By Dr Moin Qazi
While the government is set to forgive billions of dollars of loans to farmers, the actually distressed class among them will have no respite from their misery. They owe their debts to moneylenders whereas the government waiver applies only to the formal credit.
Who is the moneylender?
Almost every farmer in India’s massive rural swathes is tethered, in one way or another, to the ‘sahukar’. He is the Indian variety of the moneylender, the ubiquitous, ravenous loan shark. For centuries, moneylenders have monopolised rural Indian credit markets. Families have lost land and 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.
An inescapable cycle of debt continues to grip rural India, particularly its farming class. Yet the public image of menacing debt collectors does not reflect the actual plight of India’s three million farmers. Moneylenders have been around for generations. But their business has boomed ever since India’s economic priorities shifted, with globalisation, from agriculture to industry. The arrival of high-cost seeds and pesticides and the attraction of bumper harvests have added to the debts. In farm belts, moneylenders operate under the guise of farm input sellers.
The rise of moneylenders
In Maharashtra, farmers’ dependence on private money lenders has shown a steep rise at 40 per cent in the last one year The total amount of loans disbursed by private money lenders rates was Rs 1,254,97 crore. Compared to the 2015 statistics, the total amount disbursed thus has risen by Rs 358.63 crore.
According to the All India Debt Investment Survey of 2012, nearly 48% farmers across the country took loans from informal sources such as from moneylenders and landlords. The number had risen from 36% in 1991 and 43% in 2001. Among farmers who owned land parcels smaller than 0.1 hectares, 85% had pending loans from such informal finance sources.
Farming distress has attracted a new breed of moneylenders. Anyone with some disposable cash, from shopkeepers, government officials, and policemen to village teachers, can now lend in the hope of making a killing. They are willing to extend credit but at highly extortionate rates (sometimes exceeding 50 percent). This keeps the borrowers in lifelong penury.
A contaminated credit culture
While these small farmers pay exorbitant interest, the affluent farmers get subsidised credit. The government’s interest subvention (subsidy) scheme for farmers provides credit at a subsidised interest rate of 7 per cent and for prompt re-payers at 4 per cent.
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 blocked by bankers who are bedevilled by a highly contaminated credit culture. Hence, moneylenders continue to thrive.
A current of dread runs through the country’s suicide-ravaged farmlands as their debts pass from husband to widow, from a father to his children. Most villages are locked into a bond with village moneylenders — an intimate bond, and sometimes a menacing one. Popular cinema and classic literature tell 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 trap of moneylending find themselves locked in a white-knuckle gamble. They juggle large loans at uncertain interest rates, in the hope that someday a bumper harvest will allow them to clear their debts — so they can take out new loans. This pattern has left a trail of human wreckage.
A bitter truth about moneylenders in our society
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, scrutinised the role and operations of the moneylender, who then enjoyed a dominant position as a source of finance. They did so on the premise that, 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”.
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.
Moin Qazi, a former banker and an accomplished poet and writer, has extensively contributed articles to leading publications around the globe and authored several books.
Featured Image Credits: Visual Hunt