SKS, world's largest microfinance service, drives debtors to suicide

The Associated Press has obtained portions of a suppressed independent investigation into the role that debt collectors working for microfinance giant SKS played in the suicides of desperately poor borrowers in the Indian province of Andhra Pradesh. SKS made global headlines when it received backing from a US venture capital firm, the Boston-based Sandstone Capital, and then had a highly successful IPO. The independent investigation, commissioned by SKS itself (though the company has disavowed it) documents a pattern of usurious practices by vicious debt-collectors working for the company that drove several borrowers to grisly suicide.

The interview videos were shown to the AP by Uma Maheshwari, who said she was present during one set of recordings and visited several of the families personally. She left SKS in July.
In one video, the daughter of borrower Dhake Lakshmi Rajyam cries, gasping as she talks to an investigator in Tadepalligudem, Andhra Pradesh.
Rajyam was unable to pay off $2,400 owed to eight different companies. Employees of microfinance companies, including SKS, urged other borrowers to seize the family's chairs, utensils and wardrobe and pawn them to make loan payments, her family told investigators. Unable to bear the insults and pressure of the crowd of borrowers who sat outside her home for hours to shame her, Rajyam drank pesticide on Sept. 16, 2010, and died, the family says.
"We have lost my mother," her daughter says. "Nobody will support us."
The investigator's conclusions lay the blame on SKS employees, saying they failed to comply with company policies "and even basic moral rights."
Vautrey said he sent the case studies to three top managers, including Rao. Emails obtained by AP indicate that summary reports were emailed to the managers.
Rao did not respond to multiple requests from AP seeking comment.

AP IMPACT: Lender's own probe links it to suicides (via Making Light)

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MORE: bangladesh • corruption • economics • finance • human rights • india • microfinance

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http://www.facebook.com/toshfieldsend Tosh Fieldsend

well that’s a little bit horrifying.
Teller

Read this story a couple days ago. It’s a billion-dollar loan-sharking business with often tragic results, since one way out of debt – allegedly suggested by the agents - is suicide.
- Moriarty
  
  Why would the agents suggest suicide? Dead people don’t repay loans.
  - Antinous / Moderator
    
    Why would the agents suggest suicide? Dead people don’t repay loans.
    
    Their children are easily sold into prostitution or used for organs.
    - Teller
      
      The posted link above states that in death, the debt is forgiven. Your information must come from elsewhere.
      - Antinous / Moderator
        
        It’s India. Things don’t work that way. A contract is only as good as your ability to pay enforcers.
  - TooGoodToCheck
    
    I believe that life insurance may be a factor. I don’t have a really good citation for this, but NPR mentions it here:
    http://www.npr.org/2010/12/31/132497267/indias-poor-reel-under-microfinance-debt-burden
gwailo_joe

“usurious practices by vicious debt-collectors”. Nothing new here.

Micro finance shocks the world by actually working. Big money gets involved. Bonuses for agents to get more loans. Too much credit is extended to people that can’t afford it.

To the collectors the equation is simple: Default = Death. Driving desperate people to suicide for a pittance: Nice, real nice. Bastards.

Of course chump change to some is a fortune to others: still, why did the person making $48 a month borrow three thousand dollars? That’s goddamned irresponsible……

Unscrupulous lenders and ignorent borrowers help to make the whole world fall apart.
- Marco Antonio Morales
  
  You’re right. How goddamned irresponsible to suddenly have a need that surpasses your income. Accidents, house plumbing or roofing breaking, a child with medical needs, a broken car which supplies your income… how dare anyone have sudden monetary needs, specially in places where the income is so low, you only live day by day?
  
  Ignorants…
  
  /sarcasm
  - Teller
    
    60 Minutes recently ran a piece on how gold is practically a cultural necessity in India. While Americans find gold a luxury, it isn’t to Indian families of every stratum. Maybe gold plays a part in this need to borrow.
  - blueelm
    
    It is ignorance though, ignorance of how this will progress once they take the loan. Most people who fall into this kind of mess are really unaware of how things can go afterward for them. Remember, ignorance isn’t that big a deal until some one exploits it.
    - digi_owl
      
      was it Einstein or someone else that said that the greatest problem for man was our inability to grasp exponential functions?
http://narrowstreetsla.blogspot.com David Yoon

Invention of the epoch: debt!
jtegnell

Whatever happened to debtor’s prisons? That’s the way to go.
- Just_Ok
  
  they cost too much, no profit in them.
  - phisrow
    
    Spoken like a man ignorant of the fine institution of the ‘Sponging House’…
phisrow

The studious banality of the various besuited flacks quoted in the article is as impressive as it is alarming.

“The growth was very rapid. That growth led to some suboptimal outcomes,” ”"Mistakes were made, but I find it difficult to believe there was anything people did at a managerial level to encourage field officers to do that,”"It must take practice to say things like that with a straight face. Can’t make an omelet without killing some people, I suppose…
Brian Hansen

Though the callousness of their practices is immoral, the base cause is the inability for the borrower to fulfill their commitments. The losses by the borrowing company ultimately drives the cost of their products higher or the cost of interest higher for everyone else.

The education system surrounding credit and personal finance may be the core problem. However given that rampant credit is the only item running “progress” in business, this is not likely to reach the consumers.
- phisrow
  
  ‘Commitment’ cuts both ways: The borrower agreed to pay the money back. The lender agreed to provide the loan without collateral(assuming the usual microfinance practice) based on the bet that enough of the loans would pay off to make that a profitable line of business.
  
  Attempting to turn an unsecured loan into a secured loan by making default impossible, or inciting others to seize the borrower’s assets, or similar means, isn’t merely ‘immoral’ it is theft and a violation of their commitment.
  
  People are free to offer unsecured credit; but they take on the risk of default by doing so. If you squeeze the defaulter to the point of suicide and they still haven’t paid up, it seems pretty likely that they aren’t just hiding their assets in a sham bankruptcy of some sort…
- http://imcravingpresidency.tumblr.com/ SedanChair
  
  My, what a superior tone. I’d like to see what you’d do if someone offered to loan you $30 million USD.
  
  Don’t bother answering. The point is you don’t know what you’ll do until the opportunity presents itself.
  - http://profiles.google.com/marc.k.mielke Marc Mielke
    
    Take it! It’s EASY to disappear yourself with that much scratch! Harder with the smaller amounts discussed here.
    
    I would not be surprised if this somehow gets blamed on Obama. Didn’t his mother invent microloans or something?
  - Brian Hansen
    
    The loan would not be taken as simple math can presume that few would be able to fulfill the commitment and consciously theft and bankruptcy fraud is not a viable option.
    
    My first comment appears misconstrued, the primary point was that companies would not be placed into predatory collection actions given more education/time was presented during the initial lending commitment. Further the impact of defaulting borrowers (consumer or businesses), directly impact for any inter-related business partners.
    - http://twitter.com/malcolmjackson ♡ Malcolm Jackson
      
      This is so often the case when microcredit goes wrong. The borrowers are not educated enough by the lender as to what microcredit is for or how it works, there is not enough business consultation support from the lender, the loans are made without a true assessment of the viability of the borrower’s business idea, the lender uses debt collectors instead of more of the above and educational business counsellors.
      
      Microcredit borrowers in the developing world have a lower debt default ratio than borrowers in the western world. The errors here pretty much lie with the lender and are in many cases traceable back to a lenders suspect motivations for being in the microcredit industry.
- http://twitter.com/malcolmjackson ♡ Malcolm Jackson
  
  The point is they’ve taken a system built for humanitarian purposes & used it for their own profit while selling it as the same system. It’s not.
http://www.mrericsir.com MrEricSir

Makes you wonder what the bankruptcy laws are in the countries where microfinance companies operate.
- phisrow
  
  Given the target demographics of the ‘microfinance’ model(poor, collateral-less borrowers, often possessing some other socially marginalizing characteristics, that the usual lenders won’t touch) the bankruptcy laws probably end up not mattering all that much. Unless the local DA equivalent happens to be on a crusade, getting even the most favorable law applied is going to cost more than you can afford…
journey46

The appetizer ?
The Constitutional right to spend money to buy elected officials who will insure business and banking are unregulated and fair business practice laws are eliminated.
The soup du jour.
Bankrupting nations and brow beating 3rd world debtors into suicide.
Wait, wait, don’t leave, you’re gonna love the main course !
Loss of all property and liberty in perpetual servitude.
And for dessert ?
The grease and flour scrapings of cake pans.
- bcsizemo
  
  “The grease and flour scrapings of cake pans.”
  
  If that’s the brown stuff left over once I flip out the cake, I’m lovin’ it. That’s just about the best part of making a cake.
  - journey46
    
    it is what marie antoinette’s famous quote “let them eat cake” to the french people really meant.
    - CH
      
      Huh? Well, first of all, Marie Antoinette said no such thing, even though it is commonly attributed to her. And second of all, the original quote is about brioche, which isn’t a cake. So, the “explanation” above doesn’t sound that plausible. http://en.wikipedia.org/wiki/Let_them_eat_cake
stephenl123

This story isn’t particularly about Microfinance. That part is misleading. This same story happens all the time in the US with mortgages, shady loans, credit card debt, etc.
http://twitter.com/malcolmjackson ♡ Malcolm Jackson

I am so, so sad to read this. Micro finance as developed by Muhammad Yunus has been a fantastic tool for poverty reduction, and as Muhammad Yunus tells it Grameen Bank works compassionately with borrowers who find themselves unable to pay - to do otherwise would nullify the whole point of Micro Finance which is of course to alleviate poverty. It’s a system born out of compassion.

Muhammad Yunus is a dear, humble man who created a brilliant system. The system was created precisely to provide a different experience for borrowers than this kind of horror that was unfortunately the norm before the dawn of Micro Finance. I am so so sad to see Muhammad’s brilliant idea being misused by greedy bankers who do not know how to put anyone first other than themselves.

SKS you have massively failed here. I suggest you bring in Grameen to reorganize all aspects of your training and entire operation.
atimoshenko

The only thing separating a (genuine) micro-finance operator from a loan shark are the ethics and motivations of the company and its employees. Shame on SKS and Sandstone.