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

Vinita Govindarajan has a piece in Scroll:

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.”

This bit on types of credit, linking of caste networks with credit is always amazing to read:

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.”

In the end, why does is thrive? All are involved:

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.

Hmm..

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