Thursday, 6 February 2014

"Liberation loans" offered by our partner in Pakistan to free poor people from spiralling debt


After the 2014 Oscars ceremony, Steve McQueen's film “12 Years A Slave” deservedly took home the big prize of best picture. However, it is important to remind ourselves that the barbaric practice of slavery is not something we can consign to the history books. It is still a contemporary issue in many countries around the world.

The epic 1957 Bollywood film ‘Mother India’ movingly portrays the story of a family struggling to survive against the machinations of a local moneylender. Many decades later this is still one of the rare examples of Indian cinema vividly reflecting the reality faced by millions on the Indian sub-continent, and instances of local moneylenders charging usurious rates of interest remain as prevalent as ever throughout much of South Asia.

As well as providing loans to people wanting to establish or develop their microenterprises, lendwithcare’s partner in Pakistan, Akhuwat, provides ‘liberation loans’ to people who are struggling to repay debt that has been taken from local moneylenders. In most instances, borrowers took out small loans at interest rates of up to 20% per month and the debt has spiralled out of control. Sometimes borrowers have already sold what few assets they own, yet still struggle to keep up with repayments. Shahzad Akram, Akhuwat’s Chief Credit Officer, recalls instances where young borrowers have even committed suicide and some moneylenders demanded that borrowers sell their daughters to repay the debt. In parts of southern Punjab and Sindh it is not uncommon to find borrowers and their children who have been forced to become indentured labourers for feudal landlords as they struggle to repay debts that were often taken out many years ago.

Akhuwat calls them liberation loans because they free the borrower from the seemingly never-ending cycle of increasing debt. Each request is carefully considered on an individual basis to ensure that the application is genuine. There is a maximum loan size of 100,000 rupees or about $1000, although most loans are smaller, typically around 35,000 rupees or $350. Akhuwat does not charge any interest and borrowers are asked to simply repay the loan in monthly instalments over a period of up to 18 months. Each year Akhuwat makes several thousand liberation loans to clear the debts of heavily indebted borrowers.

Rather than providing the borrower with the cash, Akhuwat instead directly repays the whole amount owing to the moneylender in the presence of the borrower and often other witnesses as well. It then asks the moneylender to sign a contract stating that loan has been settled in full and that he/she will not demand anything further from the borrower. The organisation also educates borrowers on the dangers associated with taking out short-term high interest loans to ensure that they do not fall into the same debt traps again.

[The first example of a liberation loan to be uploaded on lendwithcare can be found here. Ilyas Maseeh found himself in spiralling debt after one of his relatives got him involved in a court case. He took out a loan from a private money lender who imposed harsh conditions on this loan. Akhuwat is now helping him clear his debt and resume a normal life.]



Akhuwat, which was established in 2001 by Dr Amjad Saqib, has grown quickly to become one of the largest specialist providers of microloans in Pakistan – it now has almost two hundred thousand active clients, including many non-Muslims, served by more than 250 branches located throughout the country. Akhuwat provides interest free, referred to as Qard Hasan, loans to the working poor. Qard Hasan loans are promoted in Islamic teachings as one of the mechanisms to assist poor people; indeed they are preferred to providing the poor with outright charity. With an average loan size the equivalent of just US$144, Akhuwat lends to some of the poorest people in Pakistan without any formal collateral and has a remarkable on-time repayment rate of 99.83%.

By Dr. Ajaz Ahmed Khan

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