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Saumya is a mother of two from Polonnaruwa who took out a loan of Rs. 200,000 from a well established microfinance company in the area to start a small clothing business to make ends meet. She had already paid more than three-quarters of the agreed amount, including interest. Then recently the company told her to pay another Rs. 120,000 as a “default amount” before legal action was taken against her. Confused and terrified, without anyone’s support, Saumya told her story. Saumya was not the only woman to have fallen victim to predatory microfinance in the country.

Charitha, another victim of Mullaitivu, recalled her own experience. “Before microfinance, we earned a daily salary and ate, if we didn’t have food we would starve. We didn’t have big dreams; like everyone else, we had certain needs and tastes, but didn’t think we had to borrow to improve our lives. When these people arrived in the village, it was like a fairy tale come true, but then it spread like a virus!

In Sri Lanka, the introduction of unregulated microfinance based on global and local neoliberal models multiplied at the end of the 2000s for a total clientele today of 2.8 million. From this, 2.4 million are women. Since its inception, the microfinance industry has targeted unbanked populations in rural and urban areas in the name of promoting financial inclusion. With the end of a civil war, microfinance was also marketed as a panacea for economic development. A decade later, the stories of women victims of microfinance underscore that reality is far from the rosy picture portrayed when microfinance was introduced.

So on March 8, 2021, as the world celebrated International Women’s Day, rural Sri Lankan women from Hingurakgoda took to the streets to demand the abolition of microfinance debt. The street protest was part of a much larger struggle, including a satyagraha waged against the vicious circle of microfinance debt. As of this writing, the satyagraha has been performed for 25 days and women stress that they will continue to do so until their list of demands is met. Their demands include abolishing all microfinance debts, stopping debt collection until a debt audit is performed, stopping all lawsuits against microfinance borrowers, ending of all Credit Information Bureau microfinance borrowers and the establishment of an autonomous and socially emancipatory credit mechanism collectively owned by women. .

From vulnerable low-income groups, financial literacy is low among the majority of microfinance clients. This allows women to be easily exploited by predatory microfinance organizations. The women present at the satyagraha point out that most of them do not have copies of the chords which have been compiled in English. Lack of English language skills further disadvantages women who cannot understand what they have signed up for. They also stress that the nature of the agreements was not explained to them when signing the agreements. Women do not know the interest rate because it is veiled into a weekly or monthly amount. One of the satyagraha victims explained how she makes her weekly payment by showing her loan card. She explained that she paid the debt collectors a weekly amount. Paradoxically, while the date and the weekly amount were mentioned, the column showing the interest paid was not filled. The woman said she only knew the full amount she was asked to pay, but not the interest rate. Such exploitative practices have led the problem of microfinance to degenerate into a rural debt crisis.

While microfinance in scholarly literature is often presented as a magic bullet which empowers women, recent studies pointed out the opposite. Indeed, the very notion of promoting entrepreneurship (which is promoted as the activity that women finance with their loans) as a solution to rural economic development is very problematic. Moreover, as is well documented, microfinance creates a vicious circle of debt and poverty. While microfinance provides financial inclusion, it does not guarantee economic development due to the neoliberal extractive business models it follows. This is evident in countries like Sri Lanka, where the right to financial access is futile when the infrastructure for the economic development of the rural community is almost non-existent. In addition, due to infrastructure limitations, the costs associated with health care, transportation and education are much higher in rural areas than in more urban areas of the country. This situation worsened during the Covid 19 pandemic, where the financial burden for women got accentuated.

Over the past three years, the functioning of the microfinance industry on the island has resulted in more than 200 suicides, landless, bullying and many forms of violence. Women express that the actions of state institutions marginalize them. First, the difficulties faced by women when trying to access state financial systems such as state banks marginalize women. Victims point out that due to the length of the process involved and the specific requirements, including guarantees or guarantors, it is difficult for women to obtain financial support. In addition, over the past year, state institutions, including the police and the judiciary, have also failed to support women. This has resulted in further marginalization of women where they are not only denied access to state financial services, but also state protection at the local community level. This creates a condition in which women experience multiple forms of structural violence from multiple sources, including state and non-state institutions.

The Hingurukoda protest is part of a larger campaign to demand state intervention. For example, over the past three years, the Collective of Women Victims of Microfinance in Sri Lanka has organized street protests, awareness campaigns and made direct appeals to the state. Yet so far successive governments have failed to respond effectively and efficiently to find viable solutions to the problem. State responses were limited to a voluntary microfinance law that failed to create a sense of responsibility among microfinance institutions and a New Credit Regulatory Authority Act which has not yet been implemented. State non-response indicates that by ignoring women’s demands on microfinance and debt, they are reinforcing the marginalization of their voices. With over-indebtedness being one of the main socio-economic problems of Sri Lankan rural economy, the microfinance debt crisis cannot be solved by haphazard measures. The only way out of the problem is to resort to policy interventions that identify the deep-rooted structural inequalities that affect rural women and respond to their socio-economic and political demands.