Raising question if the rules, intended to curb illegal private money lending, have served their purpose
The Royal Monetary Authority (RMA) has proposed amending and inserting 17 clauses in its Private Money Lending Rules and Regulations 2020 (PMLRR 2020).
The rules, initially framed in 2016 to regulate private money lending business, came into effect from April 1, 2017.
The draft proposal uploaded on the RMA website, proposes to amend seven clauses and include nine new clauses, along with the rationale for the amendment. It also defines private money lenders, who could be registered or unregistered with RMA.
The first amendment is section 7.1, where it states that courts can now admit and register all private money recovery suits if there is a prima facie case of lending, irrespective of agreements made after or before April 1, 2017 by registered or unregistered lenders. The maximum amount or ceiling of money for lending has been done away with.
The initial PMLRR does not allow unregistered or illegal money lenders to file recovery suits before the court.
RMA’s rationale for the amendment stated that courts have been dismissing monetary cases of private money lenders, who are not registered with RMA, putting money lenders at a disadvantage and borrowers taking advantage of the lacuna in the legal provisions.
It also proposed amending section 3.2 and 3.5 to specify the amount a private money lender could lend without registering with RMA and after registering with the authority.
The proposal to amend section 6.3 states courts would forfeit 25 percent of the principal amount if it finds private money lenders charge more than 15 percent per year interest; section 5.1 specifies the duties of borrowers and also states that, if borrowers fail to abide by the terms and conditions of the agreement, it would be considered an offence and punishable under the PMLRR.
The other proposed amendment is a penalty on lenders, both registered and unregistered. It states that if courts find any lender guilty of making fraudulent agreements in collusion with borrowers, the court shall consider the offence a violation, petty misdemeanour or misdemeanour.
The rationale for the amendment, according to RMA, is to deter lenders from violating rules and regulations.
The nine clauses to be inserted include case settlements by gups and mangmis, mandating lenders to file monetary cases within three years from the date of breach of the agreement, prohibiting private money lenders, both registered and unregistered, from making and signing fraudulent agreements and lending money beyond the ceiling prescribed by RMA, prohibiting borrowers from making and signing fraudulent agreements, and also borrowers should not accept interest rates above 15 per year and those failing to abide by it punishable under the provisions of PMLRR.
A new insertion also states borrowers would not issue a pre-dated as mode of loan payment and lenders should not solicit it. In the rationale, RMA stated that fraudulent cheque writing has become a common mode of repayment, where borrowers claim it was issued under duress. “Henceforth, borrowers will be penalised as per the provisions of PMLRR in accordance with the provisions of the Negotiable Instrument Act of Bhutan 2000 and as per the amendment 2021.”
On its website, RMA stated they are in process of amending and inserting new provisions in the existing PMLRR to strengthen existing provisions and bring more clarity on the obligations of lenders, borrowers and middle persons.
It was learnt the proposal for amendment and insertion was made in consultation with the judiciary.
Is PMLRR making any difference?
With only two registered private money lenders in the country today, many believe that the PMLRR did not serve its intended purpose of curbing private money lending at exorbitant interest, causing social problems and impacting families.
Going by the number of monetary cases in the court, which sources say is mostly through unregistered private money lending, putting in place the rules and regulations never deterred those in the business.
When first introduced, RMA officials said, with the rules in place, there will be no informal private money lending market and that RMA will take onus of monitoring the private money lenders.
But today, there are only two registered private money lenders. Private moneylenders said the PMLRR was restrictive and not practical, thereby discouraging people to register and do legal lending.
They said that instead of serving as a deterrence, the rules and regulations are encouraging people to do it illegally. “If PMLRR served its purpose, there should be many registered money lenders,” a source said.
They said the rules mandate them to report quarterly, have an office, telephone line and signboard when the interest rate and loan ceiling of Nu 500,000 is low.
“The only advantage we had was access to credit information and seeking judicial support to recover the loan,” a registered money lender, Chimi Dorji, said. “With this amendment, there’s no difference between registered and unregistered money lenders if courts would accept all cases. There is no preference for registering with RMA.”
He said his family registered, as they wanted to be law-abiding. “But the rules and regulations don’t provide a conducive environment.”
He said they even submitted their grievances to the RMA but none of it was addressed. He and his wife receive more than 30 to 40 calls a day from borrowers. “We don’t entertain loan request for smaller amounts because of the hassles and people genuinely in need of money are impacted.”
Speaking on behalf of the other registered money lender, Seldon, said many young people approached them with proposals but they cannot support, because of the loan ceiling. “Even the micro-financing institutions have better interest than us.”
Meanwhile, some of the legal practitioners have also raised issue with the draft proposal for amendment and insertion.
A judge questioned if RMA has the authority to add penal provisions in the rules and regulations. “No rules can prescribe penal provisions.”
The judge said grading of the offences could only come from the Parliament.
Another said there are many inconsistencies with the draft proposal itself.
A judge said involving judiciary officials to frame the rules and regulations is a direct conflict of interest, as it is the judiciary who will rule judgment on the cases.
According to judiciary report 2020, of the 3,657 civil cases registered last year, monetary cases top the list with 1,674 cases.