THE recent federal budget has once again made it painfully evident that our policymakers have no time at all to reflect on themicroloan borrowers who today lie crushed beneath invisible debts. Microloan recipients are largely dependent on subsidies and loans, which are provided by microfinance institutions (MFIs) and microfinance banks (MFBs), to earn a living for their families.
The most elementary purpose of these institutions is to facilitate the process of starting small-scale businesses for the needy individuals. MFIs grant loans at the interest cap rate set by the State Bank of Pakistan (SBP). Securing a loan from a bank means navigating through chaotic paperwork, which is often unfathomable for a man of sweat and soil.
MFIs are considered an alternative to traditional banks; nonetheless, microfinance banks charge annual percentage rates (APRs) around 35-40 per cent, which ishigherthan theinterestrate charged by mainstream banks in Pakistan.
It does not matter whether the microenterprises of the borrowers are generating profit or not; they have to pay the weekly or monthly repayments at the rate given by the lending institution.
To repay the mounting debt, the already burdened strata of society assume more loansto clearpreceding ones.This incessant cycle compels the borrowers to sell their essential belongings. Sometimes their very breath becomes the price of escaping the grip of debt.
The MFB case of 2020 clearly depicted the callous attitude of MFIs, where two sisters were subjected to public humiliation and threats, forcing them to sell their household belongings to repay.Similarly, 108 suicides were reported in Tharpakar in 2020, and local activists cited failure to repay the debt as the proximate cause of most deaths.
Is microfinance truly a beacon of hope for the penurious class, or merely a macrotrap further pauperising an already impoverished society. This is a question that must echo within the walls of parliament.
