What my loan portfolio tells us about the future of India

Posted on September 5, 2016

Something unexpected has happened over the past few years. Inadvertently, and reluctantly, I became one of India’s many unregulated moneylenders. At its peak, the Bank of Amy had a portfolio of four loans, with a total credit of more than $12,000 extended to my small-time borrowers.

My loans have been free of interest, with flexible repayment schedules. Twice my money was used to pay off the truly mercenary underground moneylenders that normally provide the bulk of credit for working-class urban Indians trying to get ahead or cope with unexpected shocks. 

My portfolio offers insights into the lives, aspirations and difficulties of the urban workers on whom the nation’s future rests.

These are not the poorest families struggling to survive but lower middle class aspirers, who use family planning, send their children to low-cost private schools and try to establish a toehold in Delhi’s tough property market. 

My first loan was to an office driver whose family won the right in a lottery to buy a flat built by a government housing agency on the city’s outskirts. Such flats are highly sought after, including by property speculators, as their purchase price is well below their potential resale value. 

For his down payment, the driver took out a loan against his wife’s gold jewellery. But he was still short so I gave him a $500 top-up. He steadily repaid me, and I later gave him a second loan to cover further expenses linked to his flat. His repayments then became more erratic, as his mobile phones grew bigger and fancier. Once his second one was paid off, I told him no more loans from me. 

My next was bigger and more impulsive. The woman I’d hired to help care for my baby daughter told me that her family had a “bank loan” on which they had to pay $100 per month — for interest alone. Paying down the principal required them to cough up additional funds. Puzzled, I asked for the loan papers. 

The papers confirmed my suspicions. In his efforts to buy a small flat, the nanny’s adult son — a musician, with whom she lived — had borrowed $5,500 from a moneylender at the standard rate for that sector of nearly 2 per cent per month. The idea of my baby’s carer being in hoc to creditors notorious for hardball tactics against vulnerable defaulters freaked me out. 

Within a week, I’d given her the cash to pay off the moneylenders in full and the house papers were with me. It took the nanny four years to repay me. But had I not intervened the family would still be in heavy debt, probably for years to come. 

The third loan, which I resisted before succumbing to persistent pleas, was about $3,400 for the nanny’s married daughter and her husband, a hospital lab clerk, to buy a small plot of land to build a house.

That loan was paid off this weekend — to our mutual delight — but they still have a bank loan for the same purchase to repay, and it may be years before they have the money to construct the house. 

My last borrower, a demure former call-centre worker in her late twenties, is the most tragic. I met her in 2011 through an overseas friend who had employed her mother as a nanny in Delhi in the 1990s. The former nanny, a widow, was stricken with cancer and had been turned away from the overstretched government hospital. She was now seeking costly private treatment. 

I facilitated a contribution from my friend; others also stepped up. Yet, after the woman’s death in 2012, I learnt her daughter still had $2,000 in debts to moneylenders related to the treatment. As with my own nanny, I refinanced the young woman’s debts so she could repay the moneylenders in full then slowly repay me at her own pace. Her debt was dwindling; but then it turned out her husband needed surgery so I have given another $2,000. 

Narendra Modi, prime minister, and Raghuram Rajan, the central bank governor who has just left office, have tried to promote better access to formal financial services, including credit, to those long shunned by the regulated banking sector. 

Such initiatives could transform many lives. But I suspect it will be quite a while before the Bank of Amy can shut its doors for good.

amy.kazmin@ft.com

Letter in response to this article:

India must take politics out of financial services / From BS Venkatesha

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