How Much Interest Rate is Too Much?

In Senapati town and adjoining areas, those who are in a desperate situation borrow money from private lenders at the rate of 60% per year. Sometimes the rate may reach 90% or 120% or even upto 150% per year, depending on how desperate a situation one is in. Proponents of free-market economy would argue that demand and supply matrix engenders such a state of affairs. None compels a person to borrow; the borrowers take loan from the private lenders at his own free will, they would argue. They would thus justify their action stating that based on the demand, supply at such rate flourishes. One may, however, may raise two objections to such an argument: first, the fairness argument; second, the corruption argument.

The fairness argument would go this way. Those who borrow money at such a high interest rate are in a desperate economic situation. Many a times it is for urgent medical care or similar urgent and desperate requirement. They would never prefer to borrow at such a high interest rate. However, the condition was such that borrowing at such a high interest rate would have been better for them than otherwise. It is only in such desperate moment that they are compelled to borrow at such a high interest rate. Therefore, those lenders who are charging high interest rate in such a situation is actually taking advantage of someone's helplessness, someone's desperate condition. So it is not fair; and it is morally wrong to be taking advantage of someone's helpless moments.

The second argument appeals to the end purpose of lending. It argues that as a member of a community, it is a duty of each person to help one another. This fact is acknowledged even by the private lenders themselves. Private lenders would further agree that the lending of money is to help the needy person, not to exploit him or add more misery to his woes; nor is lending purely for profit alone. However, when interest rate is just so high, the substantive reason of lending money to help the needy ones is damaged. Instead of helping the needy ones, more misery is added unto him. If one is to truly help a person in need, charging lesser interest rate would much better fulfill the purpose.

Banks usually lend money at a rate of 10%-12% per annum. Per month it comes to roughly one rupee or less. Considering this figure, the current figure charged by private lenders in Senapati district is way too high. It cripples the poor man's economy. This is nothing short of a selfish and mean character. When churches too join in lending at such a rate, they ostensibly demonstrate a poor understanding of the Bible. A church is not supposed to be instrumental in adding more woes to the poor. Its calling is to rather help the needy ones. To charge very high interest rate on the poor borrowers in order to gain more money for the construction of a magnificent church building is to make a mockery of the institution. Church building is never to take more importance than building the followers of Christ.

Lenders should not charge an interest rate higher than 2%-2.5% per month; which comes to 24%-30% per annum. The value and beauty of solidarity is slowly fading away in our community. It is high time that we arrest further deterioration. A society that has completely degenerated will take ages to heal. Moral degradation is not just about getting into adultery or drug abuses; it includes wearing away of virtues such as friendship, community bond etc. Unless we remain vigilant, the love for money will tear into our age old social fabric and destroy the community. This attack can be very dangerous because it is so subtle unlike drug abuses or adultery which everybody considers as vices.

(To appear in The Hornbill Express on 9th August, 2013)