In the absence of a robust formal financial institution, the non-formal money lenders that charge around 5% – 20% per month are filling the vacuum to meet the need of those struck by unwanted circumstances causing tremendous hardship to those already burdened. Sometimes, these lenders could even be a Self Help Group.
Loan shark refers to a money lender who charges extremely high interest rate. Observing the current interest rate that money lenders charge in different places in the North East, it seems appropriate to use such a term.
In almost all districts of Arunachal Pradesh, either Self Help Groups or private lenders would give loan at 10% per month or rather 120% per annum. In fact not only in Arunachal Pradesh, the same practice is found in Mon district of Nagaland, Sonitpur district of Assam and in other parts of North East India. In Senapati district of Manipur it is comparatively lesser i.e. 5% per month or 60% per annum.
Since the government has not criminalised such practice, loan sharks consider it morally okay to charge such extremely high interest rate. The demand by those who are in dire needs of money possibly because of illness in the family or for children’s education or similar pressing reason made the loan sharks justify that they are coming in only to fill the gap.
Filling the gap is required, but the problem arises when it turns exploitative. If it is to fill the gap and to meet the demand of the needy, and not to exploit the needy, the interest rate should be much lower. Interest rate that is higher than 2.5% per month or 30% per annum cannot be justified because a high interest rate imposes back breaking burden on the needy. Such high interest rate deprives a needy family the chance to recover from economic instability within a reasonable time span. Taking loan on high interest rate breaks the economic backbone of those who are already crippled by circumstances.
“Human wants are unlimited”, says our school textbook. It is natural to want to get richer and richer. To work harder to improve one’s economic condition is not bad in itself. But when the desire to get richer is actualised through exploitation or taking advantage of someone’s helpless condition, it turns into greed – a negative quality that is responsible for so much of world’s problem throughout human history.
Charging 10% or even 5% per month for loan given to a needy is an expression of greed and selfishness. Whether it is an individual or a group of individuals that give loan at such rate must cease. Even if the legal system does not criminalise loan sharks, the larger social and political community needs to maintain a moral norm to set the prevailing condition right. And this moral consciousness has to emerge from within a small community to become part of the public consciousness.
To address this pressing social exploitation, government also must work towards widespread establishment of formal financial institutions. Compared to the interest rate charged by the current money lenders, banks charge far less interest rate. Whether it is private banks or otherwise, the interest rate may be kept not more than 18% per annum, though there are different rates for different reasons for borrowing money. Micro-finance companies may charge around 28% per annum, at the most.
Thus the gap between the formally established financial institutions and the private run lending system is too wide. Given the tremendous hardship borrowing money by needy families from private lenders elicits, charging of high interest rate must be addressed by the concerned authority as well.
(Apilang Apum is a PhD Candidate, Economics Dept, Rajiv Gandhi University and while Jeremiah Veino Duomai is a PhD Candidatem Philosophy Dept., Delhi University)
