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Originally published Monday, February 27, 2012 at 4:29 AM

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India state gov't pushes microfinance prosecutions

The government of India's Andhra Pradesh state said Monday it would push prosecutors to move ahead with 76 criminal cases against employees of Indian lenders it believes were involved with driving overindebted borrowers to suicide.

AP Business Writer

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MUMBAI, India —

The government of India's Andhra Pradesh state said Monday it would push prosecutors to move ahead with 76 criminal cases against employees of Indian lenders it believes were involved with driving overindebted borrowers to suicide.

The comments came in response to an Associated Press story that showed despite denials, top officials from India's SKS Microfinance had information that implicated its employees in borrower suicides. SKS is a market leader in India's microfinance industry, which specializes in small loans intended to lift up the very poor.

R. Subrahmanyam, principal secretary for rural development in Andhra Pradesh, said the story spurred state officials to ensure that the pending cases get swift attention. "We would like to take up the matter with the prosecution department," he said. "Usually this is not something which we would do."

"Once it goes to the court let's see how it goes," he said. "The minimum the state should be doing is compelling the prosecution to act quickly."

The government of the southern Indian state, which was India's largest microfinance market, blamed a spate of suicides in late 2010 on aggressive lending and collection tactics by microfinance companies. To date there have been no convictions and after scores of earlier arrests, no microfinance company employees are currently in jail, according to Andhra Pradesh officials.

The companies have denied responsibility for the deaths.

Davuluri Venkateswarlu, the director of Glocal Research in Hyderabad, was commissioned by an industry group, the Microfinance Institutions Network, to examine the role of microfinance companies in 44 deaths.

That report has not been made public, but Venkateswarlu said that in 13 cases there was evidence of a link between the actions of microfinance employees and the borrower's suicide or attempted suicide.

He said India's top three microlenders - SKS Microfinance, Share Microfinance and Spandana Sphoorty Financial - were implicated in the majority of those cases.

Share founder and managing director Udaia Kumar denied responsibility for borrower suicides, saying his company has always "upheld the best practices and client protection principles."

"We deny any link between our staff behavior and any deaths in the state of (Andhra Pradesh)," he said by email.

Spandana spokesman Nitin Agrawal said in an email that some Spandana employees have been acquitted and that the company is cooperating with local authorities in all ongoing investigations.

SKS officials say they stand by their September 2011 affidavit to the Supreme Court of India, in which chief executive M.R. Rao swore that SKS "is neither the cause of nor responsible for any suicides in the state of Andhra Pradesh." The company denies that its board of directors authorized any investigations that implicated its employees in some of the suicides.

SKS said its employees have been acquitted by courts in two cases and only one case remains ongoing. SKS said that in another 12 cases police determined they were not involved or absolved employees of responsibility during their investigations. Those 12 cases are on the government's list of 76.

Shares in SKS Microfinance have fallen 10 percent since Friday, despite the company's Monday announcement that it had arranged to sell 3.54 billion rupee ($72.0 million) worth of borrower loans to an unnamed government-run bank. SKS said it was the largest such securitization deal in "Indian microfinance history."

Agrawal of Spandana said the stories behind the suicides were riddled with political and emotional complexity.

He said local moneylenders, who lost business as microfinance companies grew, encouraged officials to unfairly blame the companies for borrower suicides, when in fact family stress and hounding by the moneylenders were to blame.

He said Venkateswarlu's research was tainted because of media sensationalism and vested local interests.

"The same cases had been interviewed so many times by so many journalists that sensationalizing the stories was the order for the day," he said in an email.

Venkateswarlu said that in speaking with people in the field he found that some cases had been resolved out of court, with companies paying the families of the dead to settle the matter.

In one instance, Share staff paid the family of the deceased to drop the case after they complained to the police, he said.

Share's Kumar denied giving payments to victims.

Today, police case files brim with forgotten, grim details, and microfinance lending has ground to a halt in Andhra Pradesh, after a state law clamped down on abuses by introducing onerous restrictions on loan disbursement and collection.

Spandana's Agrawal said that with the halt in microfinance lending, the poor of Andhra Pradesh have been driven back into the arms of moneylenders.

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