In this article we will discuss about:- 1. Meaning of Moneylenders 2. Working of Moneylenders 3. Importance.
Meaning of Moneylenders:
Moneylenders are those whose primary business is moneylending.
They are classified into two categories:
(a) Professional, and
The professional moneylenders are those whose primary business is moneylending. On the other hand, the non-professional moneylenders are those who are engaged in some other profession but whose side business is moneylending.
They include landlords, agriculturists, merchants, traders, rich widows, pensioners, advocates, teachers, or any other person who has got surplus money. The professional and non-professional money lenders operate both in rural and urban areas. But this division is not water-tight because an urban merchant may also lend to a farmer whose produce he buys.
Working of Moneylenders:
The functions of moneylenders are:
(1) The main function of moneylenders is to give short-term loans. Loans may be given for consumption purposes, to meet social and religious obligations or the needs of farmers for seeds, cattle, fertilisers, etc.
(2) Loans are generally given on the personal security of borrowers. However, grant of loans on the security of costly things in urban areas and against land or crop in rural areas; is also common.
(3) They have personal contacts with the borrowers who approach them directly and informally,
(4) The moneylenders normally lend their own funds.
(5) The non-professional moneylenders prefer to lend in kind.
(6) Since the moneylenders have a personal knowledge about the creditworthiness of borrowers they adopt rigid or flexible attitude while lending, charging interest, and recovery of loans.
(7) They charge excessively high rates of interest.
(8) The moneylenders in rural areas are quite influential persons who adopt pressure tactics in the recovery of loans, such as forcible occupation of the cultivator’s land, caste disapproval, pressure from panchayats, etc.
(9) The moneylenders also resort to some malpractices in rural areas which are: manipulating accounts, deducting interest in advance, demanding presents, exacting free services from the borrower, demanding donations, obtaining thumb impression of borrower on blank paper, non-issue of receipts for payment of interest and principal, keeping the deed of land or house of the borrower as a security, forcing the borrower- farmer to sell his produce in advance at a price lower than the market, etc.
Importance of Moneylenders:
The importance of moneylenders is immense in rural India because of the inadequacy of institutional financing agencies like commercial banks and cooperative banks. They meet the short-term monetary requirements of farmers, landless agricultural workers, marginal farmers, rural artisans, and petty shopkeepers and traders. They give loans for consumption needs, for social and religious ceremonies, and for such productive purposes as seeds, fertilisers, cattle etc.
The professional moneylender is more useful because he also provides articles of daily requirements. There being personal contact with the moneylender, the borrowers approach him directly and informally. Generally they get loans on personal security. As the moneylender is known to every borrower personally, the former is in a position to get the loan easily. A moneylender is often regarded as the friend, guide, and helper of the people in rural areas.
The importance of moneylenders can be assessed from the All India Rural Credit Survey Committee’s findings that in 1950-51 professional and agricultural moneylenders accounted for nearly 70 per cent of the total borrowings of cultivators, and only 7.3 per cent was contributed by the organised institutions like commercial banks and cooperatives.
The All India Investment and Rural Debt Survey estimated that in 1960- 61 the moneylenders accounted for 49 per cent of the total borrowings by farmers.
During the British rule in India, a number of Provinces passed Acts in 1938 to restrain some of the objectionable practices of moneylenders, such as provisions for registration, licensing, and regulation of their activities. But these Acts remained on paper.
However, after nationalisation of 14 banks and with branch expansion and opening of rural banks, and strengthening of cooperative banks, the hold of moneylenders on rural credit has become weak.