Private Money Lending and its Moral Limit

The absence of robust financial institutions in the state has led to the thriving of private money lenders in the state. The state is also yet to notice the widespread effect of micro-financing companies lending their weight in helping the small borrowers come out from the tyranny of the private money lenders. Thus it is not without reason that in a desperate situation, there are many of those who borrow from private money lenders at a rate of 90% -120% or even upto 150% per annum. At such an astronomically high rate of interest, there is a great need to critique the present lending pattern. 

Given that the legal system is not adequate to address such concern of the high number of needy borrower, the larger political community needs to maintain a moral norm to set the prevailing condition right. And this moral consciousness has to emerge from within the community to become part of the public consciousness. And it is to that end that this article attempts to articulate and argue for. 

The usual argument to justify such a free-market economic practice is to say that since there are borrowers, the lenders just give them the money. One further argues that none really compels any needy borrowers to come forward, but it so happens that supplies at such a high interest rate flourishes only because there are demands. This kind of argument hides behind the principle that supply-demand is what really matters; there is no reason for moral norms to come into play in such a domain. This kind of reasoning can be countered by two independent arguments – 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 indeed in a desperate economic situation. They might have been brought to such a low situation due to certain ill health in the family or crop failure or some condition of that sort. Had it been possible to come out of their pathetic affair without having to borrow from the private lenders, they would be so happy to do so. However, having run out of all kinds possible means to repair the damage without having to turn to the private money lenders, they scramble their way through the private money lenders.  It is only in such desperate moments 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. Thus, it is not really fair to take advantage of someone's helpless moments. Though a lender may want to wriggle his or her way out of this logical outcome, the fairness argument cannot really be disentangled from the action of the private money lender. If one's action directly leads on to piling up the misery of others, one must bear the moral consequence.

The second argument appeals to the end purpose of lending. It goes about that as a member of a particular social and political community; it is a duty of each person to help one another. Even if one does not want to help anyone as such; or even if he is a miser of the worst kind, by virtue of being a part of the community, this is one kind of a moral obligation that comes along by virtue of being part of the community. 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 really exploit the borrower or add more misery to his already heavy financial baggage; 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 the borrower. This kind of practice thus corrupts the purpose of lending money to the needy ones. If there is anyone who considers that lending money is purely for profit alone, then such a person requires a change of attitude. The kind of society where selfishness reigns and the obligation to help the needy ones is pushed out of boundary is not what we should be building. A society thrives and leads on to further flourishing when members of the political community cares for one another and the moral obligation that comes along with the members are honoured. 

Banks usually lend money at a rate of 12%-20% per annum, depending on the kind of banks and the nature of loan. Per month it comes to roughly one rupee or little more. Considering this figure, the current figure charged by private lenders in general is way too high. It cripples the poor man's economy. This is nothing short of a selfish and mean character on the part of the private lenders. 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 have to be arrested before further deterioration. A society that has completely degenerated will take ages to heal. Moral degradation is not just about getting into adultery or drug; 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 and political fabric and destroy the community from within. This attack from the love of money can be very dangerous because it can be so subtle unlike drug abuses or adultery or murder which everybody considers as vices.

NB: The article appeared on 30th March, 2014 at Hueiyen Lanpao. The link is available here.