The Hindu Business Line : Creditable move

If you cannot beat them get them to join you. That edited aphorism seems to lurk behind a recommendation of a Reserve Bank of India Technical Group on a new piece of legislation to rein in the ubiquitous village moneylender. Among a host of suggestions to bring moneylending into an upgraded regulatory framework, this is the most significant. It makes one wonder why policymakers waited more than half a century to arrive at this enlightened and innovative way of fighting usu ry.

That usurious moneylending never vanished from the village economy was well-known. But that it actually tightened its stranglehold on farmers, unable to access bank funds or provide the kind of collateral needed by the formal system, became painfully evident from theAll-India Debt and Investment Survey of 2002. This study found that the moneylenders’ share in the total dues of rural households had increased from 17.5 per cent in 1991 to 29.6 per cent a decade later. Despite this knowledge and the growing distress of farmers on account of indebtedness, as also the recognition of the failure of the banking system to intervene effectively in the village economy, it took the RBI four years to set up a Technical Group to inquire into ways of controlling the informal lending network. Among other remarks, the group finds that while most States had a law on the control of moneylenders and a provision for registration, some, such as Punjab and Haryana did not. Licensing/registration is on the statute books, and monitoring too is ‘in place’, yet usury has increased. The Group felt the need to plug the loopholes and therefore recommends penalising unregistered moneylending and periodic review of the licences issued. But times have changed and the Group, therefore, looked at the possibility of co-opting the moneylender into the formal banking channels. Registered moneylenders would become ‘Accredited Loan Providers’ (ALPs) — the link between the formal banking system and their rural clientele.

Rechristening the moneylender as ‘informal credit provider’, the Technical Group wants them given the option of becoming ALPs. Such a class of creditors would serve to leverage the “dominant presence of moneylenders while providing incentives for more competitive rates and fair practices.” This approach allows banks to come closer to their rural clientele than ever before. For decades it was assumed that the banks would supplant the ‘indigenous credit provider’; experience has proved otherwise. Very sensibly, the ALP concept will enable, with all the supervision that the Group suggests, bank credit to reach the priority sector. With the three-pronged option for rural borrowers — the ‘informal credit provider’, the ALP (both to be monitored for fair practices) and banks themselves, financial inclusion is beginning to look more feasible.

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‘Accredited loan providers’ mooted

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