Collective of Women Affected by Microfinance makes case to UN Special Rapporteur on forms of slavery

• An estimate of 2.8 m women trapped in unpayable debt related to microfinance

The Collective of Women Affected by Microfinance last week made a strong case on issues facing them during a meeting with the UN Special Rapporteur on contemporary forms of slavery Tomoya Obokata.

The Collective during the meeting made the following submission: 

Debt is the most prevalent source of slavery. In contemporary Sri Lanka, unpayable debt accrued through microfinance loans has been driving exploitation, dispossession, and conditions resembling debt peonage. A chain of high-risk loans disbursed at usurious rates to women with no regular income has wiped their savings and assets. 

Doubly bounded by the obligation to repay debt and to take care of her family, the indebted woman is forced to labour in dangerous and low-paid jobs, i.e., as manpower workers in the garment factories, indentured labour in the Middle East, daily wage labourers in the agricultural farms or as prostitutes. As examples from the plantations, rural and post-conflict areas show, unpayable debt has also forced children out of schools and brought about child labour. An estimate of 2.8 million women are trapped in unpayable debt related to microfinance. 

Financial violence emanating from injurious microfinance compounds domestic, workplace and legal violence that women undergo. As a result, more than 200 women have committed suicide. We as the collective of women affected by microfinance have been exposing the nature and consequences of predatory lending by microfinance institutions and demanding state intervention to solve the problem since 2018. The microfinance crisis has been aggravated by the collapse of livelihoods due to the COVID-19 pandemic. Austerity policies emanating from the economic crisis will have a heavy toll on indebted women. 

We would like to point out that debt-driven exploitation of women is a direct consequence of posing financialised solutions to issues of livelihood, work, and wages. Instead of bringing about fundamental changes to structures in the economy which creates and perpetuates gendered forms of poverty, microfinance like solutions have rendered poverty a profitable business to big finance companies and financial capital. The United Nations too has played a proactive role in mainstreaming this imprudent approach over the years. 

Apart from celebrating the year 2005 as the International Year of Microfinance, the UN also lauded microfinance as a best practice to alleviate poverty under its flagship programs of Millennium Development Goals (MDGs) as well as Sustainable Development Goals (SDGs). Predatory finance companies have been using SDGs to validate their lending practices and attract investors. Partner organisations of the UN like the World Bank and Asia Development Bank have actively aided and abetted the commercialisation of microfinance. Many other International Non-Governmental Organisations continue to uphold and fund predatory microfinance companies despite the outcry of the abused indebted women over the years. 

The report of the UN Independent Expert on the Effects of Foreign Debt and Human Rights in 2018 have illustrated the harmful effects of microfinance debt on women. He also made several recommendations to the Government of Sri Lanka which the Government is yet to implement. Representing the victims of microfinance, we would like to draw your attention to the following recommendations:

Investigate the situation of the microfinance crisis in Sri Lanka: The Government, policymakers, and the finance lobby have been discrediting and disputing the victims’ narratives despite protests and widespread evidence on predatory microfinance. Sri Lanka lacks national-level data on microfinance and the crisis. Any policy measure to resolve the problem should follow a close exploration of the problem. 

Facilitate a microfinance debt-audit: Usurious rates at which microfinance loans are disbursed permit lenders to perpetuate a vicious cycle of debt collection. Many of the microfinance borrowers claim that they have paid back their debt, but the companies continue to pressure them to pay more. A debt audit will assist in untangling this problem and formulate a plan for debt abolition. 

Instruct the GOSL on a pathway to abolish microfinance debt: Any solution which falls short of debt abolition fails to address the microfinance crisis concretely. The unavailability of national-level data and a debt audit makes debt abolition appear impossible at present. 

Regulation of microfinance to protect borrowers: The need for stability in the finance sector which drives GOSL’s rationale for regulating the finance sector has benefitted the lenders at the cost of borrowers and community-owned credit mechanisms. Law that perceives that creditors should be protected compels borrowers to pay the unpayable debt. Stability interpreted in terms of core capital requirements favours big finance and pushes community-owned credit providers out of the market. 

Community owned credit programs: Numerous regional examples prove that commercialised microfinance is at fault for the current microfinance crisis. Instead of nurturing development, commercial lending has been dispossessing and rendering borrowers dependent on debt. Community-owned credit where people have the autonomy to decide terms of lending and purposes of lending is suited better for the developmental needs of the communities. 

Meaningful social development: Financialised solutions to address poverty have completely failed to ensure people’s right to development. It has cost their autonomy, and has trapped them in low-paying, exploitative and dangerous jobs. The long COVID-19 pandemic illustrates how debt driven dominant poverty solutions, apart from damaging the government’s social security programs like Samurdhi, have also eroded the resilience of the people to combat crises. Transforming the economic development to create decent jobs, strengthen small farmers and fishers and benefit small and medium entrepreneurs would trump financialised solutions.