as detailed a scrutiny as is needed. We urgently need to understand, I think, both the linkages between labour markets and MFIs, and the impact of microfinance on the women — as anti-caste writer Kancha Illiah says in the story, rural communities are changing in ways that we have not grasped yet.

Anyway, the full story here. Take a look.