News
Local bodies try to battle out loan sharks in North and East
View(s):By S Rubatheesan
A villager from Kurumpachchi, Manmunai of Batticaloa, obtained a loan of Rs. 200,000 from an individual last year at a daily high-interest rate for emergency purposes, as he couldn’t access credit from lending institutions. He was charged Rs 3.2 million as interest alone for a year.
Unable to repay the interest and capital, the person had to sell his property to the lender from the nearby village of Onthachchimadam by transferring the house deed.
Hundreds of individuals in rural villages have become victims of the loan sharks and unregistered microfinance companies in the region, where most of them are engaged in agriculture and fishing.
Valikaamam East PS passed a resolution on Tuesday against illegal loan shark microfinance companies and individuals who charge exorbitant interest rates.
Megasundaram Vinoraj, Chairman of Manmunai Pattu Pradeshiya Sabha in Kaluwanchikudi, said that the local body came to know about the severity of the issue when fellow councillors brought to attention the illegal practices carried out by unregistered lenders.
“First, they target women, particularly war-affected or women-headed families, and assure to offer them a group loan by including five others. The repayment methods range from daily, monthly and annual basis, where the group leader is pressured to ensure repayment of instalments,” he said.
When they are unable to pay back the instalment amounts, the unregistered lenders seek all sorts of ways to force them to pay back, including sending loan agents to their houses at night to intimidate them or solicit sexual bribes.
To prevent locals from becoming prey to loan sharks and unregulated companies, the Manmunai Pattu Pradeshiya Sabha commenced awareness campaigns on the dangers of debt traps to the families and encouraged them to access credit through registered and official avenues, such as the Samurdhi Bank.
“I came to know that the Samurdhi Bank branch in our district has a lending amount of Rs 1500 million. We are encouraging our people to access loans through such channels and not to go to other third-party companies,” Mr. Vinoraj said.
With an alarming level of unregistered companies and individuals engaged in informal lending practices in North and East, local government bodies stepped up regulatory measures within their limited mandate.
On Tuesday, the Valikaamam East Pradeshiya Sabha passed a resolution to regulate illegal companies and individuals who are engaged in lending money at exorbitant interest rates.
Chairman of the Council T. Nirosh told the Sunday Times that even though local bodies lack adequate powers to take action against these loan shark companies and individuals, they are focusing on identifying entities that are not registered with the local bodies.
“Currently, we are focused on companies which lack the business registration document to carry out business in the region. There have been instances where individuals from places such as Negombo have been engaged in lending without any registration by approaching people directly in their residences,” Mr. Nirosh explained.
Even registered microfinance companies, Mr. Nirosh alleged, violated regulations when granting loans at the residences of the beneficiaries, despite regulations stipulating that loans should be processed at the respective branch of the institution.
“Many of the representatives of these companies are visiting potential beneficiaries in their residences or in public places to offer group and individual loans without any witnesses involved. We also observed that the agreement documents between the respective companies and individuals are in English, not Tamil. Therefore, people are not aware of what kind of debt trap they are entering into,” Mr. Nirosh explained.
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