The country has recently revived the bank-loan waiver scheme, reinforcing yet again their political flavour and the prospect of dividend at the hustings. Yet the question remains ever so relevant ~ Who eventually benefits from such crippling waivers?
The Agriculture ministry’s Agriculture Census (the data is available online) from 1995-96 to 2011-12 shows that fragmentation of land is on the increase. In 1995-96, the average differential between an individual small and marginal/small-medium owner with <3 hectares (ha) and one owning >3 ha. was an astounding 5.17 ha. or about 646 per cent and 6.14 ha. or 740 per cent respectively.
Overall, about 1.30 crore individual/joint owners >3 ha., i.e. 11 per cent, owned 49 per cent of all lands, excluding those owned by institutions. Fragmentation worsened by 2010-11 with the total number of operational holdings increasing by 7.06 per cent over 2005-06.
The average size of operational holding concomitantly declined to 1.15 ha in 2010-11 compared to 1.23 ha. in 2005-06. Small and marginal holdings <2 ha. rose to 85.01 per cent in 2010-11 against 83.29. Owners with >2 ha. increased to 15 per cent. Those who owned 56 per cent of all land holdings rose by seven per cent in just five years. How many of the disadvantaged owners in the <2 ha. category (85 per cent of all owners) therefore received bank finance? In contrast, to what extent did the larger farmers benefit from institutional finance?
Central to good land management is the issue of sustainable credit, particularly in a monsoon-dependent country like India. It is here that the issue of productivity comes in. Banks need collateral that is the crop. Given the overwhelming preponderance of small and marginal holdings, bank finance is not always forthcoming since the average land holding often does not hold enough value to serve as collateral for a loan. Therefore, unscrupulous money lenders and microfinance institutions are their mainstay.
According to National Crime Records Bureaus latest data on suicides by farmers’ of the approximately 3,000 farmers who committed suicide across the country in 2015 due to debt and bankruptcy, 2474 had taken loans from banks or microfinance institutions.
Moin Qazi states, “The nation (India) has just 13 bank branches per 100,000 people and only about one in four people have access to the internet. Single households run about 96 per cent of the nation’s unincorporated non-farm enterprises and only 1 per cent received loans from the government. For the bulk of low-income households, moneylenders are the only dependable source for money when emergencies arise” .
The rate of interest charged by moneylenders is often mindboggling According to Qazi, “It is possible to get day loans in the vegetable market that provide 100 rupees in the morning but have to be repaid with 10 rupees interest by dusk”. Such unbelievable rates have attracted all those with some disposable cash. Shopkeepers, government officials, policemen and village teachers now lend in the hope of making a killing.
They are willing to extend credit, but at rates verging on extortion ~ sometimes exceeding 50 per cent, which keeps borrowers in permanent penury.
From which sources did such dubious lenders obtain their loanable funds? In 2012, nearly 48 per cent of the farmers who needed loans received it from informal sources such as moneylenders and landlords, according to the All India Debt Investment Survey. This is against 36 per cent in 1991 and 43 per cent in 2001.
Among farmers who owned land parcels smaller than 0.1 hectares, 85 per cent had pending loans from such informal sources. Among farmers who owned farms larger than 10 hectares, only 21 per cent had outstanding loans from informal lenders.
In 2010, the task force on Credit Related Issues of Farmers said 36 per cent of the debt had interest rates ranging between 20 and 25 per cent. Another 38 per cent of the finance was borrowed at interest rates exceeding 30 per cent. So how did loan waivers help them? A report by Naheed Ataulla & Anand J in July 2015, quoted the example of a farmer in Mandya district of Karnataka. He obtained a loan of Rs.4 lakh for farming, for his daughter’s marriage, and to repair his small thatched and leaking house.
This loan was taken at 5 per cent interest per month, which translates to a colossal 80 per cent annual interest on a compounded basis. The farmer was physically unfit to undertake cultivation while his wife and daughter were daily wage farm labourers. Obviously, no financial institution would bet their loans on such a borrower, barring the moneylender. Ironically, a bank loan that carries 4 per cent interest (with government subsidy) jumps to 14 per cent in the event of default. In comparison, cooperative banks charge 12 per cent, while microfinance institutions earn 24 per cent, but the effective rate goes up to 65 per cent.
The moneylender charges 24-30 per cent, but compounded at arbitrary intervals, much like unscrupulous microfinance institutions and without much transparent calculation. Ironically, those who need bank finance the most are also less likely to obtain the same. And what of the collateral that banks obtain for ‘farm’ loans? Ataulla and Anandji discovered that in 2014-15, the total crop loan disbursed in Mandya district was Rs.1200 crore ~ Rs.600 crore from commercial banks, Rs.350 crore from cooperative banks, and Rs.250 crore from the cooperative sector.
It is alleged that of the Rs. 600 crore from commercial banks, as much as Rs.500 crore was given against mortgage of jewellery, despite the ‘no collateral’ stipulation.
Banks thus pass off gold loans as agriloans. To fulfill their agri-loan quota, banks also provide credit to people claiming to be farmers, but actually are moneylenders. If a farmer defaults even once, the institutional credit to them stops and they are forced to approach microfinance institutions (MFIs) and moneylenders.
So how much are really farm loans that merit the waiver? A senior bank manager informs me that small and marginal farmers prefer “easy” loans from money lenders who take just a blank stamped Promissory Note and a Power of Attorney for sale of the property, unlike banks.
These money lenders wait till dues near the market value of the property and proceed to sell the property afterwards. Alternatively, when the money lender’s dues mount, farmers approach institutions for refinance. RBI stipulates that all farm loans up to one lakh should be collateral free and above that the banks/FIs take mortgage of their piece of agricultural land.
However, agricultural land cannot be sold directly. Therefore, banks/institutions have to approach a court for a decree on the execution of sale, and this may take several years. Where no bank refinance is available, the land is irretrievably lost to the money lender, leaving suicide as the last option.
In many cases, where banks hold mortgage on a farmer’s land, money lenders clear the loan for clearing the mortgage and then sell the property. Then they avail of agricultural finance from institutions, as land owners.
No bank or local police dare touch these money lenders. Just how much does the small and marginal farmer benefit from loan waivers? As if this were not enough, multiple loans via self-help groups can aggravate rural indebtedness. SHGs run by grameen banks route loans via informal diary entries, blank cheques, promissory notes, stamp papers, sale deeds, RC books, etc.
This obfuscates the identity of the loan-giver and makes investigation almost impossible. The small and marginal famer’s woes do not end here. AtaullaAnand report mentions a sericulture farmer who took a loan of Rs.4.50 lakh in 2010 from a primary cooperative bank. A year later, he managed to clear one lakh and another Rs.60000 in three instalments by 2012. A sum of Rs.24,000 is yet to reach the farmer.
He owned two cows yielding 10 litres of milk each day The state government had declared a support price of Rs.4 per litre, but even this did not arrive. Then there was a milk glut in the district that brought down prices further still. Should taxpayers be made to pay for the sheer inefficiency and volatility of markets and government procedures?
Expensive seeds and pesticides and the attraction of bumper harvest have multiplied debts. In Maharashtra, small and marginal farmers’ dependence on private money lenders has shown a steep rise by 40 per cent in 2016-17. Private money lenders disbursed Rs.1254.97 crore, a rise of Rs.358.63 crore over 2015- 16.
Another impediment is the delayed release of crop insurance compensation claims by cooperative banks that routinely divert such funds received from the state governments to underwriting their bad loans. Evidently, the distinction between a farm and non-farm loan vanishes when a small or marginal farmer is on the verge of starvation.
In such a situation, moneylenders, banks and microfinance institutions step in as judge, jury and executioner. How does the small and marginal farmer gain from massscale populist waivers? If not, who does?
(The writer is a senior public policy analyst and commentator)
(To be concluded)