How the state is failing the poor as they fall prey to loan sharks
About eight years ago, Hridayash Kurmi from Ratanganj, Susta Rural Municipality-5 in Nawalparasi took out a loan of Rs 100,000 from Sunil Kumar Gupta, a moneylender in the village, to go to Qatar to seek employment abroad. But he returned within eight months after failing to find the promised job. He was well aware of the fact that he had a loan of Rs100,000. What he did not know was the interest on the loan.
According to Mansa, his wife, they sold the land they had mortgaged and paid 238,000 rupees three years ago. But the couple were shocked when the lender said they still owed them money.
“We are being asked to pay another 400,000 rupees,” Mansa said. “We are struggling to make ends meet; where can we bring the money from?
Saraswati Musahar, 65, another Ratangunj resident, told a similar story. According to her, her husband Ram Shubhak had taken a loan of Rs 150,000 from Baburam Shubhak when his two sons decided to work abroad. “The money sent home by his sons was used to repay the loan to Shubhak,” Saraswati said.
According to Ramnath Musahar, Saraswati’s eldest son, the two brothers sent home around Rs 1,200,000 which was used to repay the loan. Moreover, they sold their family’s land and paid another 1,800,000 rupees to the lender.
“But the lender is still saying we owe them Rs 5,000,000,” Ramnath said. “Our father went to Kathmandu to seek justice. Where else to go?
It has been almost two weeks since Ram Shuvak and Hridayash Kurmi from Ratanganj, along with six dozen villagers, have been in Kathmandu.
After their continued protest in Kathmandu demanding government action to rid them of unjustified interest charged by loan sharks, the Interior Ministry on Friday formed a task force to look into the matter. Talks between the task force and the victims of loan sharks failed, however.
The villagers of Ratanganj are not the only ones in Nepal to be victims of loan sharks. Often called “meter byaj” colloquially to designate the interest, already very high at the time of contracting the loan, increases “as fast as a meter turns”.
Experts say these loan sharks often prey on poor, illiterate villagers, who desperately need money but don’t know how the interest rate works.
A loan shark is a person or group who lends money at extremely high interest rates and often uses threats of violence to collect debts. These loan sharks operate outside the law, which often makes it difficult for law enforcement to crack them down. Loan sharks can also be members of organized criminal groups, which often makes lenders afraid to report that they have been cheated.
Interior Minister Bal Krishna Khand formed the task force led by Joint Secretary Bhisma Bhusal on the instructions of Prime Minister Sher Bahadur Deuba.
The task force includes Chief Superintendent Dinesh Acharya who is part of the Nepal Police Central Bureau of Investigation; Home Ministry Under-Secretary Shree Krishna Poudel; Superintendent Krishna Prasad Koirala of the Nepal Police Criminal Investigation Section; and the Deputy Director of Investigations of the National Investigations Department Mukunda Marahattha as members.
Deputy Superintendent Roshan Khadka, who is part of the Central Bureau of Investigation, was appointed as a secretary member of the task force. The task force has one month to complete its investigation.
The task force has been mandated to visit the affected districts to find out why loan sharks are active, ways to control these illegal operations and bring the culprits to justice.
Although the task force had discussions with the victims who are staging protest sit-ins at Maitighar Mandala in the capital over the past 10 days, the task force members could not convince them to end to their struggle.
“We don’t expect the task force to solve our problems,” said Ram Surat Gupta, chairman of the Meter Byaj Kisan Sangharsha Samiti. “Our friends are not convinced, so we will continue our protests and more of our friends are coming to Kathmandu.”
Financial experts said access to finance for small retail borrowers is extremely expensive and unavailable and no effort has been made to facilitate these borrowers through appropriate policy and institutional structures.
“It is also related to the political protection of those who fund politicians by earning that profit,” said Achyut Wagle, a professor at Kathmandu University’s School of Management. “They don’t even have access to cooperatives which have been like a huge cartel of their groups.”
According to Wagle, credit unions are mostly centered in cities where other banks and financial institutions predominate.
“This committee must not be a window-bashing practice because the roots of the problem run very deep and the task force must be able to expose it,” Wagle said. “But given the structure of the committee, there’s not much reason to be hopeful because they can’t understand the problem.”
This incident, Wagle said, also revealed the country’s status on access to finance and these issues of access to formal financial services and financial education should be mainstreamed into government policies.
According to Wagle, local governments could help these people by designing some mechanisms so that the victims can be relieved.
“We can have two solutions, we have to penalize the parties in error in a way that sets a precedent,” Wagle said. “Local governments should regulate small loans to individuals.”
Since the problem is deep-rooted, it also has links to the country’s black market, experts say.
“A lot of loan sharks are just black market agents, and that link needs to be severed,” Wagle told the Post. “It’s all about supply and demand. You can’t solve problems by booking a few people. The government should think of a long-term solution.
Another expert, Rameshore Khanal, said that farmers do not have access to formal financial channels which leads them to loan sharks as they need money immediately and most of them also do not have collateral to obtain the loan.
“I think the government could set a certain interest rate used in rural areas as a ceiling and start cracking down on loan sharks,” Khanal told the Post. “The government should have formed a committee giving more time to study this problem across the country so that its report could be useful in developing appropriate financial policy.”
He said the victims were generally from the lower strata of society and the problem was rampant across the country, including the capital, but with different names.
Khanal said the government should ensure that no one can collect more than double the principal amount in interest.
The joint secretary coordinator of the task force, Bhisma Bhusal, said he listened to the woes of the victims who had different stories. “We told the victims to collect as much evidence as possible and ask similar victims in different districts to select a focal person to collect this evidence,” Bhusal said. “We plan to visit several districts next week to investigate the matter.”
Bhusal said the task force includes officials who are experienced in investigating financial crimes, so he can find ways to solve the problem after studying in different parts of the country.
“During our meeting with the members of the task force, we were asked to end our protest sit-in, but we are not convinced yet,” said Uma Shankar Loniya, secretary of the committee formed by the victims. . “We will continue our protests.”