In Surat, on October 28, 2023, a family of seven, including three children, was found dead in their home due to the crushing burden of debt. Kanubhai Solanki, the family’s breadwinner, worked as a contractor but struggled with overwhelming debts, leading to this tragic end. Maneesh, the head of the family, was found hanging, while the rest were discovered lifeless in their home, leaving behind a suicide note detailing their dire financial circumstances.
In Aymanam, Kerala, in September 2023, Binu KC, a small businessman took his own life due to relentless harassment from a private bank’s employee. Binu, who had borrowed money but faced difficulties repaying due to business downturns, was pushed to the brink by the constant intimidation.
In Bihar’s Nawada district, in November 2022, six family members, including four children, consumed poison, succumbing to debt pressure from moneylenders. A suicide note blamed the unyielding pressure from loansharks for their despair.
In July last year, a family of four in Bhopal committed suicide due to crushing debt, hanging themselves and poisoning their children. The debt burden became insurmountable, pushing them to this tragic decision.
These heartbreaking incidents underscore the grim reality of economic exploitation through high-interest loans, leaving society in mourning and raising questions about the systemic issues causing such tragedies.
India’s Debt Crisis
The recent Global Hunger Index (GHI) report for 2023 has cast a stark light on India’s ongoing struggle with hunger, ranking it 111 out of 125 nations. Shockingly, over 16.39% of India’s population was classified as multi-dimensionally poor in 2021, indicative of the deep-rooted nature of poverty in the country. Our high unemployment rate, particularly among youth, which stands at 23.2%, further perpetuates the cycle of poverty.
Exploitative labor conditions and limited opportunities for women exacerbate the situation, widening the gap of inequality and deepening financial vulnerabilities. In the face of financial hardships, loans have become an increasingly common recourse, with personal loans witnessing a staggering 46% increase in originations from FY-2021 to FY-2022. However, this reliance on loans, especially those with high-interest rates, contributes to a vicious cycle of debt, further entrenching individuals and households in financial instability.
Tragically, the burden of debt has led to a surge in suicides, with over 25,000 deaths attributed to unemployment and indebtedness from 2018 to 2020. The plight of farmers is particularly distressing; with a majority of farmers’ suicides linked to heavy debt burdens.
Transformative Impact of Interest-Free Microfinance
The current interest-based banking leads to exploitation, economic stagnation and instability with resultant societal repercussions. In contrast, at its core, Islamic interest-free microfinance operates on principles of fairness, equity, and social responsibility. It provides a lifeline to individuals and communities facing financial challenges, offering interest-free loans for a myriad of purposes ranging from personal needs to healthcare, education, and business ventures.
This inclusive approach ensures that individuals from all occupations have access to the support they need to thrive and succeed. It breaks the cycle of interest-based debt that often plagues individuals, particularly those in vulnerable economic circumstances.
By offering loans without the burden of interest, it empowers borrowers to invest in their futures without the fear of spiraling into insurmountable debt. Moreover, Islamic interest-free microfinance contributes to broader socio-economic development by fostering entrepreneurship, creating employment opportunities, and promoting financial inclusion. Through small-scale businesses and ventures, individuals can not only improve their own livelihoods but also contribute to the growth and prosperity of their communities.
Interest-Free Ethical Banking and benefits over conventional banking
At the heart of the core principles of interest-free ethical banking lies the various verses of the Holy Quran that explicitly prohibit the practice of interest-based lending.
Surah Al-Baqarah (Chapter 2), Verses 275-279 says, “Those who devour usury will not stand except as stand one whom the Devil has driven to (madness by) (a touch of) insanity. That is because they say: ‘Trade is just like usury,’ but Allah hath permitted trade and forbidden usury.”
By eschewing exploitative interest charges, interest-free finance institutions ensure that financial services are accessible to a wider spectrum of individuals, thus fostering financial inclusion and empowering marginalized communities. By steering clear of interest-based accumulation, they prevent the concentration of wealth in the hands of a few.
Central to the ethos of interest-free finance is the concept of tying loans to tangible assets, thereby reducing speculative lending practices and fostering responsible financial behavior. Emphasizing a partnership approach, these institutions encourage risk-sharing and profit-sharing arrangements, which not only distribute risk but also align incentives for long-term success.
In times of economic turmoil, interest-free finance acts as a stabilizing force, mitigating crises by discouraging excessive debt and speculative behavior. Through transparent and fair contract structures, these institutions ensure that dealings with customers are conducted with integrity and accountability. Crucially, interest-free finance promotes investments in real economic activities, steering capital towards ventures that generate tangible value and contribute to sustainable growth. By avoiding investments in businesses engaged in unethical activities, these institutions uphold moral principles and support the development of a more ethical economy.
Islamic Financial System and the Sahulat Model
In trying to display the benefits of an Islamic Financial System, Sahulat Microfinance Society stands committed to ethics, benefiting all segments of society, particularly the marginalized and unorganized sectors.
Unlike traditional banking institutions, Sahulat prohibits the charging of interest on loans, ensuring that assistance is extended without the burden of debt and usury. Members of Sahulat begin their entrepreneurial journeys through mutual aid, registering their businesses under the Cooperative Credit Societies Act.
As shareholders in the Society, members pool their savings and withdraw funds as needed, fostering a sense of ownership and collective responsibility. Public funds are utilized to provide interest-free loans for personal and business expenses, with loan structures designed to support sustainable growth and shared prosperity.
While the Society does not profit from loans for personal expenses, it receives a portion of profits if the loan is used as seed capital for business ventures. Additionally, Sahulat shares in profits or losses proportionally with members when loans are utilized for business needs, promoting accountability and risk sharing.
Originating in 2002 with the Al-Khair Cooperative Credit Society in Patna, Bihar, the interest-free microfinance model pioneered by Sahulat has since expanded its reach, forming the Sahulat Microfinance Society in 2010. With operations spanning across multiple states in India, Sahulat has established thirty-seven statutory units, boasting over two lakh members. As Sahulat continues to grow and evolve, it remains at the forefront of ethical finance, paving the way for a more just and equitable economic landscape.