In the heart of Maharashtra's Vidarbha region, a region synonymous with agricultural distress and farmer suicides, a shocking procedural loophole has come to light. While farmers grapple with insurmountable debt, sometimes leading to tragic ends or desperate measures like selling a kidney, private money lenders operate with alarming ease. A recent investigation by the Times of India has uncovered that obtaining a licence to run a formal money lending business requires little more than an affidavit on a Rs 100 stamp paper.
The Alarming Ease of Becoming a Licensed Lender
The probe into the licensing procedure revealed a system that is startlingly simple. To officially start a loaning business, an applicant primarily needs to submit an affidavit on a Rs 100 stamp paper. This document must simply state that the government rules on the lending business will be fully complied with. A separate affidavit declares that neither the applicant nor their family members have been sentenced or penalised.
These affidavits are attached to an application form, available for Rs 500. The application also requires the applicant to mention the amount to be invested in the business, which most often does not exceed Rs 1 lakh. A bank statement serves as proof of the availability of these funds. If all papers are in order, sources indicate it may take just two months to secure a licence.
A Region Drowning in Debt and Despair
This revelation comes against a grim backdrop of chronic farm distress in Vidarbha. The region has witnessed countless farmer suicides, and recently, a debt-ridden farmer from Chandrapur was forced to sell his kidney abroad to repay loan sharks. Notably, the money lenders involved in those Chandrapur cases were operating without a licence and have since been arrested.
Official data paints a picture of a saturated market. In Vidarbha, there are over 2,900 registered private moneylenders. Chandrapur district alone has 248 officially recorded lenders. The Nagpur division, covering eastern Vidarbha, accounts for 1,800 licensed lenders, while the Amravati division in western Vidarbha has 1,100. These lenders are regulated by the department of cooperatives.
Rules Exist, But Reality Tells a Different Story
The government has set caps on interest rates to prevent exploitation. For farming purposes, the interest is capped at 9% for secured loans and 12% for unsecured loans. For non-farming needs, the rates are 15% and 18% for secured and unsecured loans, respectively.
However, the ground reality starkly contradicts these rules and the very purpose of licensing. In the Amravati division, a region severely hit by farm distress, official records show a paltry Rs 21 lakh was lent for farming needs—all in a single district, Washim. In other distressed districts like Yavatmal, Akola, Buldhana, and Amravati, not a single private lender has provided a farm loan on the books.
Officials admit to a major loophole. A source in the department revealed that lenders only need to submit copies of lending receipts. The amount lent out of the books cannot be monitored. This creates a vast shadow economy where the real, exorbitant rates of interest remain hidden from authorities.
Despite the risks, private lenders remain the fastest source of finance in rural areas, especially in pockets where even credit cooperative societies are absent. This dependency, coupled with a lax licensing regime and ineffective monitoring, continues to trap vulnerable farmers in a cycle of debt and despair, making a mockery of the regulatory framework intended to protect them.
