There can be no hope of solving the agricultural crisis in the country if the notorious private rural moneylenders continue to be underestimated and the farmers, neglected. This seems to be an impression left behind by the main recommendations of the Reserve Bank of India’s (RBI) technical group for a new legislation on moneylending.
Take, for instance, the advice that can impact the crucial loan repaying ability of a borrower, a majority of whom are farmers. To allow the state governments flexibility for “adjusting rates of interest in accordance with market realities”, the group recommends that the rates should be “notified by the state government from time to time”.
Interestingly, the main income of rural households, farm produce, does not enjoy such market price adjustment in the support prices fixed by the government. The inflationary nature of farm inputs, including power, oil and transport, has made farming a high-risk-low-returns occupation.
Also, the stipulated interest rates work as the minimum rate, not the maximum, that can be charged by a private moneylender. But, even when the stipulated rates are low, moneylenders charge higher rates from borrowers. And if the high rates become official, it would only give leeway to the private moneylenders to raise the unofficial interest rates.
The group felt that fixing of rates linked to the market would make “more unregistered moneylenders view the legislation favourably”. The same, surely, cannot be said for the borrowers.
The borrower would have to “pay a nominal fee” to have a second look at his accounts from the moneylender which won’t even be exposed to any external audit. The regulatory authority can inspect the books and only the registering authority will have the power to search and seize the accounts. If, at the ground level, this provision encourages us to expect perfect books, with no sign of malpractice and collusion between the powerful inspectors and equally powerful moneylenders, one must, of course, be prepared for a shock!
The group recommends that “… public should be encouraged to file complaints with the registering authorities if they have a grievance against the persons engaged in moneylending... without registration and/or charging excessive rates of interest”. There is, however, one small hitch. Why would a farmer, who needs to go to the same moneylender for a loan the next season, complain against him? This is the central reason why moneylenders have been able to survive several crackdowns. It is highly unlikely that a farmer, even if he borrows from a bank, would antagonize a private moneylender—the only hope in cases of sudden crises.
As the technical group discovered, farmers pay back the moneylenders by taking bank loans, even at the risk of becoming defaulters at a formal source of credit. This speaks volumes of who the farmers consider more crucial in their scheme of things.
Finally, a new class of moneylenders, Accredited Loan Providers (ALPs), is envisaged—with a direct link with institutional credit sources, such as a bank. Institutional creditors will finance ALPs to a fixed limit and have an agreement on rate of interest to be charged. “The agreement can also consider... rescheduling of the loan/its repayment schedule to the accredited loan provider in case of untimely death of the ultimate borrower, or other genuine emergencies,” the report says.
Will, then, a loan or interest waiver announced by the government be applicable to the borrowers from ALPs? For, the real question that still remains is that of loan defaulters, the main reason keeping banks from extending further into the hinterland.
So, can the institutional creditor tell the ALPs linked to it to reschedule loans or waive interest on loans to help farmers in distress? If not, how are these new ALPs different from the old class of moneylenders, except that they are “accredited” now?
According to the report, those who can be considered for becoming ALPs are “existing moneylenders, input dealers, agricultural traders, commission agents, agricultural output processors, vehicle dealers, oil/petrol dealers, or any other person…” These are powerful men in a village system whose source of funds is usually not just their business but also the clandestine capital that politicians, landlords and, sometimes, even officials park with them. It seems needless for this class of moneylenders to enter any agreement that attracts attention.
The private moneylenders remain a crucial part of the village economy, with their impeccable sense of crises, intuitive grasp of market and inevitable profit-making. They have always managed to be a step ahead of the government and banks. Banks and institutional creditors need to focus on villages as untapped markets and have an aggressive strategy for inclusion. The best case scenario would be when the farmers can actively choose another equally easily available credit source over the private moneylender. Anything less than that may not be for the best, at least, for the farmers.
(Kota Neelima, the author of a book on farmer suicides, is currently researching moneylenders in Karnataka and Andhra Pradesh for her next book. This article is a response to our edit available at www.livemint.com/ruralusury.htm Comments are welcome at email@example.com)