By Shabeer Mohamed
Mohanavathani works at a small hotel in Velanai, earning Rs. 1,500 a day. She did not take the job to build savings. She took it to repay the debts of her husband, Koneshwaran, a fisherman who committed suicide three months ago after struggling with mounting loans.
The couple has three children. The youngest is in Grade 6. The two older children have taken up work to help repay the family’s debts.
“My husband’s last loan was Rs. 2.5 million from Samurdhi,” Mohanavathani said. “Before that, he had taken loans from people and microfinance companies. We depended on fishing, but the sea did not give us what we expected. People started coming to the house at night, five days a week, demanding repayments. We borrowed from one person to repay another. The week before he died, the engine of our small boat broke down and we could not even go to sea.”
Koneshwaran’s son, Shubistan, said the family was later informed that the Samurdhi loan had to be repaid because his father had died six months before repaying the loan under the scheme.
Other microfinance loans, he said, were written off following his father’s death, but private loans taken at interest from individuals remain outstanding.
Velanai Pradeshiya Sabha member Anushiya Jayakanth said indebtedness is widespread across the area.
“Everyone in this village had taken a loan,” she said. “From Government officials to politicians, everyone has borrowed from somewhere.”
She distinguished between cooperative or bank loans and informal microfinance companies in the area.
“Unknown microfinance companies come, gather people in groups, and give loans collectively. They charge excessive interest. They go to houses and knock on the doors, even at night. Women and children are under constant stress.”
According to Jayakanth, the Pradeshiya Sabha attempted to register microfinance companies in Velanai. Only two companies submitted documentation. She estimates that around 35 lenders operate in the village.
Loans without names
Sudhakaran Sujeepan, 27, said many borrowers do not even know the names of the companies lending to them.
“They come on motorcycles, get signatures on documents, and give money,” he said. Some officers who worked in one microfinance company leave and join another. Then they return to the same houses through the new company and give loans again.
He said that one former bank official, suspended from multiple institutions, has started lending privately at high interest rates.
The cost of weekly loans
Pathmasiri Suresh, 45, said her family first borrowed through Samurdhi in 2016 to purchase fishing supplies. The repayments were around Rs. 3,000 per month at a low interest rate.
“When business became difficult, we had to borrow again,” she said. “So far, we have taken loans from 12 companies and individuals.”
She drew a clear distinction between State-backed loans and weekly microfinance repayments. “If we cannot pay Samurdhi today, we can pay tomorrow. But weekly loans do not wait,” she said.
Last year, she borrowed Rs. 50,000 under a weekly scheme and now repays Rs. 1,500 per week in interest. Her husband’s income depends entirely on fishing. Her youngest child, a 7-year-old, is deaf and attends a special school in Jaffna. “Transport alone costs more than Rs. 20,000 a month,” she said.
The Chairman of the Velanai Cooperative Society said the institution currently holds approximately Rs. 240 million for lending. It provides loans of up to Rs. 2.5 million to people and up to Rs. 5 million to affiliated associations at comparatively lower interest rates, under regulatory supervision.
Despite this, private and informal lenders continue to operate widely across the area.
Valikamam East
The Sunday Observer travelled to the next village, Kalaimathi, under the Puttur – Valikamam East Pradeshiya Sabha. The story was painfully familiar. Almost every household here is in debt.
Residents said microfinance institutions began entering these areas only after the war in 2010. Since then, borrowing has become part of daily survival.
Jayakumaran, 45, works as a mason and a daily wage labourer. Illness pushed him into debt. “I suddenly developed kidney disease. After that, I could not work properly. That is how I became a debtor,” he said.
He described the different types of interest rates in the village.
“There is a monthly interest, weekly interest and even daily interest, which they call meter interest. Street fish sellers borrow 10,000 rupees in the morning to buy fish. By evening, they must return up to 12,000 rupees after selling. If they are unable to pay, more interest is added.”
Jayakumaran traced his own debt back more than a decade.
“In 2012, we took a two-lakh loan from the People’s Bank. After six months, I had to pay 16,000 rupees and interest. In 2015, we stopped paying. At that time, the Government said microfinance loans did not need to be repaid. We did not pay the People’s Bank loan either.”
He said the consequences came later.
“After the Covid 19 pandemic, the People’s Bank filed a case. The officials came to our house on a court order and posted a notice inside the house. Now, 5,000 rupees is deducted from my Aswesuma allowance every month for that loan. I still have to pay nearly one and a half lakh of rupees.”
To manage expenses, he borrowed again.
“Now we have taken 300,000 rupees from a person in the village using our house deed.”
At one point, he attempted suicide. Villagers intervened, including Valikamam East Pradeshiya Sabha Chairman Thiagaraja Nirosh. Jayakumaran is now at home undergoing treatment. His three daughters work in different wage jobs to repay the loans.
Chairman Nirosh distinguished formal banks and informal lenders.
“If someone takes a loan from a registered bank and refuses to repay, the bank goes to court. But if you take a loan from people at high interest, they come in groups and create trouble. They do not rely on legal protection. They rely on manpower. That is why regulation is necessary.”
He also pointed to land ownership as a structural issue in the area.
“Eighty percent of the people own only 20 percent of the land. Twenty percent own 80 percent. Many who work abroad buy land here with foreign earnings and keep it without using it. Ten perches of land are now sold for for nearly ten million rupees. Even an ordinary Government employee cannot afford to buy land.”
He said even fertile land lies unused, while those who wish to farm have none. According to him, this cycle pushes people repeatedly into debt.
At District Coordinating Committee meetings, the Ministers say new laws will be introduced to address the microcredit crisis. So far, nothing has happened. We, as a Council, plan to register these Microfinance agencies through our bylaws at the Pradeshiya Sabha level.
In Kalaimati, as in Velanai, the lenders differ. The communities differ. But the burden sounds the same in every house.
According to the proposed Microfinance and Credit Regulatory Authority Bill, all microfinance institutions should be registered and licensed under a Central Regulatory Body.
The draft law also provides for the setting of interest rate ceilings, mandatory disclosure of loan terms, monitoring of recovery practices, and penalties for institutions operating without approval. It further proposes mechanisms to address borrower grievances and restrict coercive debt collection methods.
However, residents and local representatives in Velanai and Puttur said many lending entities operating in their areas are either unregistered or functioning without clear oversight. While discussions on regulations have continued at the national level for several years, the affected communities say enforcement on the ground remains limited.
Across different districts, among farmers in Hingurakgoda and fishing families in Jaffna, the pattern is similar: multiple loans, high interest rates, and recovery systems outside formal banking procedures. The proposed regulatory framework exists on paper. In these villages, people say its impact is yet to be felt.
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