Financial inclusion in the sector is dismal; fishermen are bound to pay high interest rates as they increasingly depend on informal money lenders for loans, says the study
Kochi, May 06: Throwing light into the unhealthy financial practices prevailing in Kerala’s fisheries sector, a recent study of the Central Marine Fisheries Research Institute (CMFRI) has found that financial inclusion in the sector is dismal with the credit transactions in the arena being largely dominated by informal money lenders.
The study which was published in the leading international Journal, Marine Policy, found that despite the presence of prominent co-operative financial institutions, the existing situation in the fisheries sector forces fishermen to borrow money from private financial players to go for fishing. Borrowing from informal sources are preferred many a times, as it involves easy procedures compared to institutional sources and enables flexible repayment options based on fish catch. As a result, the fisher folk are bound to repay the loan with high interest rates, even up to 160 per cent in some cases, to end up as victims of financial exploitation, according to the study.
“Generally, fishermen take loan for their investment requirements from multiple sources that include informal players such as auctioneer-middlemen, third-party shareholders and private money lenders; and formal sources such as Matsyafed societies, co-operative banks, commercial banks and non-banking financial entities”, the CMFRI study said.
Middlemen most common source
The auctioneer-middlemen were found to be the most common source for giving loans to the fishermen, with about 69 per cent of sample vessels having availed market-tying loans from them. These loans are disbursed on condition that future catches from the vessels are marketed through the loaner for a commission that ranged between 5-10 per cent of value of the catch. Matsyafed societies catered to financial needs of about 60 per cent of the sample vessels, while the coverage of other formal sources was below 20 per cent, it said.
On the other hand, according to the study, third-party shareholders who invested in fishing business by purchasing ownership shares, covered 45 per cent of sample vessels. The involvement of private money lenders, who often charged exorbitant interest rates on loans, was also found to be considerable with about 32 per cent sample vessels having sourced loans from them. Calculations based on full set of ‘cost and earnings data’ of the sample vessels suggested that imputed value of interest rate paid by fishermen, mostly in the form of commission on fish catch, ranged between 15 per cent to as high as 160 per cent per annum, it said.
The study is based on data collected from ring seine fishers of Kerala through a field survey covering 137 vessels operating from 29 fish landing centres belonging to 8 maritime districts of Kerala.
‘Need to reform fish auctioning system’
Dr. Shinoj Parappurathu, Senior Scientist, Socio-economics Division of the CMFRI who led the study said that fish auctioning system should be reformed to improve financial inclusion in the sector. “In order to attract fishermen towards formal banking system and to curb exploitative lending practices, the government should encourage financial institutions to consider the fishing vessels as collateral security. To enable this, linking formal credit with insurance is a sensible option”, he said, adding that fishery co-operative societies should be strengthened to improve the financial condition in the sector.
Marking an unprecedented initiative, the study involves an interesting element that a fisherman from Alappuzha district, Antony Xavier, is part of this research. He is one of the authors of the research paper published based on the study which appeared in the latest issue of Marine Policy. Dr C Ramachandran and Dr K K Baiju were the other contributors to the study.