Finance: To regulate private money lending businesses and bring such activities under the purview of the financial sector the Royal Monetary Authority (RMA) approved the Private Money Lending Rules and Regulations 2016 (PMLRR) on December 29, according to an RMA press release.

The rules will come into effect from April 1, 2017. The three-month preparatory period, January to March 2017, is to allow potential lenders and borrowers to comply with the rules.

An individual cannot lend more than Nu 90,000 to a borrower without being registered as a private money lender with the authority.

A registered private lender can lend a minimum of Nu 90,000 and a maximum of Nu 500,000 to a single borrower.

The registered lender cannot charge a lending interest of more than 15 percent a year.

The RMA board approved the rules after it was hosted on the RMA website for public comments for a month that ended on December 19.

The rules are expected to prevent money lending related litigations and adverse socio-economic consequences

An applicant has to obtain a trade license from the economic affairs ministry’s trade department after registration with the RMA and submit a copy to the authority.

The contract shall be effective according to its terms consented between an Authorized Private Money Lender and the borrower in line with the provisions of this rule and regulation.

A lender has to sign contracts with borrowers, and check a borrower’s credit worthiness, including obtaining credit reports from the Credit Information Bureau and Central Registry.

A lender cannot solicit business publicly.

The rules disqualify a public official, a convict, an applicant who is declared bankrupt or whose earlier registration certificate has been cancelled by a court or has defaulted on loan from a financial institution.

If a court cancels the registration certificate or it was transferred to another person, the lender cannot register for a minimum of two years.

The RMA has also approved the rules and regulations for Deposit-taking Microfinance Institutions (DMFI) 2016 on December 29, and it comes into effect from January 3, 2017.

The Royal Address of His Majesty The King during the 109th National Day celebration in Trongsa underscored the importance of improving access to credit for youth and rural people, the RMA press release states.

“The RMA would like to submit our heartfelt gratitude to His Majesty The Druk Gyalpo for constant guidance and vision,” it is added.

The rules are to improve access to finance for the rural poor.

Deposit-taking Microfinance Institutions (DMFI) are financial service providers that primarily conduct deposit-taking micro-finance businesses such as collecting deposits from the public and using them for loans up to Nu 0.5M.

A deposit-taking micro-finance institution has to have a paid-up capital of Nu 5 million to cater to 10,000 borrowers, Nu 10 million to cater to borrowers numbering between 10,000-20,000, and double the amount to cater to more than 20,000 borrowers.

The creation of such institutions will promote financial inclusion by way of increasing penetration of the financial services in the rural pockets and to protect  illiterate individuals loan takers from abusive lending practices.

While the rules will prevent unregistered micro-finance institutions from entering the market, they can lend legally after registering. Both the rules are available on the RMA’s website

Tshering Palden