The Prevention of Debt Bondage with Microfinance-led Services

This paper presents the findings of pilot testing of microfinance-led bonded labor prevention strategies in India, Pakistan, Nepal and Bangladesh.

It begins with the definition, causes and manifestations of bonded labor in South Asia, and provides a brief description of the main features of the project.

The paper states that:

• Identifying the poorest and most socially isolated persons, and then motivating them to participate in a savings and credit group, is not easy since the target market consists primarily of persons with low self-esteem, who have been habitually excluded and exploited;
• Four financial services are needed to reduce the vulnerability of the target families:
  • Income-generating loans;
  • Emergency loans;
  • Contractual savings;
  • Liquid savings.
• With persons vulnerable to debt bondage, a hard-line commitment to repayments would invariably cause more damage than good.

The paper concludes that

• To eliminate bonded labor, it is necessary to distinguish between mild and severe forms of bondage because they require different interventions;
• The prevention of debt bondage requires an integrated approach, combining microfinance along with social awareness and skills training, to tackle both trigger and root causes;
• A menu of appropriate financial services needs to be developed to cater to the specific characteristics of persons vulnerable to bondage.