Last month, Telugu papers in Andhra Pradesh reported that the police were investigating complaints that some moneylenders charging exorbitant interest rates were sexually exploiting defaulting women borrowers in Vijayawada.
The loans were extended as “call money”, a term referring to a form of informal moneylending that requires repayment of principal at the end of the day. It is called “call money” since credit is delivered to the borrowers with one phone call and at their doorstep. The tenure of the loan is always one day with interest deducted upfront at the time of disbursal. At the end of the day, the borrower has to repay the total amount borrowed in lump sum.
Here is an illustration of how call money works: for a one-day loan of Rs 1 lakh made at 10% interest, a lender disburses Rs 90,000 in the morning, deducting the interest upfront. The borrower has to repay Rs 1 lakh by the end of the day, with the exact timing varying from 6 pm to 10 pm. The upfront interest deduction varies with the interest rates. In case the interest on the loan is 20%, then a sum of Rs 20,000 on a loan of Rs 1 lakh is deducted upfront as interest and the balance is disbursed.
Until around 3-4 years ago, these loans were small or would rarely exceed Rs 1 lakh and never required any collateral. In an overwhelming number of cases, the loans were less than Rs 10,000. Large loans were usually offered only to those who had a prosperous business – preferably shops with large cash flows or other means of repayment. But in recent times, call money loans have often run into crores of rupees.
Crackdown on call money lenders
After the press highlighted a number of cases in which defaulting women were forced into the sex trade, hundreds of borrowers lined up outside police stations to register complaints against lenders. They were accused of harassing borrowers, assaulting them, forcing them to give sexual favours in the face of default, grabbing their property and other assets, apart from charging exorbitant interest rates up to 40%.
In the 10 days after the first cases were reported, the police arrested 300 lenders in different parts of the state, confiscating thousands of signed, blank non-judicial papers, blank promissory notes, signed blank cheques, ATM Cards belonging to borrowers, and other property documents in hundreds of raids. In Vijayawada city alone, nearly 500 cases were filed against moneylenders, including women.
The crackdown culminated with the passage of the Andhra Pradesh Money Lenders Bill 2015 by the state legislative assembly on December 22.
Long history
For all the public outrage over the call money racket, this is not the first time that borrowers in Andhra Pradesh have faced problems with lenders who charge exorbitant interest rates and use coercive loan recovery techniques. The region has a history of imprudent lenders and borrowers. As long ago as 1895, the British Colonial Administrator FA Nicholson had classified lenders in the region into nine different classes based on 14 purposes for which they lent money.
More recently, episodes relating to arrest of illegal financiers charging high interest rates occurred in Vijayawada in 2004, 2005, 2010, 2012 and 2013. The state also saw a microfinance crisis in 2010 that resulted in a number of suicides by borrowers due to coercive recovery loan practices.
These episodes had a predictable lifecycle. During the 2013 and 2014 episodes, public outcry over the excesses of illegal moneylenders led to adverse media coverage and a police crackdown that concluded in the arrest of lenders. Invariably, these were always forgotten after a few days.
What’s different now
The 2015 episode has a number of important characteristics that indicate a departure from the past. This is the first time that the sexual exploitation of borrowers was reported. Never before have so many incidents been reported wherein lenders do not return the promissory notes, blank cheques or property documents even after the loan has been repaid. Never before have so many borrowers in different parts of the state lined up police stations to lodge complaints.
More significantly, there is evidence now of moneylending becoming an important channel for laundering black money and/or money earned through illegal means, including corruption. One of the main accused in the call money racket is a senior employee in the electricity department’s transmission company, and another is the brother of a member of the legislative council. The Vijayawada Police Commissioner directed two Station House Officers (known as Circle Inspectors in Andhra Pradesh) to go on leave as their role was suspect.
Another change is the widespread interest in the business by people affiliated to political parties. Almost three-fourths of the moneylenders arrested are active in politics and are affiliated to the major political parties, including the communist parties. It is indicative of the nature of the region’s business culture where business and politics are intertwined and deeply entrenched. This participation in moneylending by politicians or their immediate family members seems to have emboldened lenders to use coercive recovery practices with impunity.
The latest round of crisis has also exposed the rise of a form of lending that demands a borrower cough up a collateral and transfer the title of the property to the lender before the disbursal of the loan. Lenders are expected to transfer the ownership title to the borrower on the repayment of the loan. As larger amounts and property are at stake, it is not difficult to imagine the consequences of bets that go awry on both sides. Rising property values in the state meant that it became more attractive for lenders to use delayed payments as an excuse not to transfer the property back to the borrower, even after the repayment of a loan.
Larger issues
The present issue raises some important and largely unanswered questions. One, why does Andhra recurrently suffer from problems linked to informal moneylending and coercive borrowing? Two, why do people increasingly prefer to approach the police rather than any other regulatory or government agency for remedial action? The trust in the police was seen from the public outcry that forced the government to cancel the leave sanctioned to the Vijayawada Police Commissioner, Gautam Sawang, to visit his children studying in Australia.
There is a mistaken impression that informal moneylenders cater only to small, petty traders, hawkers or the poor. As the call money racket showed, the reality is that even those borrowing crores of rupees depend on informal networks. The borrowers include high-net-worth individuals and even promoters of stock exchange-listed companies who use the loans as a source of credit for their speculative activities or for their working capital needs.
One wonders if the recurrent crisis that originates in moneylending is merely a manifestation of the business culture of the region that spawns and soon forgets such crises?
The writer is an independent researcher currently based in Vijayawada, Andhra Pradesh.