Eight years ago, the teenager’s mother fled the village after taking loans worth over ₹16 lakh from microfinance institutions (MFIs) and traditional money lenders in the name of another woman in the village.
This is a common practice in the village. For instance, if person A is in desperate need of funds, she convinces B, a neighbour or friend, to borrow money. A does this because she already is juggling multiple debts and is unable to repay them. The loan comes to B once her documents are verified and she gives the money to A, who pays the monthly installments. If A fails to repay, then B, in whose name the loan was given, is held accountable by the MFI or moneylender.
The teenager’s mother, a habitual borrower, said she had no option but to flee the village once neighbours realized the scale of the loans taken by her, and demanded repayment.
When Mint spoke to the teenager’s mother over the phone, she said she kept juggling loans at high interest rates to meet different expenses. “My husband had kidney disease, then I married off my daughters, supported them when they had kids, and then there was the children’s education… and the daily expenses,” she said.
Before long, the borrowing had reached close to ₹16 lakh. Now, she makes a living selling saris door-to-door somewhere in Koderma. “If I have to visit home, it is in the middle of the night so that nobody gets to know…my daughters come and live with me sometimes,” she added.
Every person cited above spoke to Mint on condition of anonymity.
If people default, their credit scores typically drop and it would be difficult for them to get more loans from MFIs. This forces them to resort to informal and more expensive forms of borrowing.
A recent paper, Prevalence of non-institutional borrowing among Indian households: A pre and post covid-19 analysis, put out by the Piramal group and drawing data from the Centre for Monitoring Indian Economy, shows that Jharkhand features among the top states with borrowing from non-institutional sources, as of 2022-23. Other top states in this cohort include Bihar, West Bengal, Uttarakhand, and Telangana.
A recent paper, Prevalence of non-institutional borrowing among Indian households: A pre and post covid-19 analysis, shows that Jharkhand features among the top states with borrowing from non-institutional sources, as of 2022-23.
Microfinance operations are spread across 641 districts in 36 states and union territories. The penetration level is higher in southern and eastern India. The sector comprises non-banking financial companies (NBFCs), NBFC-MFIs, banks, small finance banks (SFBs), and non-profit microfinance institutions (MFIs).
“While migration happens always, we have certainly noticed more disappearances as compared to before,” confirmed Manoj Kumar Nambiar, managing director of Arohan Financial Services Limited, an NBFC-MFI, and a board member at MicroFinance Institutions Network, an association of NBFC-MFIs.
The distress in rural areas is seen among borrowers whose bets did not pay off—people who took loans in the hope their business would grow, but it didn’t, Nambiar added.
Indeed, the microfinance industry has been stressed for many quarters now with lenders opting to write off bad loans and reset their books during 2024-25. Spandana Sphoorty, a NBFC-MFI, for instance, wrote off loans worth ₹1,618 crore, 18.3% of the average loan book, according to India Ratings.
“Assets under management and disbursements declined (for the microfinance industry) during FY25 and might remain sluggish in 1QFY26, in line with the seasonality factor. Profitability was severely impacted in FY25, and net losses widened for most NBFC-MFIs during 4QFY25, amid the significant increase in credit costs,” the ratings agency stated in a recent report. “This was also partially driven by the entities taking accelerated write-offs and operating expenses rising…as entities increased their collection efforts and intensity,” it further added.
Things, however, may look up later this year. The ratings agency stated that it expects a gradual return to normalcy for the MFI sector from the second half of the year.
Palpable distress
Mint’s ground reportage across the villages of Dhora Kola, Kharkota, Salaidih, Jainagar and Markacho in Koderma showed that quite a few women were forced to flee villages after taking multiple MFI loans in the names of other women.
We met at least two dozen women who were reeling under debts ranging from ₹20,000 to ₹5-6 lakh, taken to meet daily consumption needs. In four families (neighbours in one case) couples or the entire family were forced to flee the village after drawing loans using other people’s names and identification papers.
Kalpana Karunakaran, professor of development studies at IIT Madras, says the flight of the debt-ridden women out of the village leaves a huge impact on their lives and sense of well-being. “When women flee their villages, they are not just fleeing the MFIs but also their neighbours, and communities,” she said, adding that the pressure from the MFIs becomes a sort of stigma and impacts community and interpersonal relationships in the village.
In several villages we visited, people were fearful of talking about the loans—they had paused payments and feared a backlash if they revealed details.
In Jainagar village, an elderly man who did not wish to be identified said that most households had massive loans, ranging between ₹80,000 and ₹1 lakh. “But people will find it difficult to talk about it. There is no employment, no means to earn livelihood. How will people manage to run their house without loans?” he questioned.
When women flee their villages, they are not just fleeing the MFIs but also their communities.
—Kalpana Karunakaran
This echoed through the accounts of the other families we interviewed. The women said they were in a state of constant stress at being unable to settle their debts. They say they are threatened, and intimidated by collection staff, who wait outside their homes all day. The agents sometimes bring in more men after sunset to frighten the villagers, several families alleged.
Nambiar asserted that all MFIs are governed by the Reserve Bank of India (RBI) guidelines, and in case there are violations, customers can immediately raise a complaint. “The codes include no visits before sunrise, no visits after sunset, and no manhandling or threatening of clients. Customers can call the company, industry association, and the RBI to complain if there are any violations by recovery staff,” he said.
Losing sight of the mission
In India, the first microfinance institution was set up in 1974 in Gujarat with the purpose of giving loans to empower women. This was the Self Employed Women’s Association (SEWA) Bank, which was set up for the socio-economic development of women.
After the 1990s, the microfinance sector entered a new era, with the government looking at it as a part of the poverty alleviation programme. The success of MFIs between 2000 and 2011 encouraged commercial banks to start lending to MFIs.
However, the commercialization of MFIs led to questions being raised about their true intent—were they instruments of poverty alleviation or profit-making lending institutions?
In 2010, Andha Pradesh saw a crisis, with several suicides linked to the exploitative practices of MFIs. The challenges faced by MFIs include non-repayment of loans because of their high interest rates, indebtedness, operational costs, debt management, language barriers with clients, lack of financial literacy, and credit cost.
While theoretically, microcredits are aimed at financial inclusion, the high interest rate—between 16% and 26%—and uninformed lending choices with which the loans are made available often wreak havoc in the lives of borrowers. Research shows that women are considered good microfinance clients and female clients are among the poorest.
Last year, RBI deputy governor M. Rajeshwar Rao criticised MFIs for charging high interest rates on loans and for irresponsible practices. The RBI had also temporarily barred four NBFCs—Navi Finserv, DMI Finance, Asirvad Micro Finance and Arohan Financial Services—from sanctioning loans over pricing violations.
Preserving izzat
As the recovery staffer of a bank-led MFI waits outside Munni Devi’s home in Markacho village, trying to map his recovery points in the village, she speaks to this reporter from the terrace about her son and daughter-in-law, who fled after being unable to clear their loan of over ₹2.5 lakh to MFIs. “Darr se chal gaye (they left out of fear),” she says.
Munni says she pays her installments on time, and will take another loan only after repaying the current one. She has two more sons—in Delhi and Mumbai—who send her money to run the home. The reasons for the loans are many, including illness, and buying a house.
In the next lane, several families gather to talk about how they fell victim to a neighbour, who borrowed from multiple people and then fled with her entire family.
Soni Khatoun is one such victim. She got repeated calls from a debt recovery staffer and screamed at him:“Kaun sa loan, kahan ka loan (what loan are you talking about)? He said: ‘You don’t know there is a loan on your name?’ They kept calling and I had no choice but to repay the loan.”
Mannu Seth, a resident who lent money to another couple that fled the village, said she would repay the loan to preserve her family’s reputation. “Izzat hain na (We have some respect).”
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Mannu Seth says she lent money to a couple that fled her village. (Ritwika Mitra)
That isn’t the only repayment. Mannu already has multiple installments to pay on a loan that she took to build her home. While she does not mention the total amount borrowed, the monthly installment comes to ₹40,000. She has loans in her name, as well as those taken in the names of her daughter and the latter’s mother-in-law.
It’s not easy for the family. Mannu earns ₹3,000 working at the Jharkhand State livelihood Promotion Society Office as a helper. Her husband works in Delhi as an auto mechanic and makes around ₹20,000, most of which he saves up and sends to his wife to pay off the loan.
“What becomes the biggest challenge for the poor borrowing money from MFIs is that they juggle multiple loans and this is driven by a constant demand for money. In the case of the MFIs, the easy supply of finance is also probably fuelling the demand to an extent,” said Prof. Karunakaran.
Mica miners’ predicament
In Salaidih village, this reporter spoke to at least 12 women who said they have stopped repaying their loans. In one household, the recovery staff picked up an LED TV when the borrower could not pay up.
The village is dependent on mica mining. But when the monsoon sets in, it is impossible for them to make the 90-minute trek to the mining area.
Though mica mining is outlawed in Jharkhand, the local population is dependent on it for their livelihood. While women here had between three to eight loans, with monthly installments varying between ₹15,000 and ₹18,000, they refused to repay moneylenders by resisting as a group.
The reason for taking the loans ranged from paying off loans taken for weddings to treatment for unwell children. While they were able to pay instalments at first, they are no longer able to do so.
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Women sort mica flakes at Dhora Kola village. (Ritwika Mitra)
Development economist Jayati Ghosh pointed out that it is not feasible for women to invest and run a viable business with a small amount of money over such a short period of time at such high interest rates. “You are giving loans to people who otherwise cannot access formal loans that would cater to productive investment,” she said.
“People typically take these loans for consumption, to tide over a rough period or deal with a big expense. Since they don’t earn anything by taking these loans, they can end up having to borrow from another MFI to repay the first loan or borrow from moneylenders at even higher interest rates. This then becomes a debt trap,” said Ghosh.
Girja Devi in Dhola Kora village had taken a loan during the lockdown and said that it was impossible for the family to sustain itself—to pay for the children’s education, and her husband’s tuberculosis treatment in Ranchi. The mother of four—three daughters and a son—says the family was dependent on mica for their livelihood.
“We refused to pay the remaining ₹47,000 of the ₹80,000 loan that we had taken. The company people came a few times. We told them we had taken the loan because we had no money, but we are not in a position to clear the loans now,” she said.
Jiji Mammen, executive director and CEO of Sa-Dhan, an association of impact finance institutions and an RBI appointed self-regulatory organisation for MFIs, said the economic slowdown in the aftermath of the covid-19 pandemic, climate stressors, and the general elections impacted borrowers, forced them to borrow from more institutions.
While people in the MFI sector said the stress that the sector is experiencing is a cyclical process and the burden is likely to ease, the women we spoke to say they feel compelled to borrow in the absence of viable livelihood opportunities.
Prof. Karunakaran pointed out that the primary problem is the lack of work opportunities. “If the state is not generating livelihoods, and the only stream (of funds) available is from high-pressure loans, where do households go?” she wondered.
The women of Koderma are asking the same question.
Ritwika Mitra is an independent journalist based in Kolkata.
