Loan waiver to farmers? Moneylender still remains the backbone of the rural financial system

moneylender
Moneylender: A screenshot from Bollywood film “Hum Hindustani” (1960)

By Moin Qazi

While the government is set to forgive billions of dollars of loans of farmers, the actually distressed class among them will have no respite from their misery .They owe their debts to moneylenders whereas the government waiver applies only to formal credit.

Almost every farmer in India’s massive rural swathes is tethered, in one way or another, to the sahukar, the Indian variety of the moneylender, the ubiquitous, ravenous loan shark.

For centuries, moneylenders have monopolized rural Indian credit markets. Families have lost land, farmers have been asked to prostitute their wives to pay off debts, and, when all else has failed, they have tied the noose to end their misery.

An inescapable cycle of debt continues to grip rural India, particularly its farming class. Yet the public image of menacing debt collectors does not reflect the actual plight of India’s three million farmers. Moneylenders have been around for generations, but their business has boomed ever since India’s economic priorities shifted, with globalization, from agriculture to industry. The arrival of high-cost seeds and pesticides and the attraction of bumper harvests have added to the debts. In farm belts moneylenders operate under the guise of farm input sellers.

According to the All India Debt Investment Survey 2012, nearly 48%   farmers across the country   took loans   from informal sources such as moneylenders and landlords. The number had risen from 36% in 1991 and 43% in 2001. Moneylenders provided 69.7% of total rural credit in 1951. This  fell to 16.9% in 1981 before climbing up again. .The latest survey shows that among farmers who owned land parcels smaller than 0.1 hectares, 85% had pending loans from such informal finance sources.

It was expected that in socialist India banks would become an extremely popular port of call for clients seeking loans. In fact, these financial institutions recorded a surge in the social banking era of the 1970s . The expansion of bank branches in rural areas was particularly noteworthy. The figure rose from 8,261 in 1969 to a whopping 65,521 in 2000. The share of households accessing institutional credit rose by 32 percentage points to 61.2%.between  1971 and 1981.

While these small farmers pay exorbitant interest ,affluent famers get subsidized credit .The  government’s interest subvention (subsidy) scheme for farmers  provides  credit at subsidized interest rate of 7 per cent and for prompt re-payers at 4 per cent .

A current of dread runs through the country’s suicide-ravaged farmlands as their debts pass from husband to widow, from father to children. Most villages are locked into a bond with village moneylenders — an intimate bond, and sometimes a menacing one. Popular cinema and classic literature tell many pathos-filled narratives of India’s poor caught in that karmic cycle of poverty. Those stories inevitably end in tragedy.

Farmers who fall into the moneylending trap find themselves locked in a white-knuckle gamble, juggling ever-larger loans at usurious interest rates, in the hope that someday a bumper harvest will allow them to clear their debts — so they can take out new ones. This pattern has left a trail of human wreckage.

With institutional   credit drying up for farmers , local sharks  have taken  the place of banks.  They  charge an arm and a leg and  are creating a debt-trap for the farmers who rely on crop success –and prayers –for loan repayments. But a suicide does not absolve the rest of the family from paying back a loan. Unlike a bank loan which is squared by the government’s waiver package, the moneylender’s loan has to be atoned by the distraught family.

Farmers borrow loans from moneylenders at insane rates of interest. The peasants hope for a better yield in times to come, but this never happens, and they find themselves in a debt trap. Unable to pay the interest, let alone the principal, they borrow more get onto a treadmill   recklessly driven by the cruel money-lenders, who are no better than sharks. Shylock demanded only a pound of flesh. But the moneylenders bay for blood.  Crushing debts are pushing farmers into the darkest of pits.

Farming distress has attracted a  class of neo-moneylenders. Anyone with some disposable cash — from shopkeepers, the inputs dealers, government officials, and policemen to village teachers — now lends in the hope of making a killing. They are willing to extend credit, but at highly extortionate rates – sometimes exceeding 50 percent, which keeps borrowers in lifelong penury.

A current of dread runs through the country’s suicide-ravaged farmlands as their debts pass from husband to widow, from father to children. Most villages are locked into a bond with village moneylenders — an intimate bond, and sometimes a menacing one. Popular cinema and classic literature tell many pathos-filled narratives of India’s poor caught in that karmic cycle of poverty. Those stories inevitably end in tragedy.

Farmers who fall into the moneylending trap find themselves locked in a white-knuckle gamble, juggling ever-larger loans at usurious interest rates, in the hope that someday a bumper harvest will allow them to clear their debts — so they can take out new ones. But there seems no sign of the rainbow   as farmer continue to chase this vain chimera .This mirage has locked them into a usurious spiral. This pattern has left a trail of human wreckage.

The authors of a landmark study of the system of credit and household indebtedness published by the Reserve Bank of India (RBI) in the early 1950s, the All-India Rural Credit Survey, scrutinized the role and operations of the moneylender, who then enjoyed a dominant position as a source of finance. They did so on the premise that, in India, agricultural credit presented a “twofold problem of inadequacy and unsuitability.”

They envisaged only a minor place for him in their proposed solution, which took the form of a system of cooperatives covering all villages: “The moneylender can be allotted no part in the scheme [of cooperatives] … It would be a complete reversal of the policies we have been advocating … when the whole object of … that structure is to provide a positive institutional alternative to the moneylender himself, something which will compete with him, remove him from the forefront and put him in his place.”

The authors of the Survey did not, of course, lay out a formal model of India’s rural credit system as it then existed, nor did they provide a formal analysis of the effects of introducing a system of cooperatives upon its workings. The authors were strongly convinced that the moneylender possessed considerable market power, the exercise of which was made very profitable by the peasants’ pressing needs.

Even after  legions of committees and reports that have outlined ways of replacing moneylenders through stepping up institutional credit, the moneylender still remains the backbone of the rural financial system. It is a bitter truth which we have to swallow.

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