Rajnish, a 42-year-old resident of Abul Khair village in Punjab’s Gurdaspur district has three ongoing loans in her name — one each from Muthoot Microfinance, Annapurna Finance and Bandhan Bank. The owner of a small cosmetic shop in her village, Rajnish was paying her monthly instalments till October 2023. This was until she went for a Karz Mukti Abhiyan — which loosely translates to a campaign to free people of their debt — rally.
At the rally, Rajnish was told that if she took membership in the Mazdoor Mukti Morcha, an association run by the Karz Mukti Abhiyan, the remaining amount of her loans would be waived off. She joined the organisation by paying a fee of Rs 100.
Rajnish told The Core, “Currently, I have around three to four instalments left for Muthoot Microfinance and Annapurna Finance. But I haven’t paid the instalments since I submitted Rs 100 and was assured that I don’t need to pay now.”
She isn’t the only one in Gurdaspur to have stopped paying their instalments. Thirty-two-year-old Chiranjeet also has a similar story to tell. She was also paying instalments for loans she took from microfinance institutions (MFIs) for personal reasons till November. But when she too took up a membership of the so-called Mazdoor Mukti Morcha, she was convinced that the loan amount would be waived off. Chiranjeet only had to pay Rs 12,000 in the next three instalments to become debt-free. She too paid a Rs 100 fee to join the campaign
Many others like Rajnish and Chiranjeet, who have taken loans from financial institutions like private banks and MFIs, in Gurdaspur have been convinced by the people running these loan waiver campaigns that by joining the campaign their loans would be waived off. Many of them have paid a joining fee varying from Rs 50 to Rs 500.
One of the associations running such a campaign put down the address of the Communist Party of India (Marxist–Leninist) or CPI (ML) in Delhi. However, the Left party distanced itself from running any such dubious campaign.
Last week, the Reserve Bank of India issued a statement warning against such misleading and false campaigns. It asked the general public to maintain caution against organisations that have been misleading people.
No Documents For Loan Waivers
On being asked whether they had received documents that proved that their loans were being waived off, Rajnish and Chiranjeet showed receipts of the joining fee issued by the Bhartiya Kisan Union, Punjab and the Mazdoor Mukti Morcha, Punjab. They assumed that these slips were loan waiver documents.
Other borrowers who have not been repaying their loans also showed this reporter similar receipts, which they assumed to be a loan waiver document. However, the receipts mention nothing related to a loan waiver. These are just the membership receipts of the organisations carrying out these campaigns.
The Core visited pockets of Punjab in and around Gurdaspur and Batala and found out that these associations were conducting rallies in various areas and convincing consumers that their loans would be waived off. They also have been running such campaigns on social media.
Will Loans Be Waived Off?
The RBI said in its statement, “There are reports of such entities charging a service/legal fee for issuing ‘debt waiver certificates’ without any authority. It has also come to our notice that in certain locations, campaigns are being run by a few persons, which undermines the efforts of banks in enforcing their rights over the securities charged to the banks. Such entities are misrepresenting that dues to financial institutions including banks need not be repaid.”
The RBI pointed out that not only could this affect the stability of financial institutions but also cause financial losses for the borrowers too.
Jiji Mammen, executive director and CEO of Sa-Dhan, an RBI-appointed self-regulatory organisation for the microfinance industry, told The Core that borrowers could become defaulters for not paying their dues and it could eventually become difficult or even impossible to get future loans.
The microfinance sector has historically had a low delinquency rate. The latest data (till June 23) compiled by Equifax, a consumer credit reporting agency, showed that the delinquency rate for MFIs in India was merely 2%.
Sa-Dhan fears that if this trend of borrowers falling prey to such campaigns continues, the delinquency rate will eventually go up. “If these kinds of misleading campaigns continue, we fear that the default rate will go up in these regions and that will impact the MFIs. There have been instances where the borrowers physically harmed the MFI representatives as they went for collection,” said Mamen.
The zonal heads from several microfinance companies including Muthoot Microfinance, Satin Credit Care, Annapurna and L&T Finance operating in these pockets, told The Core that the collection rate used to be no less than 99% till September. But because of these campaigns and rallies, loan collection in these pockets has gone down to less than 60% on average. Representatives from banks like Bandhan Bank and HDFC Bank from these areas also confirmed to The Core that the borrowers have not been paying the instalments for the last two months.
“Nearly 60-70% of the consumers in Gurdaspur haven’t completed their repayment in the last two months. Here, we have a portfolio of around Rs 250 crore in Gurdaspur, and out of which portfolios worth Rs 150 crore have become Portfolio at Risk (PAR),” said Rahu Sukhija, deputy chief operating officer at Satin CreditCare Network, a microfinance company.
While loan recollection is becoming even more challenging day by day for both banks and MFIs in these pockets, MFIs seem to face more hurdles as they have a higher number of portfolios in these regions. Dr Saibal Paul, associate director at Sa-Dhan, told The Core, “These kinds of campaigns have become more rampant in the states of Maharashtra, Punjab, Haryana and Rajasthan. The MFI business model sustains on lending in the rural areas primarily. If the collection rate is going down so drastically even in some pockets, it will eventually impact the profitability of the MFIs.”
Kamlesh Mishra, zonal manager of Punjab and Haryana, L&T Finance told The Core that while the collection has come down to 65% -70% in most of the pockets of Punjab, the situation seems even more challenging in the rural Batala region of Punjab. L&T Finance has nearly 610 loan accounts in the rural Batala region out of which only seven to eight consumers have paid the monthly instalments in the last two months.
No Formal Complaints Yet
The false campaigns have also led to scuffles in Gurdaspur. According to the police, a few weeks ago borrowers and loan collections officers had a scuffle and the police had to intervene. MFIs have a doorstep loan collection model, where the representatives reach out to the customers every month for the repayment.
Sukhpal Singh, DSP, Gurdaspur Police Headquarters told The Core, “We haven’t received any formal complaints from banks and MFIs related to non-repayment of loans. However, a few weeks ago, there was some unrest and the borrowers attacked the loan collection officers as they went to collect the repayment in the Tibber region. The financial institution then reached out to the local cops and finally, things were brought under control with some settlements between the lender and the borrowers.”
The police said that they were not aware of any other such incident in the area but confirmed that they were aware that banks and MFIs were not able to collect monthly dues from the customers from these pockets.
Representatives of banks and the police said a lender can only take legal recourse if a loan instalment has not been repaid for more than 180 days. But in these cases, the period of non-repayment has not crossed 180 days, so no legal complaint could be filed against the borrower in the name of default. Singh clarified that non-repayment of loans for two months doesn’t come under a criminal offence under the Indian Penal Code.
Who’s Running This Racket?
Multiple groups with similar names – often the same as larger national groups — have been conducting rallies and protests and assuring customers, especially women and farmers, of loan waivers.
The Core happened to witness one such rally. Bhagwant Samaon, one of the leaders in the rally happening in Batala said, “We are not asking people to not pay, we are asking that they need not to worry if they are not able to pay as we are protesting and demanding complete waiver from the government.”
Meanwhile, Gurpreet Singh Rudeke, who is also running the campaign in Gurdaspur told The Core borrowers could be free of debt “by becoming our members”. Rudeke said, “If a large number of borrowers are not able to repay the loans to the MFIs and private banks, then it is the responsibility of the government to repay the loans. We have seen the government has often waived off several loans in the past. Also, the government promised to waive off loans during the election rally, so we are demanding the same. And more than the customers, it is the need of the finance companies to lend for their business growth. So, they just can’t tag someone as a defaulter.”
Surprisingly, both campaigns were being conducted under the name of Mazdoor Mukti Morcha in Batala and Gurdaspur, but the two have different logos. Mazdoor Mukti Morcha operating in Gurdaspur uses the term “comrades” for themselves and also uses the logo of CPI (ML) and the address of CPI(ML) Delhi office in Shakarpur on their membership receipt. On being asked whether they have a political connection to the party, they refused to comment.
Purushottam Sharma, in charge of the Central Committee leading loan waiver movement, CPI(ML), told The Core that it was misleading to give assurances to consumers of a complete loan waiver. CPI(ML) is running a Karz Mukti Abhiyaan in Punjab and other parts of North India, but it was against malpractices of finance companies.
Sharma said, “There have been instances when villagers have been tortured if they missed any instalment. We just assure the villagers that they need not fear if they are not able to repay the loan and tell them that we would demand the government to figure out a way for those who are in a bad financial condition and not able to repay. But we never ask anyone to not repay even if they can nor do we assure anyone of loan waiver.”
Sharma said that there have been past instances where a few party leaders/members were misleading people or committing financial fraud in the name of a loan waiver movement. “In such cases, the party took strict actions against that leader/member and in a couple of cases they also got expelled from the party,” Sharma said.
The All India Kisan Sabha, which also works on loan waiver campaigns for the poor who are unable to repay their loans, said some locals were misleading people and using names of political parties and other movements.
Ashok Dhawale, a national president of All India Kisan Sabha and a polit bureau member of the Communist Party of India (Marxist), told The Core, “All India Kisan Sabha has demanded a complete loan waiver. But who are we to waive the loan, the government has the power to do it. If someone is assuring a loan waiver then it is a fraud. There was a proper movement in Maharashtra for waiving farmers’ loans for a long period and then the Fadnavis government agreed to waive off a loan of Rs 34,000 crore for the farmers. But it is the government who did it. Only the government can pay the banks and waive the amount. But here, they are just making money. They are just shaming the communist party.”
However, CPI(ML) representatives at the Delhi offices said that at times, if the local division of the party is arranging any protest or rally, they might ask for contributions from the local villagers, but the membership for CPI(ML) is Rs 10, so taking more money in the name of membership is wrong.
Other communist leaders associated with various labour movements also confirmed that the membership of the communist party was merely Rs 3-5 per year, so if someone was taking Rs 100 or more in the name of membership, that was also misleading.