The vicious cycle of debt: Why farmers lean towards private financial firms

Karnataka government is likely to disburse the loan waiver funds only in the month of December despite announcing it months ago.

63-year-old M D Devegowda, a small farmer with 5 acres land in Nagamangala taluk in Mandya district of Karnataka, pays an interest of Rs 600 per day to a private financial firm. He had taken a loan of Rs 4.70 lakh to purchase a tractor on his son's insistence and has already repaid Rs 4 lakh.

"I am yet to pay Rs 4.14 lakh as interest and principle. The total is now more than Rs 8 lakh," he said. Devegowda is not alone. This is perhaps the situation that most poor Indian farmers are in, according to agriculture researchers.

For four years, most farmers in Mulkatte, a village in Nagamangala taluk of Mandya- the otherwise fertile and green district of Karnataka- have not grown a crop due to drought. The land is best suited for Ragi, a drought-resistant crop but severe drought had hit the village hard. With failing crop, the economic conditions of the farmers only worsened, recall the villagers.

Why private money lenders?

Untimely release of funds by the government, demand for detailed documentation at state-owned banks and cooperative societies, unavailability of loans due to existing loans, delayed approval processes- all contribute to the farmers seeking money from private players. While the government has stringent laws to protect the farmers from private money lenders, microfinance firms are allowed to function freely.

"The government doesn't provide us fertilizers while growing our crop and loans don't get approved for the sowing season. Loans come through only in the month of April-June, which is in fact harvest period. It costs Rs 8,000-9,000 to cultivate one acre of Ragi. The right time to offer loans in September-October, Secondly, loan waiver disbursement is expected only in December so where will the farmers go?" asked M B Vishakante Gowda, President of Kasaba Vyavasaya Seva Sahakara Sangha in Nagamangala, a cooperative society that has close to 5,000 members from 28 villages in and around.

Agriculture researchers and activists believe that the desperate situations force farmers to desperate measures. For months on, schemes announced for the welfare of the farmers never reach them forcing them to look at alternatives. "The Indian farmer is in a terrible economic condition He is forced to depend on money lenders. The dependency on 'credit' for agriculture is our biggest flaw. People in the city get 7th Pay Commission and our farmers get 'loans'," said Devinder Sharma, Agricultural researcher and activist for policy on farming.

Sharma highlighted how microfinance firms give out loans to farm laborers at the rate of 26 per cent interest and deem it 'empowerment'. "Poor farmers don't realize what they are getting into due to the desperate situation that they are in,"

Sharma added. He worried about the governments, both central and state, tuning a blind eye to microfinancing firms and their interest rates.

The hassle of documentation

Villagers, mostly farmers, from Mulkatte head to their cooperative societies first in the case of a financial emergency. "Barely 30 per cent farmers seek help from nationalized banks. Simply because the process is lengthly and required documents are difficult to produce," said Thamme Gowda, a farmer who has been running from pillar to post to claim a loan that has already been sanctioned. Thamme Gowda's loan application of Rs 1.20 lakh to buy cattle was approved six months ago but he is yet to claim the money.

"Language is a barrier too. Not a single person posted in the nationalized bank can speak the local language. I can't speak Hindi and the staff can't speak Kannada. How do I convey my concerns to them? Is there not a single eligible person from the state to be appointed at the bank to help farmers?" Thamme Gowda asked the Karnataka government.

Apart from language, documentation is a headache. Many farmers cultivate undivided lands that are registered in the names of their father or grandfather. "Banks want us to produce Experience certificate but there is none in my name. If I produce EC in my grandfather's name, it is rejected. I am asked to produce Rights, tenancy, crop (RTC) forms and the process is arduous," said Vishakantaiah.

According to the government's schemes, farm loans do not attract interest but other loans like gold, tractor, personal expenses attract an interest rate of 12 per cent. According to one of the cooperative societies in the taluk, the Karnataka government has fixed a loan limit of Rs 40,000 per acre of land but barely Rs 15,000 to 20,000 is released by the government.

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