Microloans, seen as salvation for poor women, trap many in debt

Five years ago, Amira Hawamdeh took out a loan for $423 to buy buttons and yarn to make purses and sweaters, and winter blankets to sell to her neighbours.

Microloans like the one she used to build a small home business have been hailed as an innovative way to lift women out of poverty, empowering them to become entrepreneurs and contribute to the economy.

But three years ago, she stopped working after she developed diabetes and back pain. When her son got sick, she took out another microloan to pay for his medicine. When her husband could not pay the rent, she took out another loan.

“I was desperate,” said Hawamdeh, a 64-year-old mother of seven. Today, she is $613 in debt and fears going to jail.

Increasingly, as women in Jordan take out microloans to tackle unemployment and poverty, they are becoming trapped in a system that was supposed to help them. Hundreds of unregulated loan shops operate in Jordan’s thriving microloan market, offering easy credit but also high interest rates and penalties, and the threat of jail if the loans are not repaid.

Jordan is one of a few countries that criminalizes debt. Nearly 2,000 people, about 12% of Jordan’s prison population, are locked up for nonpayment of loans, according to a national report supported by the United Nations Office on Drugs and Crime. Last month, the government delayed the imprisonment of an additional 3,000 debtors to reduce prison overcrowding as part of an effort to combat the coronavirus.

Aid workers and advocates say unscrupulous lenders often fail to explain the terms and risks of the loans to borrowers, who are often financially illiterate and may be desperately poor.

“It’s irresponsible to give a loan to somebody who doesn’t know the consequences,” said Sara Ferrer Olivella, UN Development Program director in Jordan. “It’s like giving someone an injection, and they don’t know what the side effects will be.”

Legal microfinance companies are calling for more oversight to crack down on deceptive practices that could tar the entire industry.

“In order not to defeat the purpose of supporting the microbusinesses, there needs to be more regulation,” said Lina Bakhit, chief business officer at Ahli Bank and vice chairwoman of Ahli Microfinance Co.

The problem of poor women being imprisoned for debt has become so pronounced that King Abdullah II called in to a morning talk show last year on Mother’s Day here and urged Jordanians to support them.

He personally repaid the debts of 1,500 women, and his appeal raised nearly $10 million to cover the debts of 6,481 other women.

A market in downtown Amman, the capital of Jordan, Dec. 11, 2019. The New York Times

Activists and relatives of people in debt have held protests twice in Amman, the capital, in recent months, calling for a repeal of the law allowing a creditor to demand a debtor’s imprisonment.

When economist Muhammad Yunus founded microfinance bank Grameen in Bangladesh in 1983, setting off a growing trend, the idea was seen as revolutionary.

A free-market system that replaced charity with small loans promised to help poor women, and sometimes men, become productive workers. In many cases, women were engaged in cottage industries already, and the only obstacle to expanding their businesses and rising out of poverty was a banking system not set up to provide small loans.

The idea spread, the microfinance industry boomed, and Yunus won a Nobel Prize in 2006.

In the Middle East, microfinance is still a relatively young industry, and in Jordan it has provided critical help for people who cannot meet the requirements for loans from normal commercial banks.

The World Bank’s International Finance Corp and its partners announced in 2018 that they were providing a $10 million loan to a microfinance institution in Jordan as part of an effort to support small businesses, entrepreneurs and women.

Jordan, with an unemployment rate of nearly 20%, was a ready market. Even for those who have jobs, the average monthly income of $637 fails to cover basic expenses.

Nearly 70% of microloan borrowers in Jordan are women, one study found.

In addition to loans, women who have built successful home-based businesses have usually had financial mentoring, family support and a realistic marketing plan. Women managing home businesses are usually still expected to do all the housework and take care of their children.

But for tens of thousands of women, microloans have become virtual ATMs, a quick way to get cash to pay the rent or buy emergency medication. Last year, the minister of social development, Basma Ishaqat, said that at least 9,000 women were delinquent on loans of $1,400 or less.

That road can lead to mounting debt and sometimes prison.

Fatima Shetawi, who owes less than $706, is hiding from an arrest warrant.

Reached by phone, she said she had requested a loan of $600 from Ahli Microfinance. When the company asked her what she planned to do with the money, she lied and said she wanted to open a home-based business.

Instead she used the money to pay rent.

“We thought it was a solution to help us, a way to survive,” she said.

The company did not seem to be concerned about where the money went, she said.

“They never came to see if I opened the project or how I used the money,” she said. “The loan officers just called me asking why I couldn’t pay back the debt, and then an arrest warrant was issued against me. Now I’m in hiding.”

Ahli Microfinance would not comment on her specific case.

Officials with two loan companies who described their practices on condition of anonymity said that they do send loan officers to check on their clients but that they are not always able to verify the clients’ situations.

In some cases, they said, women will allow only female loan officers into their homes; in others, the women may have already defaulted on the loans before an officer can visit.

Microloans have interest rates ranging from 22% to 50%, and many loan outfits charge a processing fee of $70 to $280 on top of that. In some cases, the interest rate may increase if payments are late.

Hanan Hassan, a mother of four in the central city of Russeifa, sat on a thin floral mattress in a nearly lightless room whose cold white walls were covered with mould. Two empty buckets slowly filled with water leaking through the cracked ceiling. A bathroom, separated from the kitchen by a half-built wall, had no running water.

Scattered on the floor beside her were piles of papers.

“All these are legal warnings,” she said. There were more on her phone: One text message warned of legal action because of nonpayment of a loan.

For 15 years, she has taken microloans from six different regulated and unregulated enterprises to keep her family afloat.

“It was the only way for us to pay our bills,” Hassan said.

She took out more loans to pay back the previous ones.

Rights experts say imprisoning debtors violates the International Covenant on Civil and Political Rights, but a few countries, including Saudi Arabia, Egypt and Yemen, still do it. So does the state of Mississippi.

In Jordan, a borrower can be sentenced up to 90 days a year per loan. If the loan is not paid off the next year, the borrower can be imprisoned again.

Imprisoning mothers can wreak havoc on entire families.

“Sometimes a husband divorces his wife while she is in prison, and the family breaks down,” said Dima Karadsheh, a consultant and researcher on gender issues who interviewed dozens of women who were released from prison for debt. “It’s the complete opposite of women’s empowerment.”

Ali Suleibi, a legal counsellor at the Justice Centre for Legal Aid, said the whole microloan industry in Jordan was an example of capitalism run amok.

“The absence of financial literacy, the lapse in oversight and the lack of care about the sustainability of home-based projects is astonishing,” he said. “These companies lurk and then target the vulnerable.”

From her cold apartment in Russeifa, Hassan sees no way out.

Her husband drives a taxi, earning $10 to $20 a day, while she embroiders traditional dresses, earning about $3.50 a week.

Hassan said her husband had pressed her to take out the loans and is now urging her to start another home-based project to generate income.

“He doesn’t understand that for years now,” she said, “we are in this cruel cycle of debt, and our future is uncertain.”

c.2020 The New York Times Company