The Reserve Bank had announced in paragraph 153 of the ‘Annual
Policy Statement for the year 2006-2007’ the setting up of a Technical Group
to review legislations on money lending for (a) reviewing the efficacy of the
existing legislative framework, which governs money lending, (b) reviewing the
enforcement machinery in different states and (c) making recommendations to State
Governments for improving the legal and enforcement framework in the interest
of rural households.
Accordingly, a Technical Group was constituted under the Chairmanship of
Shri S. C. Gupta, the then Legal Advisor-in-Charge, RBI comprising of Secretaries
from three select State Governments and senior RBI Officers. The Group also included
invitees from eleven other States.
The Technical Group, through an
extensive consultative approach, has studied the practices of money lending activity
prevailing in different parts of the country; ascertained some ground realities
through surveys; explored the possibility of linkages of money lenders with formal
financial institutions; and reviewed the international practices in regulating
money lending activities.
The Technical Group has recommended
a model law for the consideration and adoption by the State Governments that do
not presently have a comprehensive legislation in place for governing money lending.
The proposed model law reflects the significant elements of similar legislation,
available internationally and domestically. The Technical Group has also recommended
some modifications to the existing legislation to facilitate quick, informal and
easy dispute resolution; and better enforcement. The model legislation proposed
by the Technical Group provides for the following:
- a simple and hassle
free procedure for compulsory registration and periodical renewal of their registration
by money lenders;
- a simplified dispute resolution mechanism to ensure
- adoption of the rule of Damdupat restricting the maximum
amount of interest chargeable by the money lender; and
- periodical fixing
of the maximum rate of interest in line with market rates.
Group has also explored establishment of a link between the formal and informal
credit providers, whereby a money lender who is an ‘Accredited Loan Provider’
may serve as an additional credit delivery channel for the formal sector, provided
there are safeguard measures.
The Group has since submitted its
which is now placed on the Reserve Bank of India’s website (www.rbi.org.in).
The views expressed in the report are of the members of the Technical Group and
do not necessarily reflect those of the organisations to which they belong.
All stakeholders are requested to furnish their feedback on the recommendations
made by the Technical Group within a period of four weeks from the date of this
Press Release, to Shri G. Srinivasan, Chief General Manager, Rural Planning and
Credit Department, Reserve Bank of India, Central Office, Shahid Bhagat Singh
Marg, Mumbai–400001 or through e-mail.
Deputy General Manager
Release : 2007-2008/114