The issue of financial literacy and the burden of debt within villages is complex and often shrouded in misconceptions. As part of our commitment to training women in finance management, AVAG recently conducted a series of meetings with women's groups to shed light on this pressing and crucial matter.
Our discussions revealed a disturbing trend: many women are trapped in a cycle of debt, juggling multiple loans with usurious interest rates. Around 20 years back, families were discouraged from taking loans and advised to spend within limits. However, globalisation and media-supported consumerism have shifted this concept, and borrowing is normalised and encouraged. Traditional moneylenders, MFIs, and nationalised banks lending through women’s groups have become part of the financial landscape in our villages, each offering its own set of terms and conditions.
While the allure of quick loans may seem tempting, the long-term consequences can be devastating. Women frequently face exorbitant interest rates, concealed fees, and restricted access to moral financial services. The lack of awareness about alternative options and the complexities of the economic system further exacerbate this problem.
A key question in our discussions was why women frequently choose to borrow from moneylenders and microfinance institutions (MFIs) despite the higher interest rates. The answer partly lies in the practical challenges they encounter with formal banking systems, including lengthy and time-consuming processes, restricted banking hours, collateral requirements, lower loan amounts, and the inflexible nature of these systems.
Our discussions revealed that women often turn to moneylenders and MFIs due to convenience and necessity. Many women reported having loans with multiple MFIs further increasing their debt burden. MFIs offer loans without collateral and are readily available in most villages, but they charge high interest rates in (27-35%) and often impose hidden charges such as insurance premiums. For example, a loan of ₹25,000 payable in eleven months may require insurance coverage of ₹1,040. Other costs are deducted while issuing loans, and families also pay interest on the deducted amounts. Some MFIs collect a service charge of 1.5 % per month along with the interest for the loan.
Through our meetings, we aimed to empower women with knowledge and understanding. We presented a comparative chart of various financial institutions, highlighting their interest rates, hidden fees, and other terms - this had a profound impact on the women. Many women were shocked to realise the extent of their financial burdens and the potential for exploitation. Some were visibly upset and emotional, realising the extent to which they were unknowingly contributing to their financial hardship.
One woman commented, "We, the poor, make the rich even richer." Gomathy from Boammayapalayam commented, “Knowingly, or unknowingly, we lose our hard-earned money to pay higher interest loans”. Women requested AVAG to find ways to increase its revolving fund, as they see this as an easy way to borrow at a lower interest compared to other MFIs without any hidden cost. AVAG was pleased when women said that the interest charged by the organisation is used not for expansion, but for the welfare and empowerment of their communities, primarily women. Yes, we felt understood.
We believe that by fostering a network of institutions that prioritize the needs of women and offer fair and transparent financial services, we can provide them with viable alternatives to exploitative moneylenders and MFIs. Additionally, we will continue to advocate for financial literacy programs, and mindful spending to empower women to make informed financial decisions. Through these efforts, we hope to break the cycle of debt and create a more equitable and prosperous future for our communities.
Jeyanthi, Edapalayam -"Understanding borrowing and financial management is essential for all. As a participant, I learned a lot today."
Anbu & Nadia