MARYAM Bibi has taken agricultural loans eight times in as many years from different microfinance banks (MFBs).

Her first loan was of Rs12,000, which she paid back on time and qualified for a bigger one in the next borrowing cycle. Her last loan amounted to Rs45,000.

On paper, she’s a perfect microfinance consumer: she’s a poor, divorced woman who runs a small-scale livestock business in a tiny village on the outskirts of Larkana. Plus, she has maintained a perfect credit history for eight straight years.

But there’s a big lie in that well-sounding customer profile. She neither owns nor runs any business. In fact, she’s had no source of income throughout her life.

Rural communities in Sindh are under a deluge of microcredit, thanks to the lax lending practices by microfinance providers

“I live with my brother and his family. I don’t even know what he does with the money he borrows using my (national identity) card. All I get from him against every loan is Rs500 for my thumb impression,” she said.

Maryam Bibi is one of the seemingly countless people in rural Sindh whom MFBs and microfinance institutions (MFIs) falsely classify as “farmers” on loan application forms. Banks use the group lending technique to give micro-loans to batches of four to six people. The group leader takes responsibility for all its members who are usually drawn from the same close-knit community.

As a result, access to microcredit has become incredibly easy — though expensive — in rural Sindh. Whether it’s to settle a gambling debt, pay for a dowry or buy an expensive mobile phone, all one needs are two photographs, a valid national identity card and a thumb impression verifiable through the biometric system. A couple of members in a typical group may actually be farmers, but most of them have nothing to do with farming, community leaders say.

At best, their borrowing consists of one part need and four parts opportunity.

“Women from the Sindh Rural Support Organisation (SRSO) come to our village on Suzuki vehicles every January. They go from door to door, encouraging women to take microloans,” said Zahida Bibi who borrowed Rs45,000 from the MFI last year. Her sister also borrowed an equal amount at the same time. She admitted they lied on the application form that they were farmers.

SBP rule flouted

That’s because the State Bank of Pakistan (SBP) has explicitly asked microfinance providers to offer credit “primarily for asset creation and encouraging livelihood activities”. As such, few MFBs and MFIs in the area give out loans for personal use.

Neither the loan officer nor the verification team asked Zahida Bibi and her sister for proof of their sources of income. They promptly received the money and handed it to their brother. He used the money on an extravagant circumcision ceremony for his newborn.

“It was a grand affair. Two dancers came from Larkana (city) to entertain guests,” she said with a hint of pride in her voice.

But when the payback time came a couple of months ago, the two sisters were at their wits’ end. “Their recovery teams humiliated us publicly. They threatened they’d bring the police next time and put us behind bars,” she said. They paid off the debt by selling whatever valuables they had in their homes. They also faced domestic backlash as one of the husbands threatened divorce over the public spectacle.

Their brother, who worked in Karachi and actually spent the money, couldn’t care less.

“Only lawful and acceptable business language and professional attitude should be adopted in establishing contact with clients. MFBs should not harass customers’ family members,” the SBP said in an emailed statement.

But as for the field staff of MFBs, the regulatory advice seems to have fallen on deaf ears.

“Bank people are polite when they want us to take the loan. But the recovery phase is impersonal and rude,” she said. Banks send non-local loan collectors who resort to public humiliation as a recovery tool without hesitation, she added. The sisters paid Rs25,000 or 27.7 per cent in interest on an aggregate sum of Rs90,000.

SRSO GM Microfinance Shazia Shaikh and Company Secretary Masood ul Hasan did not respond to the questions about the MFI’s lending practices and alleged recovery methods despite repeated requests.

The government and the central bank have been actively promoting microfinance to help the poor, particularly women, develop income-generating assets and become financially inclusive. The gross loan portfolio of Pakistan’s microfinance industry has grown at an astonishing average of 30pc per annum during the last 10 years. It amounted to Rs324 billion at the end of 2020.

Fresh disbursements in Oct-Dec 2020 were Rs108.9bn, up 32.6pc from the preceding quarter. The number of disbursed loans increased 43.5pc to 3m over the same three-month period.

Larkana district alone recorded over 58,000 active borrowers in the last quarter with the gross loan portfolio of Rs3.6bn.

Misuse of ID card

Another microfinance borrower, Ali Haider, said he’d used his wife’s identity card to borrow from SRSO as many as six times in the recent past. “I’ll borrow again because my son is about to get married. People will laugh at me if it’s a simple ceremony.”

Telenor Microfinance Bank, one of the largest players in the industry, officially denied giving out simultaneous loans to members of a single family though. “Multiple loans within the same household are not allowed.”

The sociological fallout of lax lending practices can’t be underestimated. Jafar Hussain, who works as an office clerk at an NGO for Rs7,000 a month, borrowed Rs30,000 from Khushhali Bank last year for his son’s circumcision ceremony. He paid back the loan with 26.6pc interest by using the proceeds of his mother’s BC/committee.

But then he got another loan of Rs40,000 on his wife’s card in January this year. That was to hold a majlis for his father who had passed away in August 2020. In addition to that Rs40,000 loan, his family owes more than Rs50,000 to the local grocery store. “I told them clearly I was no farmer. I don’t know what they wrote in their form, but I got the money anyway,” he said.

The debt burden is now being shared by his younger brother, Raza Hussain, who works as an admin assistant at a small local business. “My mother is in a constant state of depression because of his habitual borrowing. I say let the police take him away and lock him up once and for all. He’s only made our lives miserable.”

Khushhali Bank was approached for comment, but it chose not to respond.

Most affected by the easy availability of credit are the families of gamblers. Jan Muhammad, a vegetable grower in his late 40s, says his father has at the moment more than Rs2m rolling debt from a number of sources. Since his father is too old to qualify for a bank loan himself, he uses the identity cards of his two wives and five sons and daughters to borrow.

“I tried to stop him once. He made a scene and told the community I attacked him physically. My mother slaps herself in grief and loudly curses his habit of gambling and borrowing,” said Muhammad. Almost all adults in his tiny village of 100 households have borrowed from microfinance providers at least once, he added.

Zero tolerance to lies?

The SBP requires loan officers to visit a borrower’s place of business and assess their cash flows. Telenor Microfinance Bank also said in its response it exercises due diligence of existing customers and monitors the utilisation of loans to ensure it is for the stated purpose only.

As for the alleged falsification of loan applications by its field staff, Telenor Microfinance Bank said it has “zero tolerance” in this regard. “We go to extreme lengths in vetting as well as monitoring activities of critical staff and this has enabled us to minimise the number of cases of wrongdoings.”

The SBP refrained from stating whether it has penalised any MFBs for rigging the loan approval process. “If any violation is observed in this connection, the SBP takes adequate measures to curb such practices.”

Nadeem Hussain, who founded and ran a microfinance bank before selling his stake to the Telenor Group in 2016, said that to ensure a borrower will spend the money for the stated purpose is next to impossible. Verifying each case will add to the overall cost and further increase the interest rate, he added.

“The SBP is laid-back about it. Strict action will bring down the number of active borrowers from 7m to 2m,” he said.

Advocates of easy access to microcredit claim the facility saves potential borrowers from loan sharks who charge up to 300pc interest and are far more ruthless in their recovery methods. But community leaders say the quick availability of credit at 28-30pc to the people on the bottom rung of rural economy leaves them with no excuse to stay away from avoidable expenses.

Custom of sorts

Rubina Bibi, a poor woman with few possessions, says her community now expects her to hold a fancy wedding ceremony for her daughter despite her modest circumstances. “Collect cards and borrow from the bank like everyone else, they’ll say,” she explained.

Letting one’s acquaintances use their identity cards for bank borrowing has become a custom of sorts. It’s considered rude to refuse somebody your card if they’re in need of cash.

The rent-a-card tradition has taken root and made unnecessary borrowing rather desirable. Nifty sales techniques have buried the nugget of ancient wisdom that holds debt to be intrinsically bad — something that carries limited upside potential but unlimited downside risks, especially for individual borrowers.

The microfinance industry takes pride in its near-perfect recovery ratios — a benchmark that community leaders say makes the slow-thinking CEOs blind to the corner-cutting by their field staff in faraway villages. The fear of social embarrassment in small communities makes people pay back debts by either taking out fresh loans or selling valuables.

It works like a self-perpetuating, cash-spinning machine and allows microfinance providers to claim a lot more credit than their actual accomplishments warrant.

“My worst mistake was to hand out my card to my brother’s friend. He collected eight cards, bribed bank officials, borrowed a huge sum and bought himself a piece of land,” said Akhtar Abbas, a first-time “borrower” who barely makes ends meet by working as a labourer.

It’s been a year since the loan became due. Now the recovery staff comes to his place of work every few days and publicly shames him into paying off the loan.

“I never borrowed a single rupee in my life. I’d let my kids sleep on empty stomachs but never bring home borrowed money. Debt is a curse.”

Names have been changed to protect the identities of the borrowers.

Published in Dawn, March 21st, 2021