By Moin Qazi*
“In general, the rural moneylender as a species has proved surprisingly resilient, even in countries such as India and Indonesia where it has been a declared objective of state intervention in financial markets to suppress him.”
— Hulme and Mosley, Finance Against Poverty
A sense of deep despair runs through the lives of farmers in India. They have lost all hope – and also the will to fight. An increasing number have opted for permanent escape from their physical and emotional pain by ingesting deadly pesticides.
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.
Yet the public image of menacing debt collectors does not reflect the actual plight of India’s farmers. The rapacious moneylender, who plugs the huge gaps in credit supply in a hassle free process, is an integral part of a rural family. He is the first port of call in a distress situation and is also the man they can turn to in times of need. They are such an important part of the rural economy that the banks have become secondary, or even redundant, for a small farmer.
Moneylenders have been around for generations, but their business has boomed ever since India’s economic priorities shifted, with globalization, from agriculture to industry. According to an ancient Indian proverb, a village can be formed wherever there come together “a river, a priest, and a moneylender.” Adams and Delbert Fitchett dedicated a 1992 book they edited on informal finance to “the much maligned moneylender because of his ability to walk barefoot where bankers fear to tread.”
An inescapable cycle of debt continues to grip rural India, particularly its farming class. A c current of dread runs through generations as 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. They have to deal with an assorted bunch of predators—there are several creditors who have the moneylender’s instincts and skills but operate in various guises. . Popular cinema and classic literature narrate 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 farmers continue to chase this vain chimera. Unable to pay the interest, let alone the principal, they borrow more get onto a treadmill recklessly driven by the cruel money-lenders. This mirage has locked them into a usurious spiral. This pattern has left a trail of human wreckage. The moneylenders don’t explain the accounts, often inflating the numbers to keep the farmer perpetually in debt Unable to liberate himself from his mountain of debt, the farmer is forced to become an indentured servant to his creditors. He chooses an easier way out.
Farming distress has attracted a class of neo moneylenders–anyone with some disposable cash. From shopkeepers and the input dealer government officials to the policemen and village teachers now lend money in the hope that they make a killing. They are extending credit at highly extortionate rates–sometimes exceeding 50 percent, which keeps borrowers in lifelong penury.
Shylock demanded only a pound of flesh. But moneylenders bay for blood. Crushing debts are pushing farmers into the darkest of pits. There is a story that has now become a farmland fable. A man ploughing the field was so distressed that at first, he sold his kidney to an organ mafia—including doctors and hospitals—which sold the organ to a desperate patient for an insane amount. When the farmer found that the price of his kidney could not take him very far, he had no choice but to tie a noose around his neck.
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 but the populist policies left a cruel legacy of dud loans. This sour experience made bankers very wary and they turned off the spigots. Institutional credit is now mired in thickets of red tape stymied by bankers who are bedeviled by a highly contaminated credit culture. Hence moneylenders continue to thrive. Moneylenders are now a key part of India’s economy. They charge sky-rocketing, interest rates but require few formal guarantees and offer hassle-free services. For the bulk of low-income households, moneylenders are the only dependable source for money when emergencies arise.
Moneylenders operate in a variety of ways. In sharp contrast to banks and other lending institutions, there are no steel and glass buildings; neither are there any leather couches or coffee vending machines at the moneylender’s workplace. Processing is generally quick and simple with money often handed over immediately .The borrowers don’t have to sign so many knotty documents as they do in banks. Most transactions entail personalized relationships and create durable social bonds that function like contracts rather than standardized forms of legal covenants. The downside is that there is no protection against predatory practices because of the control moneylenders have over their clients.
Vithal Radke’s business is registered as a shop because he hasn’t met the legal standards required to call it a finance agency. Vithal stumbled into the moneylending business eight years ago after failing at a number of other businesses. He doesn’t look like how you would imagine a loan shark which, to most, is cunning, tough, maybe with a streak of violence running underneath the refined exterior. “It has always been business as usual. Shylocks are still in great demand,” Vithal says. ““Shylocks give you that instant fix. You aren’t asked for security or guarantors.” “I borrowed again this year and it is going well. I think that because of the ease of it, borrowing becomes addictive,” says a cash-strapped farmer.
Loan sharks also do not ask questions regarding your borrowing history, meaning that the defaulters find a safe haven with them. Then there are those who are seeking to hide because of the shame of borrowing. Seeing that the transactions are quick and the requirements minimal, the moneylenders might seem like the perfect solution for those seeking a quick fix. Their customers agree that they are a working solution — as long as you do not default on your loan.
In Bina, a small farming village about 40 kilometers from Nagpur in central India, where I spent almost two years during my career in development finance, I relentlessly pursued a one-point agenda: banish the moneylender. But as all such social and economic experiments and policies have shown, a moneylender is an all-season creature whose unique DNA has made him resistant to all types of social, economic and political antibiotics. In every village, moneylenders are reviled, and their business seen as squeezing out the blood of poor farmers. Yet villagers know there is no life without the loan shark. You can’t banish him from the financial planet; he remains indelible.
I found that nearly all inhabitants in Bina had been compelled at some time or the other to call on the sahukar. No matter how much distaste he provoked, the sahukar was the key person in the village. He was its banker, its moneylender, its pawnbroker, and very often its vampire. One must ask, as I did while living in rural India, where the capital of the poor came from, since that is the one permanent requirement. In poor countries across the world, you will find most tiny businesses being financed by moneylenders.
When I asked, I would get the ubiquitous answer:
“I get my money where everyone else does.”
“Where is that?”
“Everyone knows. I get it from a five-six.”
“What is a five-six?”
“It is the place where you borrow five rupees in the morning, and pay back six rupees in the evening.”
” It is possible to get day loans in the vegetable market that provide 100 rupees in the morning but have to be repaid with 10 rupees interest by dusk.”
I was shocked! “Why are you doing that?” I asked.” Our bank is for you! “
“Well,” they responded, “the moneylender gives us money whenever we need it, the amount that we need, where we need it, for however long we need it, and lets us repay in whatever way we want. Yes, he’s expensive, but it’s a fee that we are willing to pay.”
In Bina village, all dirt tracks converged at the house of the sahukar, like the threads in a spider’s web. Along the tracks came desperate families. Some brought their wives’ ornaments wrapped in bits of rags; others brought the produce from their fields. Sometimes women would walk in and remove their glistening nose studs, their wedding chains, and bangles, and hand them to the moneylender. Others had nothing to pledge but their own bodies. The moneylender swallowed everything, and nothing that entered came out; his house grew and bulged. The moneylenders had already sucked the poor dry of their assets and their sleight-of-hand accounting had left the villagers’ principal debt untouched by their repayments, which were marked up against the interest.
During my engagement with rural India, I found that moneylenders would survey potential customers with the sleepiness of crocodiles and pose an instant offer. Despite the heavy interest, the offer would be a tempting solution to the customer’s financial woes. As long as you keep paying the moneylender’s monthly interest on time, you will find him the sweetest person on earth. All moneylenders carry the air of messiahs, as long as you allow them to bleed you.
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 wanted to explore and define his exact role, and institute necessary safeguards, because, 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 peasants’ pressing needs.
Despite 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.
The picture which Nobel Laureate Gunnar Myrdal presented in his memoir “Asian Drama” almost five decades ago remains the same despite gigantic efforts from both the private and public sector in bringing large swathes of people into the folds of formal finance. “When the moneylender sees that he can benefit from the default of a debtor he becomes an enemy of the village economy,” Myrdal wrote. “By charging exorbitant interest rates or by inducing the peasant to accept larger credits than he can manage, the moneylender can hasten the process by which the peasant is dispossessed.”
But the cheerful news for me is that today Bina is moneylender free; it’s a very heartening feeling for me. Three years back, the village struck coal and that signaled the financial death of the moneylender. Every inch of land got a price tag. Bina’s 3,000-strong community is slowly abandoning the village, which is being acquired by coal barons. Lalita Jangde, whom I lent 5,000 rupees to relieve her of a moneylender’s debt, is a transformed women now. I still remember how excited Lalita was e about what the bank and its manager might mean for them, but her husband tried to dispel what he considered her silly notions that any bank would actually help her .“I don’t want to have anything to do with the bank,” he said with a dismissive toss of his hands to his wife who he felt was being taken for a ride by a charlatan banker.
I assured her that if she made a serious attempt and yet failed, we would not divest her of her bare belongings in the way a loan shark does. We would walk with her through her climb out of her distress. .
There was scariness in her face when she came barefooted to me, lacking the barest courage to speak. She now owns assets of around Rs 6 million. Her house is far more plush and grander than mine. But she still values those 5,000 rupees that I pressed in her palm as she’ looked with disbelieving eyes.”It was more valuable to me than today’s fortune” she chuckles with a youthful glint in her eyes. “It was a great event in my life. It just didn’t liberate me from the chains of a moneylender; it saved me the shame in my community”.
That picture is one sliver of my memory that remains green and verdant till day. It refuses to fade. It is encounters like these that keep renewing our trust in poor but honest and heroic women
*Author of the bestselling book, “Village Diary of a Heretic Banker”