Debt Trap Among Sex Workers & A Case for Unconditional Cash Transfers (UCT)

Despite being a small business owner and going out for (sex) work, I often don’t have enough money to cover my children’s monthly school fees, says Laxmi(name changed), a Vimukthi leader in Andhra Pradesh. She says, I have no money to invest in my business. I can't even dream about it.

Vimukthi, is a state-level collective of survivors of trafficking and commercial sexual exploitation based in Andhra Pradesh, that is mentored by HELP, a long-standing partner of Sanjog.?

Sanjog, HELP & Vimukthi have partnered to implement Kaarya, a Financial Inclusion & Resilient Livelihoods Programme for survivors of trafficking and commercial sexual exploitation, in 3 districts of Andhra Pradesh. Through its rights-based, participant-led approach the programme looks at building leadership, agency and livelihoods & financial literacy skills among its participants to?foster financial independence & long-term sustainability.?

In a recent conversation with 40 leaders from 4 SHGs in Andhra Pradesh, Sanjog was able to delve deeper into why Vimukthi leaders continue to rely on money lenders despite, availing loans from Formal Financial Institutions via their SHGs.?

Vicious Cycle of High-Interest Loans During COVID-19

A Survey conducted by Sanjog & HELP, found that approximately 70% of Vimukthi leaders had borrowed money from informal money lenders and agents during the COVID-19 lockdown , some of whom are still repaying their debt till date. The pandemic's economic fallout hit sex workers hard, stripping them off their livelihoods almost overnight. Devoid of savings and with no alternative income sources, many turned to private moneylenders. These lenders offered quick loans but at exorbitant monthly interest rates of 20% to 30%.?

The business of private money lenders, who operate without licenses, compliances & documentation flourished and continues to affect the lives of the marginalised till date. Aparna (name changed), a Vimukthi leader says that she started borrowing from private money lenders during the COVID-19 Lockdown & continues to repay their previous loans. Additionally, she has been utilising her SHG Loans to repay her pending loans. She continues to borrow from private money lenders, to cover emergencies or health costs thus propelling her into a vicious Debt Cycle.?

Many others like Aparna(name changed), are drawn to lenders as there is no requirement for collaterals, identify proof or documentation. They start with smaller loan amounts with low interest rates, which they are able to repay quickly and easily. This is where the dependence starts setting in. The women continue borrowing with mounting interest rates (as high as 30%).?

Jaya (name changed) from Vijayawada, was forced to borrow a high-interest loan of INR 2 Lakhs to cover her medical costs during the second lockdown. This was on top of existing debts accumulated during the first wave when the lockdown left her without any income for months. These loans are more than just financial agreements; they are traps that ensnare borrowers in a cycle of debt that's nearly impossible to break. High interest rates mean that repayments quickly outpace the borrowers' ability to pay, leading many to take out new loans to settle old ones.

The impact extends beyond the individual borrowers. Many of these women are sole breadwinners, supporting children under 18, aging parents, or family members requiring regular medication. The financial strain jeopardizes not only their own well-being but also that of their dependents.

Legal Loopholes & Predatory Money Lenders

A significant factor contributing to this crisis is the lack of effective legal regulation over private moneylending in Andhra Pradesh. Although the Andhra Pradesh Money Lenders Act was passed by the state assembly in 2017, it has not received the necessary Presidential assent to become law. This legislative limbo allows unlicensed moneylenders to operate unchecked, charging exorbitant interest rates without fear of legal repercussions.

The Bill that was passed in the State Assembly, included the following provisions:

• Money lending is not permitted without a license?
• The government can specify the maximum interest rate that money lenders can charge in a local area?
• Money lenders' accounts must be audited at least once a year?
• Charging a higher interest rate than what is shown in the account can result in up to three years in prison?

Public interest litigations have been filed, and the Andhra Pradesh High Court has taken cognizance of illegal lending activities. However, without a robust legal framework, enforcement remains weak, leaving vulnerable communities at the mercy of predatory lenders. Without effective implementation, sex workers remain vulnerable to exploitation by unregulated moneylenders.

The revival of the Money Lenders (Regulation) Act is essential to curb malpractices and protect borrowers. Provisions such as limiting interest rates, mandatory auditing of lenders, and legal recourse for victims of exploitative loans could significantly reduce the financial pressures on sex workers and other vulnerable groups.

A Case for Unconditional Cash Transfers

I don’t have time or money to think about myself or my dreams, said Durga (name changed), A Vimukthi leader.?

In response to this crisis, Unconditional Cash Transfers (UCTs) stands out as a viable solution. UCTs involve providing direct financial assistance (in form of direct cash transfers) to individuals without any conditions attached, empowering them to address their immediate needs.

Studies have shown that UCTs effectively reduce poverty rates, especially among those living in extreme hardship. By placing resources directly in people's hands, UCTs allow for immediate relief from financial stress, enabling individuals to make choices that best suit their circumstances. Durga can give space to her dreams, if she doesn’t have to think about her next meal or next month’s rent or school fees.

UCTs can be particularly transformative for women. Traditionally, women in marginalized communities have less control over household finances. Direct cash transfers shift this dynamic, granting them autonomy over spending decisions. This often leads to better outcomes for children's well-being, healthcare, and overall family stability. Moreover, UCTs can stimulate women-led microenterprises, fostering economic independence and promoting long-term poverty reduction.

One barrier to the widespread adoption of UCTs is hesitancy among policymakers and philanthropists who favour traditional aid models with strict conditions. However, evidence from organisations like Sanjog—which implemented UCTs during the pandemic in West Bengal—demonstrates the effectiveness of trusting individuals to manage their own resources. Investing in further research and sharing positive outcomes can help build confidence in this approach.

Breaking the Debt Trap: Way Forward

The debt trap ensnaring sex workers in Andhra Pradesh is a complex issue rooted in economic vulnerability, legal gaps, and societal neglect.?

Addressing the debt trap among sex workers in Andhra Pradesh requires a multi-faceted approach. The combination of cash transfers and better legal frameworks could provide both immediate and long-term solutions. Direct cash transfers would allow sex workers to meet their basic needs without falling deeper into debt, while time-bound support over a fixed period could provide a financial buffer as they seek alternative income sources.

Simultaneously, strengthening the Andhra Pradesh Money Lending Act and ensuring its implementation is crucial for preventing future exploitation. By regulating private money lending and providing sex workers with legal protections, the state can help them break free from the cycle of debt.