FINANCE

MONEY-LENDERS

MONEY-LENDERS.-When the old Ratnagiri Gazetteer was published there was not a single modern banking organisation in the district. In towns, the only classes who saved were traders, money-lenders, Government servants and occasionally skilled artisans; whereas in rural areas, usurers and shop-keepers alone put by money. The only agency for purveying credit was that of money-lenders who, however, did not open deposit accounts. In 'khoti' village the hereditary or vatandar khots, who received most of their dues in kind, were the chief grain dealers and money-lenders. None of these except the Gujars and Brahmans were strict about keeping a regular daybook and ledger. The interest was generally charged for the 'shak' year and it ranged between 12 and 24 per cent, for a loan secured by pledging gold or silver ornaments or other movable property. In some cases, loan was given on the security of the coming crop to agriculturists who were often compelled to borrow particularly during the rainy season.

This old financial structure underwent a change during the last few decades due to rapid spread of modern banking and co-operative institutions in the district. Even then, money-lenders occupy a dominant position in the provision of credit especially to the agriculturists' class. According to the All India Rural Credit Survey conducted by the Reserve Bank of India, between 1951 and 1954, the private agencies taken together supplied about 93% of the total amount borrowed by cultivators, out of which money-lenders accounted for 70%.

The money-lenders as a class differ from indigenous bankers. They do not accept deposits from the public, are not particular about the purpose for which the loan is taken and also do not insist upon security-factors which dominate the operations of the indigenous banker. Methods of their lending are simple and flexible and people, especially farmers, find it easy to understand and adjust themselves to the money-lender who is their easiest and nearest source of finance.

This class of money-lenders represents a variety of interests because very few of them are money-lenders exclusively. Practically each combines with money-lending some other business. Therefore, the only basis of classifying them into categories is provided by their area of operation, viz., the town money-lender and the village moneylender. The field 6f operation of the former is larger than that of the latter, as small merchants, workers and salaried employees, and occasionally small industrialists constitute his clientele as against the village money-lender, who advances loans usually to agriculturists.

Money-lending has always been a peculiar feature of the self-sufficient village economy of the past when the money-lender had an honoured and useful role to play and was generally alive to his duties and responsibilities. In many cases, however, he was known to have exploited unfairly the illiteracy, ignorance and necessity of the borrower.

The Central Banking Enquiry Committee has listed many malpractices the money-lenders generally indulge in, such as demand for advance interest, manipulation of accounts, insertion of sums in excess of those actually lent in written documents; taking of thumb impressions on blank paper to deceive the borrower, etc.

Money-lenders Act of 1946.

Money-lenders Act of 1946.-In order to check such malpractices of money-lenders and to safeguard the interests of agriculturists, the then Government of Bombay passed on 17th September, 1947, the Money-lenders Act. By this Act, money-lenders are forbidden to carry on the business of money-lending unless they are in possession of a licence granted to them by the Registrar of Money-Lenders. They are further compelled to keep and maintain a cash-book and a ledger in a prescribed form and in a particular maimer. The Registrar and the Assistant Registrar are authorised by the State Government to verify the business of money-lenders. The Government has the right to fix the maximum rates of interest for any local area or a class of business of money-lending in respect of secured and unsecured loans. The debtor class is also protected by inflicting penalty on money-lenders for molestation to debtors and by abolishing the system of arrest and imprisonment of debtors in execution of decrees for dues against agricultural debtors.

The Act was subsequently amended. The important amendments made, were the introduction of 4-A and 5-A forms and the Pass Book system, provision of calculating interest on katmiti system and facilities to certain classes of money-lenders permitting them to submit quarterly statements of loans to the Registrar of Money-lenders. Further amendment was effected in 1955 by which money-lending without a licence was made a cognizable offence. In the following year special measures were adopted for protecting Backward Class people, and Registrars and Assistant Registrars were instructed to take special care while checking up accounts of moneylenders in respect of their transactions with Backward Class people.

Rate of Interest.

Some provisions of the amendment also gave protection to money- lenders so as to call forth capital which became shy as the moneylenders regarded the Act as offending in spirit. The structure of interest rates was revised and was put into force from the 5th July, 1952, raising maximum rates from 6 per cent. to 9 per cent. per annum on secured and 9 to 12 per cent. per annum on unsecured loans. In addition, the money-lenders were allowed to charge a minimum interest of Re. one per debtor per year, if the total amount of interest chargeable according to the prescribed rates in respect of the loans advanced during the year amounted to less than a rupee. The revision in the structure of interest rates did not result in a substantial increase in the number of licensed money-lenders. According to the Annual Administration Report of the Bombay Money-lenders Act, 1955-56, "Money-lenders as a class are naturally averse to being regimented into any system of maintaining accounts with the concomitant limitations of the lending rates of interest."

The following table describes the relative positions of moneylenders who advance loans to traders and non-traders against the security of gold, silver, and other articles and utensils and promissory notes. The rates of interest charged are 9 per cent on the secured loan and 12 per cent, on the unsecured loan as per section No. 25 of the Bombay Money-lenders Act of 1946.

TABLE No. 1.

LOANS ADVANCED BY MONEY-LENDERS TO TRADERS AND NON-TRADERS IN RATNAGIRI DISTRICT.

It is clear from the foregoing table that in Ratnagiri district, the number of money-lenders holding valid licences decreased considerably during the last few years. In the year 1948-49, there were in all 136 money-lenders in the district. Their number, however, fell to 105 in 1951-52 and to 71 in 1955-56. Further, although there was an increase in the amount of loans that were advanced to traders especially by those money-lenders who were exempted under section 22 of the Act, there was a slight decrease in the amounts of loans advanced by them to non-traders. For example, while the loans advanced to traders by money-lenders (not exempted under section 22 of the Act), rose from Rs. 83,809 in 1951 to Rs. 1,58,557 in 1955-56, the loans advanced to non-traders fell sharply from Rs. 2,09,440 in 1951-52 to Rs. 1,47,734 in 1955-56. The decrease in the total number of money-lenders and in the sums advanced by them to non-traders in the district might be attributed to the fact that the cultivating class that formed the majority of non-traders could get financial assistance from the Government in the form of tagai loans and had, therefore, little need to approach the money-lenders. Moreover, on account of the stringent rules and regulations, many of the money-lenders did not renew their licences. With the recent increase in the maximum rates of interest, a substantial increase in the number of licensed money-lenders was expected. However, these expectations do not seem to have materialised; on the contrary, the importance of money-lenders is gradually on the decline. But they will continue to play their useful role in the credit structure of our economy at least for some years to come until the co-operative movement spreads much more vigorously.

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