Chandra Devi, 53, holds up a loan slip, its creases more prominent than its text. It states that she borrowed a loan of ₹35,000, allegedly from RBL Bank, a private sector institution, in May 2024. “I have to repay the loan and an interest rate of do taka (2%),” Chandra declares. But the slip states that the interest rate is a hefty 25% over two years.
Chandra is sitting in a mango orchard with a group of women at Dekuli Chatti village in Darbhanga district of Bihar. Around her, children climb trees under an overcast sky. Some of them clamber to the top, others hang upside down from branches. Their mothers sit on a yellow plastic sheet spread over the grass. While watching their children’s antics, they share their struggles on repaying dues. According to the 2022 caste survey of Bihar, 34% of households in the State earn ₹6,000 or less per month.
In June 2025, Piramal Enterprises, an Indian non-banking financial company (NBFC) focused on financial services, published a study. In it, they stated that the share of Indian households from economically weaker sections of society — that is, those earning ₹1-2 lakh a year — who borrowed from formal channels, such as banks and NBFCs, contracted by 4.2% between 2018-19 and 2022-23. At the same time, the share of households borrowing from informal or non-institutional sources of credit, such as money lenders, friends, families, and shopkeepers, grew by 5.8%. The data also shows that Bihar accounts for the highest share (18%) of households in India who borrow from non-institutional lenders. The study was based on data from the Centre for Monitoring Indian Economy, an independent private entity that serves as an economic think tank as well as a socioeconomic database.
However, many households that borrow from non-institutional lenders also borrow from microfinance institutions, which are regulated by the Reserve Bank of India (RBI), the country’s central bank.
The RBI defines a microfinance loan as “a collateral-free loan given to a household having an annual income up to ₹3,00,000”. According to Sa-Dhan, an RBI-approved self-regulatory body for the microfinance sector, there are 224 such institutions in India.
While loans from microfinance institutions help impoverished borrowers across India, borrowers are often unable to repay them and fall behind. They also sometimes run away, fearing that microfinance companies will demand repayment using strong-arm tactics. As a result, many households remain trapped in a cycle of debt.
When loans become nightmares
Chandra belongs to the Musahar community. Musahars are among the 18 Scheduled Castes in Bihar who were recognised as Mahadalits by Chief Minister Nitish Kumar in 2007. They are socially and economically the most backward among Scheduled Castes.
Chandra says she doesn’t know the name of the bank from which she borrowed a loan; instead, she identifies it by its location — Donar, a locality in Darbhanga. “I was asked to give my Aadhaar card, nothing else,” she says, about the process of securing the loan.
The slip she holds says the loan was taken for ‘agriculture-livestock/diary/poultry/cattle’ purposes, but Chandra, the mother of two daughters and a son, says she borrowed it for her older daughter’s wedding.
Before the wedding, the groom’s family demanded a motorcycle as part of dowry. Chandra borrowed money from the village mahajan (money lender). When that didn’t suffice, she went to a women’s self help group (SHG). Finally, she secured a loan, allegedly from RBL Bank.
As Chandra’s husband has been out of work for several months due to an illness, her family depends entirely on the amount her son sends home. “He sells apples in Kolkata, so he cannot always send money.” she says. “After all, everything is so expensive these days.”
Chandra also worries that she has a teenage daughter who will “soon be of marriageable age.”
Punam Devi, 42, who is also from the Musahar community, keeps two documents close to her chest. One shows that she took a loan of ₹40,000, allegedly from Pyramid Finserve, an emerging NBFC, in July 2024. Punam borrowed the loan for her younger son, who had been diagnosed with meningitis. The other document shows that she borrowed another loan of ₹75,000, allegedly from Utkarsh Small Finance Bank Limited, a commercial bank focused on “providing banking and financial services, particularly to underserved and unserved sections of the population, primarily in rural and semi-urban areas.” This loan, borrowed to pay for treatment of her husband who lost a leg in an accident, was cleared on March 23 this year with an interest rate of 28%, as per the document.
Punam Devi took two loans from two microfinance institutions: one for her son’s treatment of meningitis and the other for the treatment of her husband, who lost his leg in an accident.
| Photo Credit:
SHASHI SHEKHAR KASHYAP
Punam says she had to pay installments every fortnight. After her husband’s accident, the family’s income is now nearly negligible, making it all the more challenging for them to repay the loan.
Both men were treated at private hospitals. “We don’t get admission in government hospitals,” she says. The other women nod along.
Parvati Devi, 38, says her husband works in Bengaluru, Karnataka, as a daily wage labourer. He left 15 days ago and will return only next year.
“We had to borrow money for our eldest daughter’s wedding,” says Parvati, who also belongs to the Musahar community. “We borrowed nearly ₹1.5 lakh from the local money lender four years ago. Unable to repay the loan, I took three loans from three microfinance institutions.” Her total liability amounted to ₹1.35 lakh and she had to pay monthly installments of about ₹7,000.
‘Agents never fail to turn up’
Chandra, Punam, and Parvati sought loans for weddings or for treatments in hospitals and struggled to repay the amounts. Many of these women accessed microfinance institutions through group lending. In this process, borrowers form small groups and the members of the group are jointly liable for each other’s loans.
Banks appoint agents to recover overdue loan payments or outstanding debts. The women say recovery agents never fail to turn up, and the amount of money their families have is usually never enough to meet the final sum.
This week, a recovery agent stood at Parvati’s door, threatening and abusing her the entire day. “I was not scared,” Parvati says. “I shouted at him as well. He said he would file a case against me. I told him, so be it.” The recovery agent left only after she managed to put together the amount, which fell short of ₹1,000, she says.
Mina Devi is due to pay her monthly instalment of ₹2,450, but she is ₹50 short. “He (the recovery agent) won’t take the amount until I give him the full amount,” she complains. Mina worries about his response. “Last time he told me, ‘Why don’t you go to the road and beg? And in the process if you die, the loan will be waived off.’” According to the RBI, when a borrower dies and there is no collateral, the lender can recover the amount from the legal heirs, and only up to the limit of what the heirs inherit.
Mina’s husband spends at least six months working in the fields in Punjab, so she has to deal with the agents on her own. “When a male member of the family is not around, the agent hangs around for hours,” she says.
Rekha Devi has three separate loans to repay, with the total liability amounting to close to ₹1 lakh. “He (recovery agent) asked me why I don’t sell my body if I have no money to pay the instalment,” she says.
The women say the agents often threaten to take away possessions they have painstakingly collected over the years — beds, pressure cookers, gas cylinders, even the odd plastic chair.
In Somini Devi’s case, this became a reality. Somini’s husband is no more. She has six children — three daughters and three sons — and all of them are married. She says she has been left alone to repay the loans she borrowed for their weddings and for other expenses.
“The recovery agent took away everything I had — a table, a chair, my bed, the cooker, the gas cylinder, and even my supply of wheat for the year. He stripped my house empty.” When asked if she reported the incident to the police, she stares blankly. “How can we?” she murmurs.
The women say at least 20-25 families in their village alone have fled fearing recovery agents. As they start counting and naming the families, many of them turn towards Pawan Devi.
Pawan took loans from five microfinance institutions for her son’s wedding, but she has been unable to repay the amount. Pawan and her family fled the village, spent more than a year in Punjab, and returned only last week.
Pawan cannot recall the name of the village where she and her family stayed. “Barring the biting cold, it was better there,” she says. “The landlord didn’t charge us for electricity or water. There were clean toilets. And we had a regular income working in the fields.” Pawan says what she cherished the most about her stay in Punjab was the absence of recovery agents.
But the agents she dreads are now back at her doorstep. “They come every other day. Sometimes they stand outside for hours. Sometimes they enter the house and start rifling through our papers. The other day, they took away my son’s Aadhaar card,” she says.
A loan recovery agent at Bhawanipur village in Darbhanga district.
| Photo Credit:
SHASHI SHEKHAR KASHYAP
Around 30 kilometres away at Navtol village in Bhawanipur panchayat of Darbhanga district, Mahesh Kumar Roy, who says he is a recovery agent with Muthoot FinCorp, is on his daily rounds of the village. Mahesh, who hails from Darbhanga, goes from house to house on his motorcycle. He pulls out the sheaves of papers rolled up between his motorcycle handles and runs his finger along the names.
“Since 2022, when I joined the company, I have been given 1,100 households to track. At least 450 families who defaulted on their loans have disappeared. I make regular rounds, but all I see is locked homes,” he says. Mahesh adds that people “disappear only after they have paid 15-16 installments” and “after we have managed to recover at least 60% of the principal amount.”
Mahesh prides himself as a “decent” agent. Aware of the reputation that recovery agents have, he looks at the crowd gathered around him and asks them whether he is intimidating or threatening. They all say ‘no’.
Rules on paper
The RBI issued exhaustive guidelines in 2022 collating the piecemeal directives it had issued earlier. It said that the lenders must “provide the flexibility of repayment periodicity on microfinance loans as per borrowers’ requirement”. That is, the repayment period of the loan must be moulded to the requirements of the borrowers, rather than the needs of the lender. To ensure that microfinance loans do not unduly burden the borrowers, the RBI directions also include a provision that says each regulated lender must ensure that the monthly repayment burden of a household should not exceed 50% of the monthly income of that household.
RBI also has a separate set of guidelines for recovery agents. It defined what would be deemed as harsh methods, such as use of threatening or abusive language, persistently calling the borrower and/or calling the borrower before 9:00 a.m. and after 6:00 p.m., harassing relatives, friends, or co-workers of the borrower, publishing the name of borrowers, the use or threat of use of violence or other similar means to harm the borrower or borrower’s family/assets/reputation, or misleading the borrower about the extent of the debt or the consequences of non-repayment.
However, the regulations on the interest to be charged on these loans simply say that the interest rates and other charges and fees on microfinance loans “should not be usurious”, and that the RBI would scrutinise this aspect of the loans.
Andhra Pradesh, Telangana and Assam have specific regulations for microfinance. Several other States such as Kerala, Gujarat, Tamil Nadu, Karnataka, Maharashtra, and Madhya Pradesh have laws regulating money lenders, which also include microfinance institutions. Assembly elections are scheduled in Bihar in October, but there is no political thrust in the State on bringing in any regulatory mechanism in this regard.
Jayati Ghosh, Professor of Economics at the University of Massachusetts Amherst, U.S., says it is not surprising that the RBI guidelines for microfinance institutions are not being implemented since there is often a lack of implementation of State policy. She also says there are fundamental flaws in the microfinancing model. “While it makes credit accessible for the poor, there is high interest and lack of monitoring of how repayment is ensured, which allows for threats, intimidation, and pressure to take on multiple loans,” she says. “In many places, linkages with banks through the SBL (SHG-Bank Linkage Scheme) have been provided, but these also provide limited funds. Only in States where these SHGs are effectively co-operatives that create income-generating opportunities (such as Kerala’s Kudumbashree) has this been more successful.”
sobhanak.nair@thehindu.co.in sharad.raghavan@thehindu.co.in
