Tamil Nadu has stringent laws against moneylending at exorbitant rates. Why does it persist then?

On October 23, Essakkimuthu, a daily wage labourer from Kasidharmam village in Tirunelveli, Tamil Nadu, took his wife and two young daughters to the District Collectorate. There, the 28-year-old doused his family and himself in kerosene and lit the match. While his wife and children died soon after, Essakkimuthu was hospitalised for a few days before he succumbed to his injuries.

A picture of the blackened body of Essakkimuthu’s 18-month-old child lying face-down on the ground made it to the cover of the popular Tamil magazine Junior Vikatan, and subsequently to social media, sparking shock and outrage across Tamil Nadu.

Essakkimuthu had borrowed Rs 1.45 lakh from a moneylender in Tirunelveli, identified as Muthulakshmi. The labourer had already repaid over Rs 2 lakh, but the moneylender was allegedly harassing him for more. According to his brother Gopi, Essakkimuthu had filed complaints at six weekly grievance redress meetings held at the collectorate. But the police did not act against the moneylender, Gopi alleged, because they work in collusion with moneylenders in the area.

Asked about this, the collector, Sandeep Nanduri, told The Hindu, “We will concentrate on this serious issue by forming a police special squad to enquire into the complaints pertaining to usury.”

Old problem

The tragedy has once again brought into sharp focus the menace of usury, the practice of charging exorbitantly high rates of interest on loans. Usury, locally known as kandhu vatti, is illegal in Tamil Nadu, yet it is widely practised. In fact, activists claim, it has become more prevalent over the past two decades, and this is partly why household debt in Tamil Nadu has also been piling up.

The state’s lending and borrowing patterns have changed significantly over the past 10 years, owing to vanishing sources of cheap credit, farm distress and the profitability of the moneylending business.

In 2003, after a series of suicides linked to usurious debt, the state enacted the Tamil Prohibition of Charging Exorbitant Interest Act to safeguard borrowers from harassment and violence by moneylenders. The law, along with the Moneylenders Act, which prohibits charging of interest above 12%, were meant to put an end to usurious lending.

But the laws have had little effect. “Most stringent laws are only as effective as their implementation,” explained Suresh, a lawyer with the People’s Union for Civil Liberties who has been working on cases related to usury for over a decade. “The issue of usury-linked suicides has been cropping up for the past 20 years. Where is the question of the law being implemented when the entire police system is involved in kandhu vatti?”

System of exploitation

The usury business is concentrated mainly around towns and cities, Suresh said, and is linked to the nature of the local economy and the entrepreneurial spirit of the people. It has many forms, each more exploitative than the other. Vaara vatti, or weekly loan, attracts more than 25% interest. It is usually taken by agricultural and construction labourers for their weekly expenses. Meter vatti is a daily loan usually taken by small entrepreneurs such as vegetable vendors who may borrow Rs 1,000 in the morning and pay back Rs 1,100 by evening; the 10% interest a day translates to nearly 300% a month, or about 3,600% interest a year.

It is generally the locally dominant or middle castes that dominate kandhu vatti, Suresh said. They have the muscle power to intimidate borrowers into returning money on time.

Durai Kutralum, a member of the Communist Party of India (Marxist) in Tirunelveli, said each community engaged in moneylending in his district employs a different system. The Thevars, a middle caste known for their muscle power, dominate cash lending while the Gounders operate out of jewellery shops, lending gold at interest rates up to 30%. The Nadars, relatively recent entrants into moneylending, offer small loans without collateral called thandal. Now almost all castes lend and borrow among each other, including the Dalit communities, Kutralum added.

Kutralum said many of the bigger villages involved in the illicit liquor trade have taken up moneylending in a big way, with new classes of people, cutting across castes, joining in. For instance, he claimed, elementary and middle school government teachers have become moneylenders in small villages.

The illegal business is protected and patronised by local politicians, Suresh alleged. “Many businesses are conduits of black money for politicians,” he claimed. “Politicians usually invest in land, construction or moneylending for quick returns.”

Police collusion

According to activists as well as government officials, the police’s collusion with moneylenders is the main reason usury is flourishing. Kutralum explained that corrupt policemen are paid a percentage of the interest earnings as bribes, and flush with cash, they often turn moneylenders themselves.

Where the police try to act, they are hobbled by the nature of moneylending, said a retired police officer, R Nataraj. To begin with, Nataraj explained, there is rarely documentation to prove usury since the transactions are conducted through oral agreements. “This is the kind of a problem that is difficult for the police to intervene in,” he said. “We have to call both parties and have a kind of kangaroo court.”

But this way of dealing with the problem, Nataraj said, is not encouraged by the administration or the courts. Further, since a complaint of usury essentially constitutes a civil dispute, the police cannot file a First Information Report. They can only act if charges of persecution, harassment or molestation are levelled against the moneylender. “We cannot register a case unless the lender is known to be threatening the person,” said Nataraj.

He recalled that when he was a superintendent of police in Tirunelveli several years ago, he had registered cases of extortion, criminal intimidation and even attempt to murder against moneylenders. “It is easier when you know a person is doing this on a large scale,” Nataraj added, “whereas individuals are difficult to monitor.”

Activists and officials, however, pointed out the police often target a few top moneylenders to make an example of them and instill fear among the others.

Ineffective administration

The day after Essakkimuthu’s family died, Nanduri, the Tirunelveli collector, launched a helpline for complaints about harassment by moneylenders. Calls have been pouring in, even from outside the district.

Generally, such complaints rarely make it to the collector, said M Rajendran, former collector of Tiruvanamalai. The complaints are normally dealt with by police officers. The role of the collector is limited to simply recommending the matter to the superintendent of police at weekly meetings, said Rajendran. A senior official at the Tuticorin Collectorate too said no such cases are reported to them.

Rajendran also said the lack of records make it difficult for the administration to act against moneylenders charging usurious interest rates. Further, because there is no documentation of transactions, little data is available on usury cases, said Thangam Thenarasu, a Dravida Munnetra Kazhagam MLA from Tiruchuli.

Still, Tamil Nadu has a solution for ending kandhu vatti, Rajendran claimed. About 40 years ago, the Tamil Nadu government renamed Denotified Tribes as Denotified Communities. As a result, the state lost its share of the central funds allocated specifically for Denotified Tribes. “Only because of this, the state annually loses around Rs 1,400 crore,” said Rajendran. “If they reclassify them as Denotified Tribes again, one crore people from 54 communities can avail of money for small businesses.” Thus, they would not be dependent on usurious moneylenders.

But neither the administration nor political parties are taking up this matter seriously, Rajendran complained.

Policy intervention

The 2003 law against usury was brought by J Jayalalithaa’s government and for a year or two it was actually implemented rather effectively, said Thenarasu.

This naturally cost Jayalalithaa the support of the moneylending caste groups, which formed a major portion of her vote bank, Thenarasu added. In the DMK regime that followed, there was little reporting of usury cases. When Jayalalithaa returned to power, usury was no longer a focus area for governmental policy.

While successive governments have tried to address the problem of mounting household debt by offering medical insurance or education scholarships, or by waiving agricultural loans, a “holistic approach” has been lacking, Thennarasu said. “We should have a policy framework that takes all aspects of debt into consideration,” he added.

Suresh said besides rethinking the credit system, there is a need for greater coordination between the police and the collector in addressing usury. This, though, cannot be done until corruption is rooted out. “The link between local politicians, local moneylenders and local cops is a deadly concoction,” he said.