New Delhi: A panel set up by the Reserve Bank of India (RBI) has proposed rules to regulate unauthorized moneylenders, who charge interest rates of as much as 150% a year from farmers and other impoverished borrowers.
The uniform legislation, when adopted, will require these lenders to register themselves with authorities and enable the state governments to cap unofficial lending rates.
“The practical issue is how to regulate the activities of moneylenders in a manner that doesn’t stop or impede the flow of microscopic loans provided by rural moneylenders, while ensuring the interests of borrowers are protected to the fullest extent possible by a set of fair, transparent and administrable laws,” the panel said in its report published by the central bank on Tuesday.
In his speech at the Agricultural Summit on 18 October in New Delhi, Prime Minister Manmohan Singh, grappling with rising suicides among farmers, suggested moneylenders be regulated.
Surging prices of seeds and pesticides, combined with mounting debt may have forced more than 18,000 farmers to take their own lives last year, according to Devinder Sharma, chairman of the farm lobby group Forum for Biotechnology and Food Security.
About 70% of India’s 1.1 billion people live in the country’s 638,000 villages, relying primarily on agriculture for their livelihoods.
Farmer loans averaged between Rs1,000 and Rs30,000, funds borrowed mainly to meet social obligations such as weddings, birth or death ceremonies, according to the central bank.
India’s monsoon rains, crucial to the health of the country’s $854 billion economy, will be 10% below average this month because of a dry spell that may last another week, likely hurting crop prospects.
Rains this month, which account for one third of the four- month monsoon showers, may be 10% less than the 293mm predicted on 29 June, M. Rajeevan, director of the India Meteorological Department’s National Climate Centre, said in Bangalore on Tuesday.
Lack of access to financial institutions and the delay by banks in handing out loans often force borrowers to approach moneylenders who charge a much higher rate, the panel said in its report.
The share of moneylenders in the total debt of rural households increased to 29.6% in 2002, from 17.5% in 1991, the central bank said, citing the All-India Debt & Investment Survey released in December 2005.