Thukten Zangpo

The judiciary will come up with a separate standard of procedure (SOP) to resolve monetary disputes that are not included in the Rules and Regulations for Registered Private Money Lenders (RRRPML) 2021.

Private money lending has become a concern resulting in adverse socio-economic consequences involving litigations despite Royal Monetary Authority (RMA) discouraging it.

RMA’s chief general counsel, Damche Tenzin, said that with the Private Money Lending Rules and Regulations (PMLRR) 2016, the cases involving unregistered private money lending were dismissed by the court.

The PMLRR that came into effect from April 1, 2017 mandates that a formal money lending business in the market would require registration with the RMA. It restricts informal money lending. However, the rule only forced people to execute sales deeds or fraudulent cheque writing.

“There was social tension increasing in the communities, sometimes lenders take advantage and vice-versa,” Damche Tenzin said.

Also, he said that with the new provision, the cases that do not come under the jurisdiction of the RMA, the court will hear a separate case and the provision is included in consultation with the judiciary.

According to section 12.2 of the RRRPML 2021: “The courts may accept all other monetary cases outside the purview of the RRRPML based on a separate SOP (formulated and implemented by the judiciary) and adjudicate the monetary suits, award penalties, and judgement in accordance with other relevant laws of the country.” The regulation would come into force from November 1.

A source said the rules give the liberty to accept monetary cases outside the private money lending rules based on the court’s own SOP. “Hopeful, that the court’s SOP is not lenient on illegal money lenders.”

He also said that when a court dismisses the monetary cases, it discourages lenders from choosing to operate illegally because of the risk of losing not just the interest but the principal as well.

However, he added that when a court accepts an illegal lending case, the illegal loan is legitimized (receives the legal right to reclaim the majority of illegal loans, but only if the borrower can prove it is illegal lending).

As per the new regulation, registered private money lenders with a registration certificate (validity for a year that can be renewed annually) can lend a maximum of Nu 0.5 million (M) to a single borrower with a valid written contract as per the Evidence Act (2005) and Contract Act (2013).

Also, a lender cannot lend a total loan of Nu 5M, for which specific approval from RMA would be required.

However, a lender without registration can lend up to Nu 90,000 to a single borrower or an aggregate of Nu 90,000 to multiple borrowers.

The regulation also states that the lender cannot charge interest of more than 15 percent per annum and that the borrower cannot accept the interest higher than 15 percent per annum.

Registered private moneylender, if found making any form of fraudulent agreement with a borrower, forfeiture of 25 percent of the total principal amount and other actions would be imposed as per the law.

If a borrower is found guilty of fraudulent practices, he or she would be dealt with relevant laws.

Currently, there are three registered private moneylenders.

Damche Tenzin said that the reason for the people not seeking registration certificates from the RMA to carry out private money lending business in recent years was that the number of micro-financial institutions like Respect, Educate, Nurture and Empower Women, Tarayana, Bhutan Care Credit Limited, Micro-finance Bhutan Private Limited, and Bhutan Association for Women Entrepreneurs were allowed by the RMA through licensing to provide more financial outlets or services to the people.

A source also said that changes have to be made to ensure that more register and operate legally to prevent exploitation by illegal moneylenders.

“I feel that this issue deserves the attention of our Parliament and that a Money Lending Act is eventually considered, “ he added.

Edited by Jigme Wangchuk