The Hindu Business Line : RBI group moots model legislation on money lenders

Coimbatore, Aug. 18 The Technical Group set up by the RBI to ‘Review the Legislation on Money Lending’ has recommended a model legislation on Money Lenders and Accredited Loan Providers (by incorporating the best features of the domestic and International legislation) for adoption, particularly in those States that do not have a comprehensive legislation in place at present.

Stressing the need for examining the relevance of the legislations (passed several decades ago), the Group has recommended some modifications to the existing legislations such as quick, informal and easy dispute resolution mechanism for better enforcement; and legitimising money lending activity in States that have no such provision.

It noted with concern the absence of effective enforcement of the legislation in many States.

Several State Government department officials, the report said, had admitted to not being strict in enforcing the legislation, as they perceived that such a move would drive the money lenders out of business and affect the interests of the rural borrower adversely.

Effective legislation

The recommendations among others emphases the need for an effective legislation in the interest of the borrower, considering the significant role played by the moneylenders in the rural credit delivery system. It has also stressed that the enabling provisions should provide incentives for registration and for mainstreaming the activity of money lending, besides disincentivising those that escape the law by initiating stringent action against the unregistered lenders.

For the purpose of ensuring greater transparency, the register of moneylenders is recommended to be put in the public domain.

On interest, it recommends a State Government notification (from time to time) on the maximum rate that could be charged by the money lender.

While explaining the advantages of having a separate chapter in the States’ money lending legislations for establishing linkage between the informal and formal credit providers (to leverage the dominant presence of the moneylenders), the Group has proposed the introduction of a new class of loan providers – Accredited Loan Providers – to differentiate between the sources of funds and the presence /absence of linkage with the formal credit delivery institutions. (The ALP would have linkage with banks).

“It formalises money lending by private people instead of abandoning or bringing it under the banking channel,” a representative of the employees union said.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
‘Hold nuclear deal till doubts are cleared’

RBI group moots model legislation on money lenders

Treat dues to MTNL, BSNL as land revenue arrears, Govt tells States

Indian hopes to post Rs 25-cr net in ’06-07

Steel expansion may need Rs 2.8-lakh-cr

Centre may invoke Act to take over closed tea gardens

Rebound hopes rise as Fed acts to contain sub-prime crisis

Rs 1 lakh cr locked in frozen demat accounts

FIIs turn cautious in March-June