The Bhutanese Leading the way.
In the backdrop of financial institutions freezing loans due to the rupee crunch, private money lending has become a thriving business in the country though the procedures are illegal.
This business is also rampant mostly in gambling dens. There are money lenders thriving on the spending sprees of gamblers, said a source who spoke to The Bhutanese.
Gamblers when they have no self control over themselves simply sign on any kind of agreement as long as they get fast cash and continue to gamble.
No lender other than a registered financial institution which has been duly licensed to engage in the extension of credit may charge interest greater than 15 percent per year expressed as a simple annual rate, according to section17 of the Moveable and Immoveable Act of Bhutan.
But the source who wished to remain anonymous said that there are cases where private money lenders charge between 10 to 12% interest per month.
Out of the 157 monetary cases filed with the district court since January this year, only 16 cases were filed by financial institutions.
The rest of the 141 cases were filed by private money lenders.
While there is no law which states that private individuals are not allowed to do money lending business, there are certain procedures to be followed set by law.
But borrowers who want quick money sign an agreement and take money from money lenders often resulting in disputes.
An eminent judicial expert from the District Court said, “Most of the private money lenders despite knowing the fact about the 15% interest rate per annum add a certain amount of interest to the capital and mention it as capital in the agreement which bears the signature of both the parties.”
For instance, the lender lends an amount of Nu 1mn as the capital but later adding up around Nu 0.5mn of interest to the capital claim that the actual amount borrowed was Nu 1.5mn.
So the Nu 0.5mn becomes the usury amount which is a punishable offence, from the legal point of view.
Section 398 of the Penal Code of Bhutan states that the defendant who receives any property and money as interest on loan or forbearance of any money or property at an interest rate that exceeds the rate offered by law is guilty of offence of usury.
“The agreement does not talk about the interest and the borrower signs it initially because they are in need of money but after signing such agreements there is no way out,” said a judge from the district court.
The anonymous source also told The Bhutanese that he has witnessed cases where the actual amount lent to the borrower was not given physically to the borrower but they sign an agreement stating that they received the exact amount.
“A certain amount of money is taken back by the lender as an interest for a year,” he said.
Legally when such cases go to court, the courts are bound by evidence of first degree which is a written agreement of sale or loan.
Usually, such lenders work on the business so cleverly that they don’t have any witnesses physically at the time of executing the agreement.
They will have later on collected individuals at different places and signed them as witnesses.
These witnesses usually have no knowledge of whether the said amount was practically lent or not in reality.
Here the agreement is processed in an illegal manner which fails to fulfill the conditions stated in Section 35 of the Evidence Act of Bhutan.
A Registrar from the district court says that in most of the cases filed by private money lenders, the agreements are not processed according to law.
“Most of these businesses are done in an unlawful manner,” he said.
Shera Lhendup from the Sayang Law Chambers feels people who take advantage of those in dire need and are willing to go beyond the moral permissible limit, charging exorbitant rates are taking utmost advantage of the underdog.
Again there are cases where some lenders take cheques against the agreement signed as a proof of payment due.
But Shera Lhendup, said, “We should be able to read that if the borrower is able to issue a cheque having that much equivalent money in the bank, there was no need to borrow money.These things are done by the lender to secure their own money.”
“That can be a proof to point out that the transaction was illegal,” he added.
However, he feels that such money lending business should be continued stating “why criminalize which has never been a crime”.
In order to get a loan from a financial institution, an applicant has to prove that he or she has securities and collateral to secure the loan after which there is a cumbersome process to follow. Shera Lhendup said that at times people are in such urgent need for money that they agree to pay any amount of interest. “What is at stake by not paying is much higher than the interest one owes to the lender.”
“To save the greater cost, we have to bear a smaller loss,” added Shera Lhendup.
