How Karnataka’s MFC crisis is back driving people to suicide, leave homes

Fifty-three-year old Jayasheela, a resident of Ambale village in Mysuru district, ended her life reportedly by consuming poison.

Jayasheela’s distraught family said it is the failure to return a loan of Rs 5 lakh that forced her to take the extreme step. She had taken the loan from a Microfinance Company (MFC) for dairy farming and to grow crops. Jayasheela was supposed to pay an EMI of Rs 20,000 against the loan. She did pay back the bank for a few months but then the cow Jayasheela had bought with the money died, and the crops failed. The tragedies that hit the quinquagenarian were compounded by the harassment of the MFC agents, pushing Jayasheela to the point where she consumed poison in her field and ended her travails.

Syed Samiyulla (40) of Tumkur reportedly died of a heart attack, following alleged harassment caused from MFC recovery agents. According to his wife Tabussum Banu, Samiyulla availed a loan of Rs 4.66 lakh in 2019 from a MFC. By 2024, he had repaid Rs 7.20 lakh because the MFC charged 24.55% interest on the loan. “My husband died trying to repay. Now, MFC musclemen are harassing me and pushing me and my children to commit suicide.”

Sixty-year-old Yashodamma, a resident of Thimmayyanadoddli village in Ramanagara, was found hanging, allegedly because of harassment from MFC loan recovery agents.

“My mother had availed a loan worth Rs 4.82 lakh from seven microfinance firms. She was promptly repaying the loans with combined EMIs amounting to Rs 20,000 for all the companies. But she could not pay for two months as the business of her tea stall had taken a hit. This is when agents from two microfinance firms arrived at our house to demand repayment. They insulted her in front of the public before leaving, Yashodamma’s son Kumar told The Federal.

“They even threatened to seal our house, if she failed to repay within two days. While abusing my mother, they had asked her to die if she was not able to repay the loan. This forced her to hang herself,” he added.

Pushpalatha, a resident of Honnali, also a teacher, had taken a loan from a MFC in Shivamogga. It is alleged that Pushpalatha faced harassment from the MFCs staffers as they were unable to pay. MFC recovery agents frequently visited her house and even went to her school to harass her. On January 26, after attending the Republic Day celebrations, Pushpalatha jumped into the Tungabhadra river.

Murugeppa Laali (55) and Mahadevli Laali (50) of Metagudda village of Bagalkote district died by suicide. Their bodies were found hanging from iron pipes of Yadawad bridge. Both husband and wife ran a small grocery shop. They had borrowed a loan to the tune of Rs 15 lakh from money lenders and MFCs for the marriage of their daughters. Due to losses in business, they failed to repay the loan.

Thirty-six-year-old Nagappa Puttappa Gunjala availed loans from both banks and MFCs. After he failed to repay, recovery agents seized his motorbike. Humiliated by the agents in full public view, Nagappa died by suicide.

Saroja Kirabi (52), a native of Shirur village in Hukkeri taluk and a resident of Kakati, died by suicide after jumping into a well following alleged harassment from a MFC agent. According to her son, Saroja availed a loan of Rs 2.30 lakh from a MFC and she could not repay the loan, because a middle-man conned her.

Leelavathi (50) and Swamy (47), residents of Mylanayakanahalli and Bidarakatte of Ramanagar died by suicide. Leelavathi had borrowed Rs 50,000, but due to her poor health she could not repay the loan. Unable to face the harassment of MFCs agents, she committed suicide. Swamy borrowed loans from various MFCs and private vendors to the tune of Rs 15 lakh for farming. When crops failed, and his pigs died of a disease, Swamy could not repay his loan to any of them. He gave up his life unable to bear the pressure of repayment.

These are just some of the stories of people who found it unbearable to suffer the harassment meted out by MFC recovery agents in January. While there is no data on recent deaths by suicide concerning MFC harassment, the hike is alarming and reflects that the positive impact created by the Karnataka Debt Relief Bill in 2018 is petering out.

Non-licensed microfinance companies

Like a bank, a microfinance institution is a provider of credit. The size of the loans, however, is smaller, known as microcredit. The clients of an MFI are often microentrepreneurs in need of financial support to launch their businesses.

The problems being faced by loan borrowers are majorly from non-licensed microfinance companies. These non-licensed microfinance companies operate outside the purview of government regulations, which can lead to riskier lending practices and less transparency for borrowers.

In Karnataka, licensed microfinance institutions regulated by the RBI typically charge interest rates capped around 26% per year, ensuring structured and regulated lending practices. In contrast, non-licensed microfinance entities, which are not subject to these regulations, are charging significantly higher rates of interest ranging from 30% to 40% or more according to sources.

Even licensed microfinance companies do not ask for collateral security for loans, as these companies provide unsecured loans to low-income individuals, self-help groups and small businesses to promote financial inclusion. Instead of collateral they rely on group lending models, credit history and borrower payment capacity to mitigate risks. Some microfinance companies prefer the compound interest method, which means that the borrower pays even more in interest in the form of compound interest which is also known interest on interest.

According to the Karnataka government, MFC loans in Karnataka currently stand at Rs 59,368 crore with a total of 1,09,88,332 accounts in distress, which accounts for 15% of state population.

Microfinance institutions have increased their clients from 4.2 million to 9.9 million in Karnataka during 2013-2022, registering a growth of 132 per cent. The average loan per client in Karnataka is Rs 44,036. The all India average is Rs 42,838, according to Microfinance Institutions Network.

Borrowers in many cases prefer loans from MFIs over nationalised banks owing to easy documentation. The total gross loan portfolio of the MFI in the state increased from Rs 16,946 lakh (March 2019) to Rs 42,265 lakh in 2023-24, as per the data made available by MFCs.

The ghost has risen again

In 2017-18, as the MFC crisis deepened with widespread financial distress and tragic consequences, including numerous suicides, the HD Kumaraswamy-led JD(S)-Congress government introduced the Karnataka Debt Relief Ordinance 2019 to provide total relief from indebtedness to small farmers, landless agricultural labourers, and those from economically weaker sections, including daily wagers, and roadside vendors, who have no dependable collateral to approach banks.

The Ordinance, introduced after the Karnataka High Court put a stay on Karnataka Debt Relief Bill 2019, was considered Kumaraswamy’s parting gift to the people. He was then succeeded by the BS Yediyurappa-led BJP government.

Five years since, the harassment by MFCs seems to be back with a vengeance.

In the latter half of January, after her husband Sharana Basava died by suicide on January 17, Parvathi sent her mangalsutra to Karnatakaa Home Minister G Parameshwara urging him to take suitable action against those responsible for her husband’s demise.

On January 27, members of the All India Mahila Samskruthika Sanghatane (AIMSS) urged the Karnataka government to act tough against microfinance institutions and private finance institutions harassing rural poor families that have taken loans from them.

“Cases of harassment related to loan repayment by these institutions are increasing daily. Unable to bear harassment by loan recovery agents, hundreds of people from several villages have abandoned their houses or have gone missing. Over the past five or six months, several cases of suicide and harassment have been reported. This needs to be addressed urgently,” AIMSS secretary Gangubai Kokare told the media.

Desperate to find relief, those at the receiving end of the harassment meted out by MFC recovery agents have been urging the state government for relief, but to no avail.

With no government intervention, members of nomadic tribes in Durugamuragi area of Shivamogga who borrowed small loans from moneylenders are now living under fear because of the continued harassment of recovery agents. Hundreds of nomadic women complained to G Pallavi, president, Nomadic Community Development Authority about the harassment and appealed to her to come to their rescue.

The mother of a newborn was made to stay out of her house with the child after her husband nonpayment of loan that her husband had taken from the MFC to construct a house in Tarihal near Belagavi.

“Loan recovery agents vacated my house in Tarihalla village and threw my belongings on the street, leaving my one-month old child and wife out it in the open,” said Ganapathi Ramachandra who was harassed by MFC agents in Belagavi.

Under locks

Houses and properties behind locks is a common sight in Karnataka. These residents and owners have fled to escape the humiliation and harassment over unpaid loans.

On January 25, hundreds of women from Nagaiah Reddy extension at Gauribidanur, Chikkaballapur district, took out a procession beating drums to voice their anger against the torture.

The protesters issued a stern warning, threatening mass migration from their homes or even suicide if the harassment by lenders persisted. “Loan recovery agents of some MFCs use abusive language, make threats and sometimes lock houses to force repayment of loans. Delays of just a few days in repayment resulted in agents harassing the borrowers even during late nights and wee hours, when people were just ready to leave for work,” said Nalini Gowda, president Kolar District Women Raitha Sangha.

Over 30 tribal people from 15 families from Meenukolli, Kaveri and Dubare in Nanjarajapatna Gram Panchayat of Kodagu district have fled their homes. “The tribal people deserted their hatti (houses) because of harassment by private lenders, who warned of seizing their Adhaar cards against which loans were sanctioned,” said Jaji Karihalla, a tribal leader told The Federal. “These microfinance institutions are taking advantage of innocent tribal people,” she said. The situation is no different in some of the villages in Ramanagara, Tumakuru, Shivamogga, Belagavi, Kalaburagi and other districts.

In Haveri where residents from Anjaneya extension and Goulera Oni (Lane) have fled their villages. “Our women are being stalked and intimidated by agents demanding loan repayment,” a resident of Anjaneya extension said, unwilling to be identified.

In Chamarajanagar hundreds of families abandoned their homes last month after being relentlessly persued by recovery agents. Villagers from Heggawadipura claimed they were charged an interest at the rate of 24 per cent, often through self-help groups. Some families reported their children had to drop out of school and work in neighbouring districts to avoid intimidation.

Mohan (name changed), a student, has appealed to the government to allow him to sell one of the kidneys to clear the loan taken by his father. The agents abuse his mother whenever they visit their house, he has alleged.

C Kumar of Karnataka Yuva Rakshana Vedike has warned the police of a kidney racket becoming active following the harassment by MFCs. One woman from Magadi area of Ramanagar district that recovery agents are forcing the debtors to sell kidneys of children to repay the loans.

According to villagers, recovery agents are visiting the houses of defaulters at night and allegedly harassing them in the presence of their children. According to Madayya, a tribal leader, a few companies which are being run by some trusts, companies from neighbouring Tamil Nadu are also operated in the district. The companies lend money not only to individuals, but also to women self-help groups.

“The district administration has appealed the villagers to not leave their villages, assuring protection from the recovery agents. I have urged the villagers and tribal community to approach the assistant commissioner, tahsildar and gram, taluk and zila panchayats officials for help. If the officials at grassroots fail to respond, I will personally intervene in the matter,” deputy commissioner Chamarajanagar Shilpa Nag said.

Under pressure to act, the government has so far given only a promise.

“The Karnataka government is planning to formulate the ‘Karnataka Microfinance Institutions (Regulation and Money Laundering) Bill to rein in microfinance companies in view of the increasing number of complaints against them. The Reserve Bank of India and other central finance agencies are not able to control microfinance companies,” said HK Patil, the minister for Law and Parliamentary Affairs.

Meanwhile, recovery agents are going on harassing people for loan recovery.