The Supreme Court decision, even if heavy-handed to penalise both the lender and borrower, could resolve an issue that has become rampant. 

Even with regulations, lending and borrowing money outside the formal financial apparatus is widespread. 

The so-called private money lending business has become a part of the system. It is a crude, daylight robbery, yet an indispensable arrangement or a source of funds for many.

Stories are aplenty about how borrowers have become victims to what is known as loan sharks. Lending money privately was formalised with the Private Money Lending Rules and Regulations. It may have curbed misuse, harassment and the many socioeconomic ills that came with it, but the rules are not foolproof.

The business of lending money is so lucrative that both parties are ready to take risks and breach regulations. Even as we discuss the Supreme Court verdict, many lenders and borrowers must be feeling uneasy. 

Like the highest court found out, there are many ways money is lent or borrowed circumventing the regulations. Agreements are made to fool the courts and, therefore, we have agreements on buying or selling vehicles, land and other properties as a pretext to lend or borrow. To ensure that the money is returned, family heirloom, ornaments – the value of which is way above the amount are pledged or asked. Before the regulation came into force, lenders specify the principal amount lent including the interest to ensure that the money is recovered with interest should it reach the court of law.

While lending money privately has helped those without access to finance for whatever reasons, it has often become problematic. Some would have paid double or triple the amount borrowed because of the nature of the interest charged. It is said that some children have inherited loans their parents owe to private money lenders. 

That’s why the Supreme Court’s verdict is important. For the first time, it penalised both the lender and the borrower. The penalty seems harsh – asking the principal amount to be deposited in the government coffer and imposing hefty fines. But this will teach those trying to cheat the system a good lesson. The recent verdict is a good example of the consequences of fine-tuning ways to violate rules.

Resorting to borrowing money outside the financial institutions is not new; people have been borrowing cash or kind (grains). The difference, however, is the purpose. In the past, farmers borrowed money from the village headman or the jinda  (rich or affluent) to buy cattle, supplement food ration or send the children to schools. While some may still be borrowing out of desperation, many cases result from avoidable activities like gambling. 

In the meantime, access to finance has improved many initiatives and some banks with social mandates to help those without cash income. There are also financial literacy programmes that could help people decide whether to borrow or not.  

The best lesson, however, is in the old saying – Bulon men chup (He is rich who does not owe a penny to anyone.)