Dr. Md. Shamsul Arefin :
In the British period, there was a “Debt Settlement Boards” introduced by Sher-e-Bangla Abul Kasem Fazlul Huq, the then Prime Minister of Bengal in 1940 under the Bengal Agricultural Debtors’ Act, 1938 and the Money Lenders’ Act, 1938. The Debt Settlement Boards were created in all districts in Bengal where the poor and marginal peasants got waiver of different kind of debts including the principal amount of loan or partial principal amount of loan or interest or both depending on the gravity, types and natures of the loan, debts and the severity of disaster. If the production of agricultural crops is destroyed due to cyclone, flood or any other natural disasters and thus the farmers are unable to repay the loan, the Arbitration Board on the basis of submitted application of defaulters took decision of full or partial waiver after hearing of both sides of loan receivers and the moneylenders. In addition to that, farmers got other kind of debt waiver too. Decisions of waiver by the board were given in favor of the poor farmers mostly where the loan was taken from individual moneylenders in nonformal sector.
The main challenge for the arbitration board was to identify the willful defaulters and involuntary defaulters. Though in most cases, they gave their verdicts on truly identifying the involuntary defaulters, but social high ups took the decisions of the board to the court contest and thus it was defeated in many cases. Some say after a long journey from 1940, now it may be considered necessary to constitute an arbitration board for the salvation of poor farmers or marginal borrowers from the arrow of the local money lenders.
Rescuing the farmer from the situation of falling agriculture prices, increasing input costs, declining profitability of agriculture, reduction of cultivatable land and increasing of unemployment, many countries have loan or interest waiver programs for their poor borrowers. They have laws in place that require local village moneylenders to be registered, and set limits on the interest rates and the condition of payments. For example, in India licensed moneylenders are governed by Money Lenders Acts of respective states in India where interest rate and the conditions are fixed for the poor farmers. Moreover,
The effectiveness of loan waivers has been an important issue in policy debates for several years. It is often argued that debt waiver programs are counterproductive and offer minimal gains. The repeated loan waivers distort households’ incentive structure away from productive investments and towards unproductive consumption and willful defaults. Rural moneylenders took the chance of the adversity of farmers. If we visit our village, we may hear a lot of stories of loanees who took loan from local moneylenders where interest amount, in some cases, has become triple than the principal amount.
There are many lenders and borrowers in informal financial sectors where the borrowers ultimately have become the victims. Some say that informal borrowing constitutes 50 per cent of lending transactions in villages. However there is no official data to substantiate the claim. Village people of lower income groups who have no influence to get loan from banks, usually prefers to borrow money from among the circle of acquaintances though their rate of interest is too high.
Some say that the growth in informal borrowing is also high due to the failure of financial institutions to introduce loan schemes in villages based on real life needs. Village people go to informal lenders when formal lenders do not offer loans according to their needs. For example, one might need cost of education or final examination fee, need for medical treatment or for a children’s wedding. Furthermore, natural disasters sometimes created havoc in their financial hardship. There might be situations where they need money within a short duration. But loan processing time of formal banking sector is too lengthy. Again, in rural areas, Bank branches are not available at their near reach. Though the poor, disadvantaged and marginalized people have the access to NGOs but they need to go in a group and have to follow different kind of group responsibilities. Thus, the individual need-based borrower gets less willingness to receive loan from NGOs.
Most often local villagers have no choice but to avail loans at exorbitantly high interest rates from the local money lenders who often impose more tough conditions at the time of inability to repay the loans. Loans were made on a face-to-face basis with personal knowledge and close proximity of the lenders and borrowers. Practically no collateral is required during such transactions and on mutually agreed conditions loans are disbursed. Loan disbursement by the lender is timely due to localized services and close informal links. Loan is made available when it is most needed with the shortest possible transaction time. But when time for recovery comes nearer, pressure for accepting new and hard conditions take place. The village money lenders try to take advantage of the awkward situation of loanees and create a high pressure to recover money when actually he is unable to repay. The lender sometimes claims borrower’s last resort, a piece of land where he lives.
In such a real-life situation in villages, a Loan Arbitration Council at each Upazila headed by a competent officer working there may be deemed necessary. The council may take the examples of best practices done in 1940 to rescue the poor borrowers who were under pressure of repaying loan having no capacity to do that instantly. He might be able to repay if his conditions for loan are soft and considerable. This framework of loan arbitration might create a healthy atmosphere for the poor borrowers who will find their last choice for justice and an opportunity to inhale fresh air with a taste of economic emancipation and liberty.
(Dr. Shamsul Arefin is former Senior Secretary).
