The Hindu Business Line : Rural households’ dependence on moneylenders continues: RBI study

Home Page - Credit Market
Industry & Economy - Rural Development
Money & Banking - Financial Services
Rural households’ dependence on moneylenders continues: RBI study

L.N. Revathy

Coimbatore, Aug. 19 Despite the spread of banking in the modern context, changes in the financial sector and the rising awareness about the credit delivery system among rural household, the number of moneylenders and the quantum lent by them has registered a substantial jump in the last decade.

“The dependence on moneylenders has not decreased. It has, on the other hand, increased in several rural regions,” notes an RBI study.

Reports from the 11 regional offices of the RBI show that the number of registered moneylenders increased from 12,601 to 19,627 between 1995 and 2006. Anecdotal evidence suggests a corresponding rise in the unregistered moneylenders.

The amounts advanced by these moneylenders in their jurisdiction are no less. In Gujarat, such advances rose to Rs 139.65 crore (as on March 2006) compared to Rs 38.34 crore, a decade before, while in Maharashtra it touched Rs 82.28 crore from Rs 29.90 crore at the end of 1994-95 fiscal. In Kerala, it leapfrogged to Rs 138 crore from Rs 25 crore and in Uttar Pradesh and Karnataka to Rs 181.92 crore (Rs 34.22 crore) and Rs 87.70 crore (Rs 19.22 crore) respectively.

Their mode of operations such as maintaining inter-personal relationship with the borrowers, informal approach, round the clock availability of finance, made them important lenders in the villages. Their borrower-friendly approach strengthened their position.

These informal credit providers gave loans against security of gold jewellery, land documents, cultivation rights, Promissory Note and even against utensils.

Innovative products

Some offer innovative loan products. For instance, in Karnataka and Rajasthan, the ‘100 days’ loan scheme was introduced. Under the scheme, the lender deducts a sum of Rs 120 upfront on a principal of Rs 1,000 and a sum of Rs 10 is collected everyday for the next 100 days. The interest worked out to 44 per cent per annum.

The rates were no less. It ranged between 12 per cent and 150 per cent per annum with the lender invariably deducting the interest upfront and giving only the balance to the borrower.

In spite of having to pay through their nose, the dependence on money lenders continues because of the limited outreach of formal credit institutions, the cumbersome procedures in credit disbursement, the personal bond that these informal credit providers enjoy with the borrower, the 24/7 doorstep service they extend and above all, the all-and-sundry finance support without hesitation or delay.

The survey revealed that out of every farmer household outstanding of Rs 1,000 in the country, Rs 257 was sourced from moneylenders. The share of such credit providers in the indebtedness of farmer households in Bihar, Manipur, Punjab, Rajasthan, Tamil Nadu and Andhra Pradesh were well above the national average. Even in States that are regarded as adequately banked (such as Andhra Pradesh and Tamil Nadu), the penetration of moneylenders is perceived to be significant.

The Technical Group constituted by the RBI has conceded that the multi-pronged and concerted efforts at extending institutional credit to all sections and other initiatives for increasing the outreach by banks by using self-help groups and micro finance institutions as intermediaries has not decreased, but increased the dependence on moneylenders in rural areas.