Leave the moneylenders alone

Leave the moneylenders alone

Appointing committees is often a way for governments to get out of tricky situations. It is also, often, a pastime. The setting up of a task force to suggest measures for providing relief to farmers indebted to private moneylenders falls in the latter category.

Perhaps pastime is an inappropriate word to describe this task. One is, however, forced to think of the 15-member task force, notified last week by the Union agriculture ministry, in these terms as the “problem" and its solution are well known.

As any farmer knows, moneylenders perform a useful function. They give credit to farmers, however exorbitant the interest rates they charge, when institutional lenders are simply unwilling to lend. In most rural areas, the demands made by public sector banks while getting loans are nearly impossible for most farmers. Issues of collateral, documentation and the conditions laid on agricultural lending often drive farmers to non-institutional sources of credit such as moneylenders.

If the government is keen to get banks to lend money to farmers, then it needs to do something about the lending practices of banks and not appoint another committee to save farmers from moneylenders.

That, however, is another problem. That would require banks to change their organizational mindset. Banks have the right to check and ensure that money lent does not turn into a non-performing asset. But this is very different from the harassment that any borrower has to face in a rural area.

There have been several committees that have looked into the issue of financial inclusion. But precious little has changed at the ground level. There is a huge number of small and marginal farmers across the country who own 1-5 acres and who are simply not served properly by the banking system. The government’s priority ought to be to secure the financial inclusion and better servicing of this group instead of finding ways to squeeze moneylenders. If, for example, the government waives the money due to moneylenders or farmers don’t pay them back, then it will do more damage to the rural economy than any good.

Such committees are useful politically. Two major agricultural states are about to hold state assembly elections and whipping up anti-moneylender sentiment makes for good politics. It does not, however, make good economics.

Will penalizing moneylenders help farmers? Tell us at views@livemint.com