BANKING TRADE AND COMMERCE
SECTION I -BANKING AND FINANCE
Money-lenders: The institution of money-lenders is as old as money itself. Money-lending was a profitable business and any individual who saved a part of his income used to practise it by force of habit and custom. However, there was no law which regulated the money-lending business which took various forms ranging from indigenous bankers to ordinary shop-keepers. The following paragraphs detail the history of money-lenders as given in the old Gazetteer of Ahmadnagar district published in the year 1884:-
"Money-lending: Most of the money-lending is in the hands of Marwar and Gujarat Vanis. A considerable number of local Brahmans and a few Chambhars, Kasars, Koshtis, Kunbis, Lad and Lingayat Vanis, Musalmans, Sonars, and Telis, and others having capital also engage in money-lending. Fifty to seventy-five per cent of the money-lenders are Marwaris, ten per cent Brahmans, and the rest are local Vanis and others. Money-lending is not the lender's sole pursuit. About sixty per cent are traders including grocers and cloth-sellers, and forty per cent are husbandmen, and others. Marwari and other Vani lenders are rich traders or shop-keepers. Brahman
lenders are land-holders and sometimes Government pensioners, and Musalman lenders are land-holders and sometimes shop-keepers.
Of all lenders the Marwari has the worst name. He is a bye-word for greed and for the shameless and pitiless treatment of his debtor. Some say Brahmans are as hard as Marwaris, others say they are less hard. Almost all agree that, compared with Marwari and Brahman creditors, Marathas, Kunbis and Gujarat Vanis are mild and kindly. A Marwari will press a debtor when pressure means ruin. The saying runs that he will attach and sell his debtor's cooking and drinking vessels even when the family are in the midst of a meal. Brahmans, whose position in society tends to make them popular, are shrewd and cautious in their dealings, and as a class avoid extreme measures for the recovery of their debts. A Gujarat Vani, a Maratha or a Kunbi creditor will seldom ruin his debtor. It is not easy to make money-lending pay. Want of experience often leads to loss of capital. Except when their immediate interests clash money-lenders as a class are friendly to each other, avoid competition and deal honestly among themselves.
Rates of interest: The rates of interest which prevailed in the year 1839-40, were classified into three categories, viz., vyaj (interest in cash), manuti (interest in grain), vyaj-manuti (interest in cash and grain). Two extremes of the rate of interest in cash, viz., twelve per cent and cent per cent were noticed. In a few instances vyaj-manuti system was followed in the district. Interest on grain advances consisted of half as much or as much as the quantity advanced, and was equal to the rate of fifty or a hundred per cent for a period of six or eight months. The vadhi system prevailed during the period of June to October as this period was marked by scarcity of grain. In this system, the rate of interest used to be in direct proportion with the scarcity of grain.
The vadhi system originated in the acute scarcity of grains existing from sowing to harvest time. The main victims of this system were husbandmen who needed grain for food and seed.
Grain advances: A common practice among land-holders is to borrow grain for seed and for home use, agreeing to return it at the time of the harvest with an increase of fifty per cent. This, as is noticed above, is called the vadhi didhi or increase to one and a half. One great disadvantage of this practice is that in bad years when the borrower has no grain in store and grain prices are high, the lenders demand the equivalent in money and get a bond for the same, interest being fixed at ½ anna the rupee or about 37½
The mode of operations of the money-lenders underwent quite a few changes during
the last eighty years or so due to the expansion of banking organisations in the
district, and the important role played
by the co-operative agencies in the supply of credit. The progressive legislation aiming at emancipation of the indebted masses from the nefarious activities of money-lenders sought to regulate the money-lending business and to bring them under the purview of the rules and regulations. The Government in independent India also adopted a number of progressive measures for granting financial assistance to the agriculturists which is calculated to narrow down the scope of exploitation by the unscrupulous money-lenders. State intervention in the traditional malpractices in money-lending activities coupled with the growth of co-operative societies, establishment of the State Bank of India and the nationalization of 14 major scheduled banks, has had a salient effect on limiting the evils of money-lending business.
Acording to the All-India Rural Credit Survey conducted by the Reserve Bank of India in the year 1951-52 the private agencies taken together supplied about 93 per cent of the total amount borrowed by cultivators. Of this, money-lenders accounted for nearly 70 per cent of the credit.
The money-lenders stand in a class by themselves as compared to indigenous bankers. They do not accept deposits from the public and are not particular about the purpose for which the loan is taken. They also do not insist upon security unlike the indigenous bankers. Their methods of lending are simple and flexible, and the people, especially the farmers, find it easy to accommodate and adjust themselves to the conditions laid down by them.
As a class they include a conglomeration of individuals, very few of whom carry on money-lending exclusively, while a number of them are engaged in other business as well. The clientele of the moneylenders in urban areas belongs to the merchant community, the working class, salaried employees and occasionally indigenous artisans. The village money-lender, on the other hand, advances loans usually to agriculturists and landless labourers.
A high percentage of them were reported to be indulging in nefarious practices while dealing with the public and were said to be following the most harsh and coercive methods in the recovery of loans from their clients. The farmers unable to pay their dues due to conditions of extreme poverty fell easy victims to the exacting practices of the money-lender. The client usually received less than the sum entered in the bond. Many times proper receipts were not passed for the instalments paid. A number of methods were adopted to exploit the farmer to the fullest extent and at times even to attach his most valuable possession - land.
The Central Banking Enquiry Committee of 1931 listed many malpractices of the money-lenders such as demand of advance interest, taking of thumb-impression on a blank paper with a view to inserting
any arbitrary amount at a later date, if the debtor became irregular in payment of interest, general manipulation of the account to the disadvantage of the debtor, insertion in written documents of sums considerably in excess of the money actually lent, taking of conditional sale-deeds in order to provide against possible evasion of payment by the debtors, etc.
The Agricultural Finance Sub-Committee appointed by the Government of India under the chairmanship of Prof. D. R. Gadgil in its report of 1945 thus noted:
" While it is true that the money-lender is the most important
constituent of the agricultural credit machinery of the country, it
is not possible to justify many of his practices and the charges he
makes for his services. Very often these charges are out of all
proportions to the risk involved in the business and constitute only
exploitation of the borrower. Nor is the agricultural economy of the
country in a position to bear the strain of his extortion. The credit
dispensed by him instead of contributing to the agricultural
prosperity of the country serves as a serious drag on it."
Bombay Money-lenders Act of 1946: It is with a view to checking
such objectionable practices of the money-lenders and to relieve the
agriculturists from their clutches that the Government of the then
Bombay State enacted the Bombay Money-lenders Act in 1946 which
was made applicable to the district from 17th September 1947.
The Act was subsequently amended in 1948 and afterwards. The important amendments made were the introduction of 4-A and 5-A forms and the " Pass Book " system, provision of calculating interest on katmiti system and facilities to certain classes of money-lenders permitting them to submit quarterly statements of loans to the Registrar of Money-lenders. Further amendment was effected in 1955 by which money-lending without licence was made a cognizable offence. In the following years special measures were adopted for protecting backward class people. Thus, Registrars and Assistant Registrars were instructed to take special care while checking the accounts of money-lenders in respect of their transactions with backward class people.
The regulations enacted by the Government were not entirely partial to the debtors. In order to ensure a steady supply of credit from the money-lenders, the structure of interest rates was revised as from 5th July 1952. Accordingly the maximum rates were raised from six to nine per cent per annum on secured and nine to twelve per cent on unsecured loans. The money-lenders were also allowed to charge a minimum interest of a rupee per debtor per year, if the total amount of interest chargeable according to the prescribed rates in respect of the loans advanced during the year amounted to less than a rupee.
The money-lenders, however, did not favourably react to this revision of the structure of interest rates.
Table No. 1 indicates the total business transacted by the moneylenders in the district during 1965-66 and 1971-72.
The above table shows that during 1965-66 there were 139 registered money-lenders in the district, while at the end of 1971-72 the number increased to 217. But the total advances made by these money-lenders decreased from Rs. 93.59 lakhs in 1965-66 to Rs. 86.40 lakhs during 1971-72. Loans to traders and non-traders were 8 per cent and 92 per cent, respectively, while during 1965-66 the percentages were 25 and 75. The non-traders category mainly consists of cultivators and have smaller percentage of loans to non-traders. This might be due to the expanding activities of co-operative societies. It is significant to note that during 1971-72, out of the total loans of Rs. 86.40 lakhs granted by all money-lenders in the district, a large amount to the extent of Rs. 44.88 lakhs had been granted by money-lenders in Kopargaon taluka alone.