Sandamali said her family kept the front door closed, but some loan officers would walk around the house and come to the back door. One used to peep through the windows to see whether she was at home. Some days, they would sit on a chair in front of her house from 8am to 5pm.
“There were so many times I wanted to take my own life,” Sandamali said.
Sandamali first took a loan of 50,000 Sri Lankan rupees (US$158) in 2010 to support paddy farming and a shop her family owned, but in 2011, heavy rains led to insects and crop damage, shrinking their harvest and income, she said.
So she took another microfinance loan from a different company to finance the next harvesting season. But a severe drought occurred and they could cultivate only half their land with the available reservoir water.
That left them with even less money, she said, and because she still had to pay the existing loans each week, she took yet another loan.
“After a few years, we were trapped in debt,” she said.
“They never explained to us the [terms of the] contract,” Sandamali said. She recalled one financial institution asking them to arrive at the local office for paperwork, just 15 minutes before closing time.
“They gave us a stack of papers in English. They said, sign here and here,” Sandamali gestured. “So we just signed quickly.”
Then, when she was about to finish paying off one loan, the loan collectors would offer another loan.
Vajira Samanmali, 39, another farmer from Shanthipura, Polonnaruwa, tells a similar story. Around 2011, her family’s seven-acre paddy field was completely flooded, destroying the entire crop. The next year, a catastrophic drought prevented another harvest, forcing her to borrow from microfinance companies.
As their crops failed one after another, she took another loan to repay the first and even ended up leasing their paddy field, but still the loans were a heavy burden, she says.
Up to 2021, around 200 women in Sri Lanka who were in debt – including farmers – committed suicide, says Amali Wedagedara, a political economist who conducted extensive fieldwork on microfinance for her doctoral thesis that focused on debtors’ movement against finance companies.
When farmers borrow to cultivate, they are already indebted by the beginning of the harvesting season, Wedagedara says, and crop losses due to erratic weather patterns aggravate their situation by affecting their ability to repay them.
Vimukthi de Silva, north-central provincial coordinator for the Movement for National Land and Agricultural Reforms – a collective of people’s forums consisting of small scale farmers and marginalised communities – says low financial literacy among rural women is exploited by the these lenders and their predatory practices.
For instance, farmers do not have an understanding of interest rates, she says. “[Farmers] only know what they borrow and what they have to pay each week. They do not even get the [agreement] in hand” she told This Week in Asia.
Interest rates offered to these women were highly variable, with some coming up to a staggering 220 per cent with compound interest, according to the 2019 UN report.
Climate of crisis
Official government data reports there was a 22-fold increase in climate induced hazards in Sri Lanka during the past decade, including a rise in annual temperatures, compared to 1973 to 1983. A 2015 study projects a 14 to 26 per cent decrease in net returns per farm per season due to climate change – effects that are intensified by El Nino and La Nina.
In 2018, these extreme weather patterns became a reality with the onset of intense heatwaves and droughts, which in most cases have led to fewer harvests, de Silva said.
“We work with women farmers, we could see the strain on them,” de Silva said.
When they failed to pay instalments, they were sometimes subjected to psychological and physical violence by collectors, and in some instances they were “pressured” to offer “sexual favours” as in-kind payments. Some women even offered to sell their kidneys, the UN report notes.
Those demands for sexual bribes were “quite common” in some areas of the north central, northern and eastern provinces of Sri Lanka, de Silva says.
Following the end of the civil war in 2009, large financial companies in the country entered the microlending market. However, this was “purely driven by profit”, Wedagedara says.
According to its 2022-2023 Annual Report, the Lanka Microfinance Practitioner’s Association (LMPA) has 47 members, while the Central Bank of Sri Lanka (CBSL) has only four registered microfinance companies listed. During 2019 to 2020, 29 members of LMPA had a loan portfolio of around 56.96 billion Sri Lankan rupees, with some 973,000 active borrowers.
But loans by these microfinance companies are not designed for agricultural work, Wedagedara says, because the repayment of the loans starts immediately while income for farmers only comes at harvest time.
In 2018, the Sri Lankan government wrote off up to 100,000 rupees worth of debt for women affected by droughts, provided they had arrears of three months or more by the end of June that year, which were held by members of LMPA or CBSL registered companies.
Also in 2018, the Sri Lankan government capped the microfinance lending rate at 35 per cent per year, but this was reversed by the CBSL in 2022. Sri Lanka is currently in the process of making new laws regulating microfinance, but the draft bill excludes large companies that Sandamali and others borrowed from.
Responding to questions from This Week in Asia, CBSL Governor Nandalal Weerasinghe said the central bank would take action against the exploitative tactics of the large scale financial institutions “if complaints come in” and the actions violate the regulations and directions issued by CBSL.
Meanwhile, women such as Sandamali must still face the aggressive tactics of lenders, including legal threats. She recalled being summoned by police in October following a complaint by a microfinance company for not repaying the loans. We couldn’t agree to their repayment terms, she says.
“And they said they will sue us,” she says.