The government of the Indian state of Andhra Pradesh (AP) is considering a bill that would make it compulsory for microfinance institutions (MFIs) to compensate the families of borrowers who commit suicide as a result of heavy debt burdens. Manikya Vara Prasada Rao, Minister of Rural Development supports the effort saying, “Our estimates suggest that about thirty-five to forty people committed suicide due to the coercive practices of MFIs. As we think the MFIs are responsible for the suicides, they need to compensate the families of victims.” After the death of a microborrower, surviving members of a household are often left with the responsibility of repaying outstanding loans. The proposed amount of compensation is INR 500,000 (USD 11,000) per household.
Anurag Agarwal, Vice President of Intellcap, an advisory firm based in India, argues that if implemented, the new bill will have negative implications for the sector saying, “It will give an impression that the sector was responsible for forcing people to commit suicide, which is a crime. This kind of a perceived notion will make investors wary of investing in the sector and in the long run can affect fund capital raising plans of MFIs.”
By Julie Moksim, Research Associate
Sources and Resources:
Silicon India News: “MFIs to Provide Suicide Cover of 5 Lakh: AP Government”, http://www.siliconindia.com/shownews/MFIs_to_provide_suicide_cover_of_1096639__AP_Govt_-nid-77967-cid-5.html
MicroCapital.org Brief, October 18, 2010: Andhra Pradesh Government Plans Legislation to Restrict Collection Practices of Microfinance Institutions (MFIs) After Rise in Suicide Among Borrowers, https://www.microcapital.org/microcapital-brief-andhra-pradesh-government-plans-legislation-to-restrict-collection-practices-of-microfinance-institutions-mfis-after-rise-in-suicides-among-borrowers/
MicrCapital.org Brief, October 18, 2010: Series of Suicide Linked to Microloan Repayment Rock India, Raises Questions on Whether Interest Rates Charged by Microfinance Institutions (MFIs) are Too High, https://www.microcapital.org/microcapital-brief-series-of-suicides-related-to-microloan-repayment-rock-india-raises-questions-of-whether-interest-rates-charged-by-microfinance-institutions-mfis-are-too-high/
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