Despite the central bank’s regulation

Tashi Dema

The business of lending money, even with the central bank, the Royal Monetary Authority (RMA) prohibiting it, is thriving.

Going by fraudulent cheque writing and asset sales deed cases, which many alleged is the new modus operandi for lending money, the rule framed in 2016 to regulate private money lending business is not serving the purpose.

An entrepreneur, who is related to a borrower, said the rule mandates private moneylenders to submit loan information on a quarterly basis to the central bank, but there are only two private money lenders registered with Royal Monetary Authority (RMA) today.

“While the government had wasted lots of resources in framing the rules, it has remained on paper,” he said. “Both police and courts are overwhelmed with monetary cases, mostly involving private money lenders.”

Another said that by using sales deed and fraudulent cheque writing, many private lenders are thriving in the black market. “Money lenders are operating with impunity without any fear of law or losing anything.”

The private money lending business initially operated with agreements, executed legally between parties but with borrowers contending before courts that they never borrowed or the amount was inflated with unreasonable monthly, weekly and even daily interest and many social problems associated with it, the RMA stepped in.

The new rule restricted private money lending to a maximum of Nu 500,000 a person with 15 percent interest rate annually. The minimum amount is Nu 90,000.

The RMA declared in 2016 that with the Private Money Lending Rules and Regulations (PMLRR) in place, there will be no informal private lending market, as it will be a formal one with registration and regulation.

But there is no regulation today. The rule only forced people to execute sales deed or fraudulent cheque writing. 

A borrower alleged that when monetary disputes reach court, rulings are mostly in favour of lenders, who get four to five times more than the principal amount. “If they lose, they at least get the principal amount.”

She claimed that minimal risk for lenders, although they commit the crime equally, encourages moneylenders to keep the black market alive.

Comparing it with drug dealer and drug addict, where the drug dealer always win, the entreprenuer said most of the borrowers are gambling addicts, who want money and are willing to do anything to get it. “Then, there is the other person taking advantage of the situation.”

Most moneylenders are landlords, business people, gamblers, civil servants, corporate and private employees, taxi drivers, sales girls and even prisoners. Lenders insist on conditions that borrowers arrange their own witnesses and make them sign multiple documents, which could be used in courts as evidence against them.

The private money lending business is not just a problem between the borrower and the lender.

According to the entrepreneur, moneylenders walk into houses, threaten the borrower’s family, shame them or even use police through the fraudulent cheque writing cases.

“They are misusing the justice system. When a lender lends money, he or she assumes the responsibility of a bank or a financial institution and it’s, therefore, their responsibility to check the repayment ability,” he said. “The justice system needs to be aware of this and they should take into account and ensure a penalty for the lenders too.”

He said lenders should leave the lending business to banks and other micro financial institutions. “The justice system should be aware of this. If the private money lending business stops, it will help society.”

As monetary dispute

Courts acknowledged that there were problems in implementing the central bank’s rules and regulations.

A judge said after the rule was implemented, most monetary cases came as sale of building, vehicles or land cases. “Litigants also backdate agreement dates to show it was executed before April 1, 2017, the day the rule came into force.”

Judiciary registered 3,185 monetary cases last year alone. Thimphu dzongkhag court’s commercial bench rendered judgement for more than 600 cases.

A judge said courts are put at a crossroad, as they cannot accept money-lending cases but when it is done legally by converting it to sales or purchase chase, they have to accept it. “Our legal structure is based on evidence. Borrowers sign any documents when they want money and contend its legality later.”

According to the judge, there were cases where a person lent less than Nu 90,000 to multiple people, as the rules state the minimum amount an individual could lend was Nu 90,000.

Another judge said in fraudulent cheque writing cases, courts convict litigants found guilty of the crime but do not recover the money if it is money lending. “To recover the money, it should go as commercial or civil cases.”

He also said money lending cases are complex, as parties execute agreements deceptively and put courts in a fix. “If we consider the agreement null and void, the borrower benefits. If we accept the agreement, we would be legalising money-lending cases. Justice is about protecting rights.”

Thimphu police registered 44 fraudulent cheque writing cases last year and 18 this year.

Police officials explained while some could be used by private money lenders, borrowers cheat lenders by issuing cheques although there is no money in their account.

Meanwhile, RMA’s chief general counsel, Damche Tenzin, said they amended the rules and increased the lending ceiling to Nu 5M in July this year.

He said they cannot come after every private money lender in the country, but they monitor only registered moneylenders. “Initially four private money lenders registered but two did not renew,” he said.