Saturday, December 8, 2007

Some Post Cyclone Sidr Update: Will the Micro-Credit Installment -Collection Non-Interest Loan Plan Really Stand Up?

TWO THREE long weeks have passed since Cyclone Sidr roared ashore in Bangladesh and killed at least 3400+ people, injured many more, and devastated land, businesses, and futures. Many people have documented the profound losses, experiences, reflection, need for massive relief-fundraising now & better coordination of relief and such fundraising, and in the future, extensive reconstruction efforts. The United Bangladesh Appeal have launched the Sidr Victims' Compensation fund for survivors along with other donors' appeals. Nonetheless the Bangladeshi English media and blogosphere continue to have fewer reports on relief, but these few continue to report higher than expected damage estimates, disparities in relief distribution & recovery including safe water, requests for more donor funds by the CA, and also new loans given to a big micro-credit NGO to expand its activities, while at the request of the CA and Army Chief, key microcredit-NGOs announced suspension of installment collections.

Speaking of survivors: what about compensation, cancellation of micro-credit debt for Sidr's dead victims, and repayment pressures on struggling survivors???? More conflicting stories have appeared since I first posted this story at the end of November. As my long title shows, the stor(ies) still are unclear. At first, the media reported that some NGO staff members had been pressurizing borrowers for interest-loan payment. These borrowers had survived Cyclone Sidr, but lost their businesses-capital-customers and could not make repayments.

On 4 Dec, the media reported that the CA had met with a group of multi-lateral donors to request $1 billion for long-term reconstruction of shelters, embankments, and coastal areas. The donors urged best practices from other rehabilitation efforts and the need for more shelters, but also voiced their concerns, “that the caretaker government needs to be more careful because of its short tenure, especially as the donors feel the project would compel the government to make some tough decisions.”

Then starting from 5 December onwards, the CA and Army Chief have asked NGOs to tell their field staff to end the pressure and to forego payments at least until March and one newspaper opined that the NGOs should take these actions upon themselves, too. The CA and Army Chief also asked the Bangladesh Bank to consider waiving agriculture loan payments and disburse approved loans. Have the micro-credit field staff gotten these messages?

As of that previous week, no. As I wrote before, on Nov 26 the Caretaker government had asked NGOs not to demand loan repayments right now from cyclone survivors. Nonetheless, in a Daily Star article, Bilkis Begum would like her tk 80,000 microcredit debt cancelled because she feels like repayment is at least one year away. Md. Yunus of Grameen Bank explains why such debts cannot be cancelled, but that GB would offer 'interest free loans' tk 10,000 towards rebuilding account holders' houses, more time to pay off their debts and offers of new loans, e.g, more debt.

Then on 27 Nov 07, the Daily Star reported that micro-credit NGOs may have to cancel tk 600 cr (tk six billion) loans because of rules that if borrowers died, then their debts must be canceled. According to this article "In 12 south and south-western districts, some Tk 1,159 crore in loan remains outstanding with 15 lakh people, with 42 microcredit organisations operating in the region."Over 1227+ borrowers have died leaving the NGOs with many debts to cancel. These NGOs included Grameen Bank, BRAC, ASA, organizations affiliated with PKSF, and other smaller organizations.

Another official commented, "Although the microcredit providers are not going to make an announcement of the write-off right now, they might finally write the loans off since the small borrowers lost most of their houses, businesses, and other assets". Other officials indicated that they did not want to announce any more plans because people who could repay their loans would try to have them canceled, but they had advise their staff to 'suspend' their collection efforts from cyclone affected borrowers for the time being.

These debt cancellations will impact the micro-credit sector, but to what extent will only be seen over time. Critics have noted that many NGOs have used micro-credit operations as money makers among their other activities. Last year, as New Age noted about a World Bank report most NGOs survive and run their programs on micro-credit interest and not local donations (for bn version or full report) . Others have complained that although national offices made announcements about suspension of collection, often this message failed to trickle down to field staff who were under pressure from higher levels to collect loans.

Finally, this past week of 1-7 Dec 07, the national NGO offices gave their post Sidr plans. Grameen Bank announced suspension of installment payments for Cyclone Sidr survivors until end of June 2008 and interest free ‘realisable’ loans, and other interest free loans for rebuilding houses, livelihoods (which still increase debts), and cancellation of debts and return of savings to families of debtors who perished in Cyclone Sidr. ASA and PKSF announced similar packages. More recently BRAC announced that it would write off loans of tk 100 crore, discontinue installment collection until March, and provide loans to recover economic livelihoods. Interestingly, a few days earlier, BRAC announced a new $55m unsecured loan of seven years to expand taka microfinance from a consortium of international lenders . There have been no reports on what the smaller micro-credit NGOs will do about their loan write-offs for borrowers who died in Cyclone Sidr and/or borrowers-survivors who may be unable to service their loans given the lost of their businesses, dwellings, and customers. Or their viability: since most small NGOs have depended on loan repayments to fund their activities how they will continue to fund their programmes?

Nonetheless, by all accounts of the devastation in the coastal region, many surviving borrowers may never be able to recover much less with the micro-credit debt burden and pressurization on the survivors' backs. One author noted recently that in some areas so much food had come that some younger workers sold the excess food to meet other living needs and did not want to work in reconstruction. Further, his respondents’ “experience pertaining to default in payment of installment was not pleasant.” From this, readers-activists might ask: could surviving micro-credit debtors have to sell relief food-materials to make payments now and/or when installment collections resume?

Some previous micro-credit researchers has noted that often times women loan recipients skimped on food and household expenses to make their payment, e.g. eating their installments. Will the additional loans & debt to stimulate economic recovery be enough, especially if customers have no funds to make purchases from micro-credit businesses? What will happen to the borrowers and NGOs once the no- installment period passes and their debts-service have continued to accumulate through the interest free loans? This is how NGOs have padded their repayment rates—by giving more loans to pay off old loans and/or borrowers have taken multiple loans and/or borrowed from smaller micro-credit NGOs to pay off debts to larger NGOs. How long can borrowers--especially women borrowers-- and small NGOs in cyclone stricken areas survive these payment patterns?

So what is/are the real situations throughout the Cyclone Sidr area in regard to micro-credit installments and relief; for NGOs & survivors-borrowers?

note: this is a revision-update of a 28 Nov 07 post

cross-posted in Drishtipat

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