Financial Daily from THE HINDU group of publications
Wednesday, Jan 11, 2006
Agri-Biz & Commodities - Insight
Columns - Down to Earth
The moneylender surfaces again
The widow of a farmer who committed suicide in Yavatmal, in Maharashtra. It seems unfair to lay the entire blame for the farmers' misery on local moneylenders. Picture by P. Sainath
While the experience all over Vidarbha is that the farmers are driven to suicide in desperation at the extractive methods used by the cooperative bank officials, Yavatmal has a different story to tell. Yavatmal used to be district of ijaardaars petty landlords who held about a hundred acres of land. It is understandable that some ijaardaars lent money to the farmers in the village. Some ex- ijaardaars probably do so even today. While private moneylenders have mostly disappeared, there are about 100,000 registered moneylenders in Maharashtra. Some of them, probably, operate in Yavatmal.
In other districts also, farmers do go to private moneylenders and borrow money. The private moneylenders are in no position to use coercive methods to recover their loans. The Maharashtra Government is actually asking the farmers not to repay these loans. In any case, what the moneylenders can do is innocuous compared with the kind of methods that are used by the cooperative or commercial banks.
The leaders of ruling coalition have decided, nevertheless to lay the blame for the high incidence of suicides in Yavatmal on the private moneylenders there. They have dug out a couple of cases where farmers allegedly took loans from the private moneylenders. Not only the government authorities, including the Deputy Chief Minister, but also a well-known TV channel, have been devoting a lot of time to indicate that the prime reason for the farmers' desperation were the brutal methods used by the private moneylenders to recover their loans.
It is remarkable that this accusation does not stick. Even the TV channel was embarrassed when in front of their cameras, ordinary farmers made it clear that the government officials were joining hands with some of the distressed farmers to convert transactions of sale into loan operations and that the purchasers in the particular cases were hardly in position to lend thousands of rupees to any farmer whatsoever. Indeed, to a perceptive observer, the alleged `moneylenders' looked more like landless labourers trying to acquire some land through a straight purchase.
At the dawn of Independence, `private moneylenders sahukars and their operations' were big issue. In the heyday of socialism, private moneylenders and zamindars became the prime targets of political rhetoric. Nobody talked of agriculture being a losing proposition. The entire blame for peasant misery was put on the devious practices of the moneylenders and the zamindars. The two institutions were suppressed expeditiously.
It was quite clear that even after the abolition of private moneylenders, agriculture continued to be a losing proposition. Farmers continued to be heavily indebted and often driven, in desperation, to suicide. The abolition had one notable result. The agricultural surplus, instead of remaining in the countryside, started moving to the urban areas. That, to all evidence, was the real motive.
Are private moneylenders the main cause of the farmers' misery? Among the invitees at a recent seminar on the challenges in agriculture, were a large number of executives who represented the financial institutions and the Maharashtra government. Surprisingly, the farmers themselves went unrepresented, as pointed out by Dr Goel, the Maharashtra Agriculture Commissioner.
Though there was nobody to speak for the farmers, as such, a number of participants representing the financial sector pointed out that the private moneylender has his own place and justification, and could be better regulated in order to improve the resources available for agriculture and to augment investment in the farm sector. Remarkably, the participants included Mr Nachiket Mor of the ICICI Bank who, coincidentally, hails from Yavatmal. Mr Mor and others observed:
"Agriculture is being starved of genuine homegrown credit institutions. Those who had a certain financial capacity have been scuttled out in the 1950s and are being further targeted now. Further, the exit policy for agriculture does not permit any new enterprise or finances to come in the field of agriculture, even for operational purposes.
"The venomous campaign against the traditional rural credit institutions carried out in 1950s succeeded because of the gullibility of the farmers who thought that the replacement of moneylender by the more benevolent sounding cooperative primary societies would do them good. The political domination of cooperative societies has shown that the cooperative societies are even worse than some of the private moneylenders.
"While there have been a lot of arguments about the rates of interest charged by the moneylenders, economists agree that the ground rates charged by the moneylenders are consistent with the level of risk involved in the lending operation as also the extra facilities given by the private moneylender about making the credit readily available any time of the day, any time of the week, any time of the year. Further, the effective rates charged by the cooperative banks do not appear to be any more lenient than those of the private moneylenders.
"Recently the Reserve Bank of India (RBI), following upon a judgment of the Supreme Court, has issued orders that the farmers should be charged interest only at annual rates and that the interest should be compounded only in cases of default.
"While the commercial banks have been following this edict of the RBI, most of the cooperative banks do not follow the instructions of the RBI and even the RBI does not appear to be particularly enthusiastic about ensuring compliance with its own orders."
The group further felt that "the improvement in investment levels and financial credit to agriculture would require:
I do not hold any brief for the private moneylender. It is undoubtedly true that private money lending became a flourishing business only after the British imposed revenue payment in cash.
Even the better-off farmers found it difficult to raise the money required for the payment of the revenue and had to resort to borrowing from private moneylenders.
It is also understandable that some of the moneylenders, given the caste structure of the society, used both illegal and immoral modus operandi for their recovery activities.
In 1950s, the private moneylender was driven out, and it has left the farmers in a lurch. The informal credit organisations continued to work and are still the source of the major part of credit available to the agriculture.
Do we need to stoke the fires of communal hatred and revive the old anti-moneylender tirade at the present juncture? Or do we need to find a rational and local solution in the interest of agriculture?
(The author is Founder, Shetkari Sanghatana and Member of Parliament, Rajya Sabha. Feedback can be sent to email@example.com)
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