INFORMAL MONEY-LENDING AND ITS CONSEQUENCES IN PAKISTAN

Poor people in Pakistan who need quick cash can become victims of Baniyas (informal moneylenders) who take advantage of people’s desperation by advancing them funds at exorbitant interest rates. The culture of borrowing from informal moneylenders who are known as Baniyas is prevalent in this impoverished country. Research indicates that about one-fifth of all households are indebted to moneylenders. Even more concerning is that 30% of over-indebted households are spending more than 100% of their income on capital and interest repayments.

More than 100%! If all or a big proportion of income is spent on just these repayments, this leaves no money for daily living. How do these people survive? And how do they get into these situations?

Borrowing from Baniyas – A Solution that’s a Bigger Problem

Poor people who have no other means of getting funds feel that they have no other option except to borrow from unscrupulous moneylenders. Repayments which never seem to come to an end imprison them in a vicious cycle, leaving them in a worse position than before they received the funds. Even after many years, the principal amount (the initial capital borrowed) which was meant to help them remains untouched and becomes a yoke around their necks.

This is yet another example of the exploitation of poor people. The most obvious impact is financial – many borrowers report that they actually become poorer, having to pay off their capital and interest for years. But borrowing from Baniyas is detrimental on so many other levels too.

The Negative Implications of Borrowing from Moneylenders

Borrowing from Baniyas is often a fate worse than death for poor families, leading to forced labour and slavery. Here are some of the realities these families face:

Using their limited resources/earnings to pay off the exorbitant instalments may result in removing children from school.
It negatively impacts the ability to pay for medical care and results in poor diets for the family, with breadwinners having to work extra hours or being forced to sell household items at a lower value.
When borrowers cannot meet their commitments, the moneylenders seize their assets – either what has been offered in collateral (jewellery, equipment, vehicles), or anything else that the borrowers may own.
When a payment cannot be made, additional repayments are added – sometimes 2 or 3 more per payment missed.
Borrowers are sometimes forced into unpaid labour to pay the Baniyas off.
They can be threatened and intimidated. Some even get beaten up and/or publicly shamed.
Cases of moneylenders ‘taking’ children and forcing them to work to pay off debts are common. Sometimes young girls are married off to the moneylender to wipe out the outstanding amount.
Some borrowers feel they have no other option to end this vicious cycle but to take their own lives. Suicide to escape the crippling and never-ending repayments is a last resort for many who feel trapped and see no escape.

Akhuwat’s Liberation Lending – Fighting Moneylenders through Micro-lending

At Akhuwat, we fight Baniyas who prey on poor families through our Liberation Lending Scheme, under our core programme – Qarz-e-Hasna. With Liberation Lending, we wipe out what the family owes to the moneylenders. We pay off the total balance in one lump sum, including interest to settle the outstanding amount completely. The stress that the borrowers carry worrying about how they will pay off the moneylender is immediately relieved. The moneylender is removed from their lives and they are freed from the burden of never-ending interest payments. To date, we have helped thousands of people through Libration Lending – advancing amounts of between PKR10,000 to PKR100,000.

The monthly repayment amount is fixed and repaid within a fixed period (maximum 3 years), so borrowers know there is an end to the repayments. This makes a huge difference as borrowers can plan and budget for the repayments. Once the total amount is repaid to Akhuwat, the monies that our recipients were paying as instalments can be used for other household expenses or to invest in anything else their families may need. This gives them the freedom to start making a better life for themselves and a better future for their children. Most importantly, they are no longer at the mercy of unscrupulous moneylenders.

Akhuwat’s Liberation Lending Scheme has helped thousands of impoverished Pakistanis break free from crippling and never-ending repayments, reduced their stress and allowed them an opportunity of planning for a better future. Would you like to help poor people in this way? Donate to our Liberation Lending Scheme and free them from the clutches of moneylenders.