Wednesday, September 24, 2014

Usury in the city that never sleeps

Thoonganagaram (தூங்க நகரம்) ....Madurai. The city that never sleeps...and it is the city that never lets some sleep. The city that is famous for the Meenakshi temple, for its malligai poo (jasmine), for its jigarthanda, for its Murugan idli, for its 'passakkara pasanga' (beloved pals)...and once upon a time for its Tamil Sangam, is now infamous for Usury.

Some years back, I had watched usury in all it's glory at close quarters. Meter Vatti, Kandhu Vatti, Speed Vatti , Hourly Vatti were strange and scary sounding words, when one of my client had got into this trap.

As a banker usury was not an uncommon concept for me. Lending ₹ 90 to small traders - particularly vegetable vendors in the morning and collecting back ₹ 100 in the evening is not uncommon in many places....go ahead and calculate the rate of interest for this ...This is an 'acceptable and accepted' business model for lending. People in the know vouch that this lending model does work for small amounts, particularly when the money is lent for productive purposes. It is supposed to 'help' small traders, who borrow on an unsecured basis and can return cash back in the evening.

When the ticket size increases, it doesn't help....particularly since such borrowings are for consumption. The meter and speed interest charged by these modern day Shylocks is so exorbitant that borrowers can never repay fully in a lifetime. Money that is repaid keeps going to service interest and the principal remains unpaid for most of these borrowers. The lenders live off the lives of the borrowers. A blank pro note or a cheque is usually the only document taken - but defaults seldom happen, for debt collection is merciless. Detailed records of repayment for such loans are seldom maintained and borrowers meekly submit to the terms of the lenders.

It is not just so in the unorganised sector. Sometime back micro finance institutions had charged usurious interest rates...and credit card companies conveniently charge as high as 3.26 % per month...that is some 40% p.a. When the organized sector can get away with such rates, one can easily guess what the unorganised sector can charge.

Although there exists a Tamil Nadu Prohibition of charging exorbitant interest rates Act 2003 and the Tamil Nadu Money Lenders Act 1957 prohibits usury and fixes a maximum rate of 12 % pa for unsecured loans , a vast majority of the people are unaware of this Act and its provisions and its implementation is virtually absent.

Helpless borrowers who are in dire need of money fall into this trap. Yet another category of borrowers is that segment which does not postpone gratification and borrows for consumption. Either way, very rarely does a gullible borrower who resorts to this borrowing escape this trap.

Madurai is a hub for usury and it is not surprising when Justice N.Kirubakaran called it the 'capital' of usury. Many people commit suicides, women get abused and children abducted...the number of cases filed is low and the conviction rate is even is obvious that the implementation authorities of the laws in this city that never sleeps have gone to sleep....making it a நரகம் (hell) for borrowers.

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