Women and Microcredit: Rising indebtedness among female micro-credit clients

During the past few years, women’s access to credit in Sri Lanka has been accompanied by stories in the media of high levels of indebtedness noted among borrowers. Reports of the incidence of indebtedness appear to be most prevalent in the Northern and Eastern Provinces, prompting high level Central Bank officials, including the Governor, to pay visits to the ‘affected’ districts. The severity of the issue is underscored by several national level proclamations targeted at addressing this concern; how far these efforts would help in mitigating the effects of indebtedness is not as clear.

Since 2015, CEPA’s research has found indebtedness consistently coming up as a concern from different quarters. For instance, in the north, resettled communities were increasingly seeking credit through private lenders because of the inability to offer collateral required by banks. And ‘Community Mediation Boards’ in different parts of the country are burdened with ‘cases’ of borrowers unable to pay their credit. Similarly, the recent trend of rising household debt has also been highlighted as a reason for women choosing to migrate overseas for work.

In view of these findings, a recently concluded research by CEPA, focusing mainly on female borrowers in the districts of Mulaitivu, Batticaloa and Monaragala, highlights the reasons that lead women to borrow from micro- lenders. While the reasons varied in importance across the districts, some common factors were identified.

Women borrow for a number of reasons and these are not always related to the improvement or establishment of an income-generating activity. Rather, for many, access to micro credit enables them to meet any shortcomings in consumption at the household level, especially where the family relies on wage labour. But women are also using micro- credit to meet the health and educational expenses of the children – basic services that generally should be provided for ‘free’ in Sri Lanka. The borrowed money is used to cover the high transport costs to visit nearby general hospitals and for medicines or to meet the costs of school activities. In Mullaitivu, women are also borrowing credit from different sources to fund men’s migration overseas, especially to West Asia in search of work. This, however, proves to be risky especially when the men return prematurely and the women are burdened with debt that they find difficult to pay back.

More problematic is that women are also borrowing money to fund coming-of-age ceremonies, to cover the costs of weddings, funerals and related activities like alms-giving. Whilst this enables the families to meet their social obligations, the question of repayment remains, since almost all these activities are consumption oriented and do not generate an income.

Moreover, where women do borrow for livelihood activities, it is in support of a livelihood activity of the spouse or to support a male relative. Given that micro-lending continues to target women, they assume the risk on behalf of the males, thus saddling themselves with debt. Where women had indeed borrowed for a livelihood activity carried out by themselves it tends to be for crop cultivation, with a few opting for cattle rearing and operating a retail shop.

The issue of repayment and indebtedness noted among female borrowers, therefore, could be fuelled by the reasons they are compelled to borrow. When women are forced to meet the household consumption expenses and the health and education related expenses of children, in a backdrop where a subsistence economy prevails, the means to meet the repayment schedules set by private lenders become increasingly difficult. This, then, invariably leads women to adopt different means of servicing the debt; by borrowing from multiple other sources and at times, pawning their only asset – gold jewellery.

Thus, it is imperative for these conversations, around women’s access to credit and the resultant focus on high rates of indebtedness, to move beyond the surface level. The focus, so far, has been on complementing access to credit by improving the financial literacy of the female borrowers. While this is important, it fails to address the core issue of why women are borrowing. Equal or more concerted efforts must also look towards addressing the absence or lack of access to viable livelihood options for women, especially in light of their struggles to balance social obligations with commitments to ensure the family needs are taken care of.