Law to rein in loan sharks restricts money lending, hitting the needy

By Nayak Paudel,Janakpur, June 4: When gambling was rampant around Durbar Marga area of Kathmandu more than a decade ago, there used to be individuals with cash to lend. However, there was a rule for the borrowing.

"It was the time when there were metres on the outer part of the taxi driver's door. People used to say that the interest rate for the money borrowed from the loan sharks ran like the taximetre. It was how the word 'metre byaj' came into existence," said an official at the Commission for the Investigation of Loan Sharking (Metre Byaj).

As published in the Nepal Gazette on April 17, the three-member Commission for the Investigation of Loan Sharking (CILS) was formed to investigate the cases of loan sharking.

The commission was formed as a result of multiple marches of loan shark victims to the capital city of Kathmandu from the Terai districts on foot demanding justice. 

While the prevailing law allows personal lending at a maximum interest rate of 10 per cent per annum, it is accepted only in words.

Loan sharks charge up to 36 per cent per annum and adjust their interest in the loaned amount. For instance, if an individual seeks a loan of Rs. 500,000 for three years, the loaned amount in the agreement is kept at around Rs. 750,000 so that the 10 per cent interest rate is covered.

Nevertheless, many loan sharks do not return the collateral until they pay more. Mostly, either land or a cheque is kept as collateral. If the extra amount is not paid, the loan shark either denies returning the land or files a case under cheque bounce to terrorise the victim.

While the establishment of the commission and the implementation of the ordinance have been applauded by the victims as they see a ray of justice, it has also led to some problems for the victims, especially the borrowers, who are indigent.

What do the amendments state?

People were found tampering with the agreement papers, collecting more than the agreed amount and not returning collaterals despite paying the agreed amount. The amendment ordinance has penalised unscrupulous lending, forging agreements (tamasuk), demanding more money than the agreed amount or threatening the borrower, among others.

It has also provisioned a punishment of imprisonment of up to seven years and a fine of up to Rs. 70,000 for the violators.

The amendment also states the need to register an agreement of personal lending of over Rs. 100,000 at the respective ward office with a witness from both sides. 

The local government has also been given authority to investigate the property of the lender and receiver and transactions between the two parties in the future.

The public have also been requested to register any such agreement made after the National Criminal Code, 2017, came into effect at the ward offices within six months of the ordinance coming into effect.

Justice for victims

"Lending between two individuals has remained legal for years. However, cheating by either the lender or the borrower was not criminalised under the penal code which meant that the government would not fight the legal battle of the victims," said Gauri Bahadur Karki, chairman of the CILS.

Talking to The Rising Nepal, Karki, who is also a former chairman of the Special Court, said that an ordinance related to the amendments in the acts related to the Criminal Code, which was published in the Nepal Gazette on May 3, has criminalised unscrupulous lending."

"Once an agreement has been registered and authenticated by the ward office, the government will take the responsibility to return the borrowed money from the borrower and will not allow the lender to collect any more money than the agreed amount," said Karki.

According to Karki, the government has formed the commission and implemented the ordinance to ensure that neither the lender nor the borrower is cheated. 

Steps taken

A separate desk was set up in every District Administration Office (DAOs) across the country to receive complaints from the victims of loan sharking from April 30 to May 21. "We received around 21,500 complaints from 65 of the 77 districts. The complaints are being uploaded digitally from the DAOs. The majority of the victims are borrowers, but the lenders have also been cheated and victimised," said Ganesh Babu Aryal, a member of the three-member committee of the CILS.

An official at a DAO, under the condition of anonymity, informed that 108 complaints have been filed against a single individual in Sarlahi. 

Similarly, several DAOs informed that complaints have also been filed against elected representatives and political leaders.

Aryal, who is also a former deputy attorney general, said that a task force will be looking into the complaints from the respective district and the commission will facilitate in need. 

The task force is led by the respective district's assistant Chief District Officer and comprises representatives from Nepal Police, District Attorney’s Office, and other government officials as per the need.

According to the Dhanusha DAO, they had registered 400 complaints on the first day and 100 of them were solved the same day after an agreement between the two parties.

As the ordinance has granted authority to check the property of a lender or a borrower, tyrant lenders and borrowers have been found to be accepting the demand of the victims.

“We can sort out the complaints soon because the lender will receive his/her money as agreed and the borrower will also not have to pay more. If someone has paid more than the agreed amount earlier, it will also be returned. It is for the benefit of all,” said Aryal.

Corruption:  A major challenge

A woman in her 30s with infant daughter in her arms, to an Assistant Chief District Officer of Dhanusha, was saying, "Sir, the one who took our land says that he will buy the DAO as well as the court. I have come here to request you to not support the evil ones."

The woman was one of the daughters of Janak Kumari Thakur, 52, of Bateshwor Rural Municipality in Dhanusha district. Every member in Thakur's family, who is herself a teacher, is literate and has a job.  

However, some years back, Thakur took a loan of Rs. 100,000 and kept her land under hypothecation, the process of agreeing to use an asset as collateral in exchange for a loan. 

"I have already paid Rs. 550,000 which is more than the agreed amount few years back and went to the court which ordered in my favour, but the lender has not returned the land's ownership till date," said Thakur, who had arrived at the Dhanusha DAO to request authorities for justice as her opponents were "powerful". 

The majority of individuals visiting the desk collecting complaints against loan sharking at the Dhanusha DAO informed that they had little hope for justice because the government authorities throughout the Madhes Province were mired in corruption.

Thakur added, "This is how an educated middle-class family is struggling for justice. I do not speak much because I have seen how the impoverished ones suffer throughout Madhes."

"I have to visit the ward office and then the DAO to create the citizenship certificate for my son. I am collecting Rs. 5,000 for the purpose," said a man in his 40s who operates a fast-food shop along the bank of the Ganga Sagar Pond in Janakpur.

"Physical development is visible throughout Madhes as hospitals and roads have been constructed. However, service delivery is still mired in corruption. We all know the scenario but none can act against the entrenched tyranny in Madhes," he added.

Money lending reduced

"A lender in our village has stopped lending money since the ordinance came into effect. I only needed around Rs. 20,000 and would have returned it within 15 days. This is the third time I am visiting this office for the loan," said Shanti Yadav as she waited in the stairs of a cooperative nearby Bhanu Chowk, Janakpur.

According to Yadav, she would prefer metre byaj over visiting a cooperative or bank as the loan shark would give the required amount as soon as collateral is decided.

In many districts, the DAOs have received a memorandum from struggle committees against the loan shark ordinance in the past few weeks.

"I take loan from banks and cooperatives and loan it further to needy people. However, after the ordinance came into effect, the ones who borrow the money claim different legal provisions and are denying to return the money," said Nawal Kishor Kapar, an individual who participated in a protest led by Dhanusha-Mahottari Lending Struggle Committee at Jaleshwor last week.

"Personal lending is legal under Section 474 of the National Civil (Code) Act, 2017. After the ordinance came into effect, people have started denying to pay the agreed amount. It has affected the investors," said Vijay Yadav, chairman of the struggle committee.

According to Yadav, lenders have stopped lending money following which people are struggling to pay for their children's education, religious ceremonies and health treatment, among others.

Way forward

The ordinance is expected to be endorsed by the parliament at the earliest after which it will be a permanent law. 

On the other hand, the government expects a detailed report from the CILS, within three months of its formation (when is that?), regarding recommendations for further steps to regulate personal transactions in an effective way.

"Money lending between two individuals is an integral part across the country, especially in Madhes. Poor people are often cheated as they are uneducated. They are also not provided with a loan by a cooperative or a bank easily. The lack of a proper money lending organisation for the poor is what fuels loan sharking," said Karki, chairman of the CILS.

The CILS informed that they plan to forward recommendation with provision of free health and education for all so that the need for money lending reduces automatically.

"Meanwhile, a system ensuring easy loan process for the poor is imperative," said Karki.