Almost every farmer in India’s massive rural swathes is tethered, in one way or another, to the sahukar, the Indian variety of the moneylender, the ubiquitous, ravenous loan shark.
For centuries, moneylenders have monopolized rural Indian credit markets. Families have lost land, 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 globalization, 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.
In sharp contrast to banks and other lending institutions, there is no steel and glass, neither is there a leather couch or a coffee vending machine at the moneylender’s workplace. Vithal Radke’s business is registered as a shop because he hasn’t met the legal standards required to call it a finance agency.
Vithal stumbled into the moneylending business eight years ago after failing at a number of other businesses. He doesn’t look like you’d imagine a loan shark would – which, to most, is cunning, tough, maybe with a little streak of violence running underneath the refined exterior.
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 bedeviled by a highly contaminated credit culture. Hence moneylenders continue to thrive.
“It has been business as usual. Shylocks are still in demand,” Vithal says.
“Shylocks give you that instant fix. You aren’t asked for security or guarantors. I borrowed again this year and it is going well. I think that because of the ease of it, borrowing becomes addictive,” says a cash-strapped farmer.
Loan sharks also do not ask questions regarding your borrowing history, meaning that the defaulters find a safe haven with them. Then there are those who are seeking to hide because of the shame of borrowing. Seeing as the transactions are quick and the requirements minimal, the moneylenders might seem like the perfect solution for those seeking a quick fix. Their customers agree that they are a working solution — as long as you do not default on your loan.
Moneylenders are a key part of India’s economy. They charge higher, sometimes usurious, interest rates but require few formal guarantees and offer hassle-free services. The nation has just 13 bank branches per 100,000 people and only about one in four people have access to the internet. Single households run about 96 percent of the nation’s unincorporated non-farm enterprises and only 1 percent received loans from the government. For the bulk of low-income households, moneylenders are the only dependable source for money when emergencies arise.
In Bina, a small farming village about 40 kilometers from Nagpur in central India, where I spent almost two years during my career in development finance, I relentlessly pursued a one-point agenda: banish the moneylender. But as all such social and economic experiments and policies have learned, a moneylender is an all-season creature whose unique DNA makes him resistant to all attacks. In every village, moneylenders are reviled, and their business seen as squeezing out the blood of poor farmers. Yet villagers know there is no life without the loan shark. The rapacious moneylender, who plugs the gaps in rural financial services, is also the man they turn to in times of need. You can’t banish him from the financial planet; he remains indelible.
I found that nearly all inhabitants in Bina had been compelled at some time or the other to call on the sahukar. No matter how much distaste he provoked, the sahukar was the key person in the village. He was its banker, its moneylender, its pawnbroker, and very often its vampire. One must ask, as I did while living in rural India, where the capital of the poor came from, since that is the one permanent requirement of a capitalistic society. In poor countries across the world, you will find most tiny businesses being financed by moneylenders.
When I asked, I would get the ubiquitous answer: “I get my money where everyone else does.”
“Where is that?”
“Everyone knows. I get it from a five-six.”
“What is a five-six?”
“It is the place where you borrow five rupees in the morning, and pay back six rupees in the evening.” It is possible to get day loans in the vegetable market that provide 100 rupees in the morning but have to be repaid with 10 rupees interest by dusk.
In Bina village, all dirt tracks converged at the house of the sahukar, like the threads in a spider’s web. Along the tracks came desperate families. Some brought their wives’ ornaments wrapped in bits of rags; others brought the produce from their fields. Sometimes women would walk in and remove their glistening nose studs, their wedding chains, and bangles, and hand them to the moneylender. Others had nothing to pledge but their own bodies. The moneylender swallowed everything, and nothing that entered came out; his house grew and bulged. The moneylenders had already sucked the poor dry of their assets and their sleight-of-hand accounting had left the villagers’ principal debt untouched by their repayments, which were marked up against the interest.
During my engagement with rural India I found that moneylenders would survey potential customers with the sleepiness of crocodiles and pose an instant offer. Despite the heavy interest, the offer would be a tempting solution to the customer’s financial woes. As long as you keep paying the moneylender’s monthly interest on time, you will find him the sweetest person on earth. All moneylenders carry the air of messiahs, as long as you allow them to bleed you.
Farming distress has attracted a new breed of moneylenders. Anyone with some disposable cash — from shopkeepers, government officials, and policemen to village teachers — now lends in the hope of making a killing. They are willing to extend credit, but at highly extortionate rates – sometimes exceeding 50 percent, which keeps borrowers in lifelong penury.
A current of dread runs through the country’s suicide-ravaged farmlands as their debts pass from husband to widow, from father to 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 moneylending trap find themselves locked in a white-knuckle gamble, juggling ever-larger loans at usurious interest rates, in the hope that someday a bumper harvest will allow them to clear their debts — so they can take out new ones. This pattern has left a trail of human wreckage.
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, the All-India Rural Credit Survey, scrutinized 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.”
The authors of the Survey did not, of course, lay out a formal model of India’s rural credit system as it then existed, nor did they provide a formal analysis of the effects of introducing a system of cooperatives upon its workings. The authors were strongly convinced that the moneylender possessed considerable market power, the exercise of which was made very profitable by the peasants’ pressing needs.
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.
The picture which Nobel Laureate Gunnar Myrdal presented in his memoirs Asian Drama almost five decades ago remains the same, despite gigantic efforts from both the private and public sector in bringing large swathes of people into the folds of formal finance.
“When the moneylender sees that he can benefit from the default of a debtor he becomes an enemy of the village economy,” Myrdal wrote. “By charging exorbitant interest rates or by inducing the peasant to accept larger credits than he can manage the moneylender can hasten the process by which the peasant is dispossessed.”
Today Bina is moneylender free, a most heartening feeling for me. Three years back, the village struck coal and that signaled the financial death of the moneylender. Every inch of land got a price tag. Bina’s 3,000-strong community is slowly abandoning the village, which is being acquired by coal barons. Lalita Jangde, whom I lent 5,000 rupees to relieve her of a moneylender’s debt, is a transformed women now. I still remember her scared face and trembling body when she came barefooted to me, without even the courage to speak. She now owns assets of around Rs 6 million. Her house is far more plush and grander than mine. But she still values those 5,000 rupees that I lent all those years ago more than her present fortune.
“It was a great event in my life. It liberated me from the chains of a moneylender,” she exclaims with a great heave.
Moin Qazi is the author of the bestselling book, Village Diary of a Heretic Banker.