The unruly money lending business by loan sharks is making the poor further poorer and the rich more richer. It is maximizing pain for the poor while ensuring maximum happiness for the minimum number of people.
The state’s sole business should be to host plans and policies for maximizing the happiness and minimizing the pain among the subjects, said Jeremy Bentham. Introducing the principle of utility in his popular work An Introduction to the Principles of Morals and Legislation published in 1789, he argued that the object of all legislations must be “the greatest happiness of the greatest number”.
Expounding the theory of utilitarianism, Bentham argued that the governmental actions should be to foster happiness or pleasure and oppose actions that cause unhappiness or harm. In this respect, he favored a political structure where the state’s politics and economics are designed for promoting prosperity among the people.
Under Nepal’s current legal regime, money lending is such a profitable business where the money lender makes a fortune by making the debtor agree on a sum which is much higher than the actual transaction taking place. In every village and town of Madhesh Province, you will find a few money lenders whose job is to lend money to the poor and needy persons. The Tarai courts are filled with loan cases. Surprisingly, the district courts have more than 75 percent of Tamasuk (loan deed) cases.
In fact, borrowing and lending is not an illegal tender but truth and fairness ought to be the two attributes that need to prevail in the entire money-lending business, which the Tamasuk trap does not ensure.
Tamasuk trap
In Madhesh, there is a practice of making loan deed (Tamasuk) of much higher principal amount than the real transaction undertaken between the parties. If a loan debtor pays the amount to the creditor on time, then in such a case, he would have to bear the actual principal amount along with its interest. But, if he fails to reimburse the loan amount on time, the creditor would invoke the jurisdiction of the court by producing the loan deed, which generally sees an agreement between the debtor and creditor where the debtor has agreed to pay the amount within a stipulated time frame and in case of otherwise, the creditor would have all rights to realize the money by all legal means. In fact, the actual transaction does not appear on deed. Rather, it’s a subject of mutual understanding.
Let me explain this situation with an example. If Mr A, who is a money lender, provides loan to Mr B with a sum of NPR 500,000 then Mr A will prepare a loan deed of NPR 1500,000 to which Mr B will agree, on record, to pay 1500,000 with interest at the rate of 10 percent annually within a stipulated period which is prescribed in the deed. This has become a reality in Terai-Madhesh. It’s also a medium to make black money into white.
The high voltage drama starts in case of any default or breach of agreement or say in case of non-payment of loan on time. The money lenders find the Benches of courts as perfect forums for realizing their claims. As law recognizes documents, which have evidentiary value, the courts pass judgments in favor of money lenders who have produced the original copy of the loan deed.
In addition, the moneylenders seek stay order on the properties of the loan receiver (debtor). So, the money lending business has become an easy means of earning out of proportion.
A judge recording statements in a money lending case (or cases relating to loan deeds) does not inquire about the source of income of the loan provider. In courts, there is an established practice of not asking a money provider to prove if there was any banking transaction done by him on the date on which he has provided the sum to the borrower. So, in loan cases, the source of income remains outside the purview of judicial determination.
Generally, the deed is made in backdate–before Bhadra 1, 2075 (17 August 2018), the date of implementation of National Civil Procedure Code 2074 BS (2018). After all, the Code of 2074 requires the loan deeds of 50,000 and more to be registered at local bodies. Tamasuk (loan deed) stands valid for ten years from the date of its making.
Practices in South Asia
In Pakistan, the provincial governments are empowered to enact laws on money lending. Take the example of Pakistan’s Punjab Money Lending Ordinance (1960). It provides arrangements for money lending in the jurisdiction of the province of Punjab, Pakistan. Under Section 2(b), capital is defined as the sum of money which a money lender invests in the business of money lending. Section 3 provides mandates for license. It provides that money lending shall be carried in accordance with the terms and conditions prescribed under the license. The District Administration Office is empowered to issue licenses. Section 5 provides that the license would be canceled when the court finds a money lender carrying fraudulent transactions. If a money lender is found showing the loan amount of the sum advanced to be in excess of that actually advanced plus legitimate expenses incurred, then in such a case, their license would be canceled. Section 13 obliges money lenders to maintain accounts.
Like in Pakistan, the state governments in India have jurisdiction to adopt laws on the subject of money lending. Each state has their money lending related law in India. But, the laws are almost similar in nature. Take the example of Maharashtra. The Maharashtra Money-lending (Regulation) Act (2014) provides that no money lenders shall carry on business of money lending except in the area for which he has been granted a license and except in accordance with the terms and conditions of such license. Section 10 provisions that every year the license needs to be renewed. Section 18(2) provides that the Registrar shall issue an order stating the instrument or conveyance as invalid and may order for restoration of possession of property to the debtor who has executed the instrument or conveyance as security for loan advanced by money lender. Simply put, if a loan receiver has transferred his plot of land in the name of creditor against the loan, then the same transfer could be annulled at the order of the Registrar. Section 23 provides that the actual amount of loan and interest under transaction shall only be valid. Section 25 provides that each of the lenders would provide debtors a legible statement as to the amount of loan advanced during the year; total amount of repayments received and the principal amount and interest due at the end of year. Section 39 envisages that whoever carries on business of money-lending without obtaining a valid license, shall on conviction, be punished with imprisonment of either description for a term which may extend to five years or with a fine which may extend to 50,000 or with both. Bangladesh’s Money Lenders Act (1993) has similar provisions.
Protect the poor
Article 56(6) of the Constitution of Nepal obliges the federal, provincial and local governments to protect the fundamental rights and to promote egalitarian society. Right to property has been guaranteed as a matter of fundamental rights under Article 25. The unruly money lending business has become a bane in the country. It’s making the poor further poorer and the rich more richer, which goes against egalitarianism. Ultimately, this whole jurisprudence of Tamasuk is maximizing pain and minimizing pleasure; ensuring maximum happiness for the minimum number of people. And, it goes against Bentham’s theory of utilitarianism. This Tamasuk business neither secures poor persons’ right to property, nor does it promote egalitarianism. It’s high time for the government to emerge as a true custodian of fundamental rights and protect the rights and interest of the subjects, as they have reached a social contract with the electorates to protect their rights and concerns.
Given the misuse of law and lenders’ attitude of earning out of proportion through Tamasuk, the government could adopt a law, requiring the courts to seek the source of income of the loan provider. Along with this, there could be a legal arrangement demanding proof of banking transactions done between loan debtor and creditor on the day of making of Tamasuk. Like in Pakistan, the District Administration Offices could issue licenses to money lenders. Money lending should not be done without a license.
In case of Tarai-Madhesh, courts could adopt a practice of mandatorily referring the loan cases, where both parties are present before the court, into mediation for amicable settlement. Its high time money lending business is reformed and strictly dealt with. Above all this, government and private banks should introduce easy schemes of providing loans to the needy ones at the time of their need.
Jivesh Jha, formerly a Lecturer of Law at Kathmandu University School of Law, is currently a Judicial Officer at Dhanusha District Court, Janakpurdham.
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