According to India's National Crime Records Bureau, more than 87,000 farmers committed suicide between 2002 and 2006 because of failing harvests and huge debts. Young women in South India have one of the highest suicide rate in the world.
Sudhirendar Sharma, a former World Bank analyst and now director of the Delhi-based Ecological Foundation, thinks that microfinance is part of the problem. The rural suicides, he wrote, "cast a dark shadow on the fledging microfinance sector."
Sharma complains that usurious interest rates of up to 40 percent and forced loan recovery practices were intimidating the poor. This and other incidents have led to mounting criticism of microcredit as a debt trap for the poor.
Suvarna Gandham, manager of Indian operations for the Oikocredit microfinance fund, says that microfinance is not to blame for the suicides. She says many of those driven to suicide had outstanding debts with commercial banks and moneylenders; not microfinance institutions (MFIs). Moreover, Gandham believes the high suicide rates are a symptom of India's massive economic transformation.
"In many transition countries, the suicide rate has shot up because many people were not able to adjust to a changing economy," she says. For India's farmers, the situation had been worsened by a drought.
But Gandham argues that microfinance also helps to avoid the debt trap by giving poor people an alternative to local moneylenders, who are known to charge interest rates of up to 1,000 percent.