The Private Money Lending Rules and Regulations could see major changes with a proposal to include 17 more provisions to the rules that was already amended once last year. It is the second amendment (proposed) in less than five years indicating that the rules have not served its purpose.
The rules mandate money lenders to register with the central bank, but there are only to registered lenders. Meanwhile, the business is thriving with tricks up money lenders’ sleeves. One common trick is taking lenders to court in the pretext of fraudulent cheque writing when borrowers default.
The draft proposal intends to strengthen the existing provisions and give clarity on the responsibilities and obligations of lenders, borrowers and brokers. If the rules come through with the proposed changes, it would cover both registered and unregistered private moneylenders and address the issues and problems while implementing the rules.
The rules failed to serve its purpose because it was too restrictive and not conducive, according to those who wanted to lend legally by registering. Those who initially registered refused to renew because the formalities were too many for a small interest rate and smaller amount when illegal lending couldn’t be controlled.
As the central bank wait for feedback on the proposed amendments, one common question is why do people choose to resort borrowing from private money lenders at higher interest rates even with the presence of several financial institutions with various loan facilities. Those in the business say it is because of the easy access. If that is the case, it is, perhaps time we relook into the lending procedures from financial institutions. Access to finance should be improved for the needy.
Money lending has been a part of our culture. People borrow money during difficult times, but many also borrow for other reasons like gambling. The private money lending business operates with legally executed agreements between parties. Once it is in the court, borrowers contend before the courts that the amount was inflated with exorbitant monthly interests. Courts go by evidence and legal documents and lenders know it.
We have seen how the private money lending business or call it racket, has become a social ill. Many have absconded from the country because of monetary disputes.
The proposed sections allow courts to admit money recovery suits irrespective of agreements made by registered or unregistered lenders. By accepting cases from unregistered private lenders, we are going back to square one.
The central bank uploading the draft proposal on its website is a good decision to hear what the people had to say about the rule that failed. Uploading on social media would have better reach for suggestions.
The feedback are coming and many have commented on the interest rates and amount. Here is a chance to improve the rules that will prevent loan sharks from looting people and lenders and borrowers abusing the legal system. To improve the rules, feedback should be taken.