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Thiruvananthapuram, Oct. 7

THE commercial banks have to restructure their credit policies to give more emphasis to loans for agriculture, small-scale industries and small borrowers, according to a study report of a working group constituted by the State Planning Board.

The working group on "non-banking financial institutions in Kerala" has also suggested removal of procedural bottlenecks to make the banks' transactions more customer-friendly. These measures are necessary to control the growth of private moneylenders in the State, says the study report of the group.

The unregulated moneylenders, locally known as "blades", play a definite role in providing finance to a target group despite a strong presence of commercial banks and co-operative banks in the State. For one, the credit extended by the moneylenders is prompt, informal and flexible.

The customers flock to them, despite the attendant risks, to avail themselves of such a facility that is not available with the formal institutions.

A sample survey done in Kollam and Kottayam districts has shown that the rate of interest charged by the unregistered moneylenders varies between 24 per cent and 120 per cent and, in one extreme case, 180 per cent.

But a majority of the moneylenders charge interest rates in the range of 30 -70 per cent.

The study notes that there is no official data available on the number of unregistered moneylenders in Kerala and their socio-economic impact. However, certain correlations have been drawn by social scientists between the increasing number of suicides and the growth of unregistered moneylenders in a growing consumer State.

A survey by the All Kerala "Blade Companies" Abolition Front has revealed that the amount of money "looted" by the blade companies and some of the unregistered chit companies from seven districts in the State between 1995 and 1999 was to the tune of Rs 160 crore.

The working group, which has made extensive studies on the working of all non-banking financial institutions in the State, including chit companies, has suggested suitable amendments to the Kerala Moneylenders Act to curb the activities of the moneylenders. Also, the implementation of the Chit Funds Act or suitable amendments to the Kerala Chitties Act and its strict enforcement is imperative for the disciplined growth of the chit industry.

A new regulatory framework for moneylenders and chit companies is necessary as there is a lack of uniformity at present consequent to the plurality of regulating departments/agencies. The working group has also suggested the formation of an "Arbitrate" as in Tamil Nadu to control the moneylenders and chit companies.

(This article was published in the Business Line print edition dated October 8, 2005)
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