How usury squeezes life out of victims
It’s not just the poor but also middle class people who have been caught in the vice-like grip of usurious money lenders. With both the practice and the settlement of disputes staying in the informal sector, predatory loan sharks rarely come under the purview of law enforcement agencies
Horrible screams rent the air, disrupting the usually placid atmosphere at the Tirunelveli Collectorate. Those who hurried to the scene on Monday morning beheld a chilling sight — four people, including two children, were writhing in the flames that rapidly engulfed them. After the initial shock, some of the onlookers quickly rushed to help by throwing mud on the flames, trying to put them out, before professional help arrived.
The victims were 28-year-old P. Esakkimuthu of Kasidharmam, his wife Subbulakhmi, 28, and their children, Mathi Saranya, 4, and Atchaya Baranika (18 months). Esakkimuthu had doused himself and his family members with kerosene and struck a match. He had said that he had been unfairly harassed for repayment of a loan of ₹1.45 lakh, even after paying back ₹2.34 lakh. All members of the family died of severe burns in the days that followed.
The horrific incident has rightly turned the spotlight on the practice of lending money at exorbitant rates — usury, known as kandhu vatti in Tamil. Though prohibited by all religions and law, usury continues to thrive in a parallel economy.
Initially, the informal sector of usurious lending meant just the practice of lending money with compound interest at a time when lenders were prohibited from charging anything above the prescribed simple interest, say 12% per annum. In the present form, compound interest is charged even for a principal amount of as low as ₹500. Hence, it has come to be recognised as an unethical and immoral loan business that unfairly enriches the lender as in the case of Esakkimuthu.
In the past, the accepted practice in south Tamil Nadu was that if ₹1,000 was borrowed, the informal sector lender offered ₹900 and retained ₹100 as interest. The principal of ₹1,000 was to be repaid in 10 equal monthly instalments. From there, kandhu vatti has evolved into something far more vicious. Today, in some places like vegetable markets, the money lender gives ₹900 in the morning and the principal of ₹1,000 has to be paid back by evening.
Variety of forms
Kandhu vatti, which is a ubiquitous component of the region’s economy, has taken different forms and names — meter vatti, rocket vatti, computer vatti etc. For those in dire need of money — to beat the last date for paying fees, clear a hospital bill, honour a cheque or retain credibility in business — the lenders initially appear as gods. The relationship sours when borrowers default on payment.
It is easy to borrow lakhs of rupees in a place like Sellur in Madurai — known as the ‘kandhu vatti capital’— even in the middle of night. It’s a privilege not available at any bank or ATM. Some lenders keep wads of currency notes in their vehicles while on the move.
Kandhu vatti is not confined to rural areas, where banking literacy is low, or accessed only by those who are poor. It is prevalent in the industrially vibrant western belt also. Though no case has been booked this year in Coimbatore, the practice of wholesale vendors, small businesses and micro-industries borrowing from money lenders is common. Repayment is on a daily basis for traders and weekly or monthly for micro-industries. “This has increased after demonetisation and GST,” says J. James, president, Tamil Nadu Association for Cottage and Tiny Enterprises.
Micro industries need the money to pay weekly wages or to procure raw materials. Unable to repay the loans, many owners have sold their machinery and switched over to daily jobs in Coimbatore. Nagaraj, who had borrowed ₹3 lakh from a local financier, had three lathes. Since he could not repay the loan, he sold his machinery and is now working as a painter, says Mr. James. According to M. Rajendran, president of Thyagi Kumaran Market Wholesale Vegetable Merchants Association, the trend of borrowing from local lenders is very common. Banks do not help small traders with assurance of loans. Even if someone approaches banks for a loan, he is asked to produce several documents. “Will a bank lend ₹10,000 within 24 hours?” he asks.
Not many cases
Despite being an industrial city witnessing various levels of financial transactions, cases related to usury against private financiers are comparatively low. Since the Tamil Nadu Prohibition of Charging Exorbitant Interest Act 2003 came into existence, the Coimbatore City police has had only 27 usury cases. Only three ended in conviction and two are under investigation. “Cases related to illegal money lending and usury are not reported much in this part of the State,” says A. Amalraj, Coimbatore Police Commissioner. In Coimbatore Rural, all the nine cases registered so far are on trial.
In contrast, 232 cases have been booked in the South Zone, of which 161 are in Madurai district. It could be due to a higher awareness level among people, say police officers. In the central districts, the practice is well entrenched. Usury was once the undisputed business of a particular caste group in south Tamil Nadu. Now, it is practised by many other groups and people in different professions. Women also have an equal role in this business of making quick money.
Even government staff are involved in lending money to their colleagues and neighbours. Many start their business in the guise of informal chits funds and then turn to usury. Retired government employees make up for their loss of income through money lending. In 2013, the then Madurai Superintendent of Police, V. Balakrishnan, transferred 18 personnel, including an SI, to remote stations when intelligence reports revealed they were involved in the kandhu vatti business. The police found that even school teachers were involved.
In Tirunelveli, it has had an interesting evolution. When bootlegging became a highly lucrative business for a section of people from a particular community, a few more communities joined the illegal trade. This triggered caste clashes, resulting in unprecedented bloodshed. After a police crackdown on illicit liquor, one-time bootleggers turned money lenders. “After tasting success in usury, they are harvesting money in crores in the tinsel world and wholesale trade. Some of these lenders from Tirunelveli are now operating in Chennai, Madurai, Coimbatore, Bengaluru, Hyderabad, Mumbai, Pune and the Andaman and Nicobar Islands,” says a senior police officer in Tirunelveli.
The customers of money lenders are people known to them or those introduced to them by relatives and friends. Many of those, who borrow money on a daily basis, are small traders and vendors. Gandhi Market in Tiruchi, a commercial hub, is the hotspot for usurious money lending in the form of meter vatti', says G. K. Ramar, secretary of the CITU-affiliated loadmen association. It thrives in the open in Ponmalai Railway Colony and Kottapattu. There are private financiers operating from their ‘offices’ in Chennai, Madurai, Tiruchi and Tirunelveli. The contract is in the form of a printed document. For amounts up to ₹50,000, the borrower only signs on a blank piece of paper without the details of the principal, date of borrowing and rate of interest. Some people accept blank cheques. For higher amounts, any document, that of a vehicle, land or a house or a ration card or ATM card is taken as security.
“With respect to vehicle documents, the lender also makes the borrower sign on papers for transfer of name. If the borrower defaults, the lender will sell the vehicle and recover the money without his knowledge,” says a Madurai police officer.
But kandhu vatti is a double-edged weapon, warns a police officer who has worked in Madurai for long. “It is not a secret deal. It is a mutually agreed contract but the only illegal part is the higher rate of interest. The borrower is aware of this fact,” he says. “No one complains as long as it is a smooth affair. Only when there is default does the real face of the lender show,” he adds. On the other hand, the lender faces the threat of the borrower taking him to the police.
The consequences of default can be unbearable for the borrower. Property is seized and young women members of the family are sexually harassed. First, women from the family of the lender create a scene in front of the house of the borrower and shame the entire family with abuses.
Then, a lot of other types of pressure are mounted. It is not a secret that a theatre complex in Madurai and a hotel changed hands for loan default.
When a middle class family in Valliyoor could not pay the instalments, the usurer, who was in his early twenties, abused the borrower, a teacher, and relieved himself in the living area of the house in the presence of the borrower’s teenage daughter. Unable to bear the insult, the teacher committed suicide recently, says a resident of Valliyoor. A tailor in Pudukottai, who had a brisk business, committed suicide in Tiruvannamalai recently, along with his wife, due to being unable to repay an usurious loan.
Many borrowers, who are small vendors or daily wage earners, have been out of the formal banking system for generations. They think that chits or funds or kandhu vatti is the norm. Many feel air-conditioned banks are not for people like them and continue to do business with private lenders. The convenience of repayment at their doorsteps (read shops) on a daily or weekly basis also helps.
The self-help group movement, in the beginning, brought families out of the usury menace. While there have been cases of micro-finance institutions facilitating this process, some other micro-finance companies have adopted the practices of the traditional usurious money lender and worked against the hold of SHGs, social activists say.
Though usury very much thrives on the patronage of police and politicians, the police, on their part, have also been cracking the whip, albeit inconsistently. In Valliyoor, for example, former DIG of Police P. Kannappan ensured that properties and valuables taken away by loan sharks were returned in a drive against usury. Former SP Asra Garg retrieved the properties of a trader in Tirunelveli. A special team formed by him arrested 43 money lenders in rural Tirunelveli between 2008 and 2010.
In Chennai, though the city police claim that the practice of usury has decreased substantially, it is in vogue in the film world, the Koyambedu markets, and among fishermen in some pockets. Sources say police personnel are also involved.
In Koyambedu, at the wholesale vegetable, fruit and flower market in Chennai, a dealer says that every morning, as many money lenders as traders come visiting to advance loans.
They collect the principal with interest in the evening. There has been no complaint till now.
N. Srinivasan, president of the Fruit Sellers’ Association in Koyambedu, recalls that a few months ago, bank officials conducted a campaign to provide loans at cheaper rates of interest. Later, when some of them approached the banks, they were asked to produce many documents and affix signatures on many papers. But lenders give instant money at the doorstep without any document, he says.
Film financier Mukanchand Bothra was arrested by the Central Crime Branch (CCB) recently on charges of collecting exorbitant rates of interest for loans and harassing people, including film personalities, if they defaulted. Based on a complaint filed by Mani of Virugambakkam, the CCB arrested Bothra and his two sons, Sandip and Gagan. Mani had taken a loan of ₹21 lakh from Bothra, for which he had given 24 post-dated cheques and signed a few blank promissory notes. As he was not able to repay the loan, Bothra allegedly filled in ₹20 lakh and ₹35 lakh in the promissory notes and filed cases for default. Bothra also demanded ₹1 crore from Mr. Mani to withdraw the cases, which it turned out, was his usual modus operandi.
In another major case, M. Sudheer, 57, a professor of Madras Medical College, borrowed ₹20 lakh for education expenses and the construction of a house from Kamaraj, 42, of Purasawalkam, in 2011. Kamaraj obtained a few blank cheques and promissory notes from Dr. Sudheer. Despite the doctor paying the amount for the interest, and the principal, Kamaraj kept harassing him. Even as the doctor approached the law, the money lender handed over the blank cheques and promissory notes to a gang in Lucknow, which filed a false complaint against the professor. Lucknow police personnel came down to Chennai, arrested Dr. Sudhir, and carted him off to Lucknow, where negotiations were held about repayment.
Political patronage or interference is a handicap for the police in these cases, says Shailesh Kumar Yadav, IG (South Zone). “The complainant is happy with his case getting solved through negotiation and withdraws the complaint without cooperating with the police to continue with the case,” he says. The police cannot act without a complaint and documentary evidence. “SPs have been asked to expedite trial in usury cases and also speedily investigate the ones under probe,” he adds. The Goondas Act will be used against habitual offenders.
(Inputs from S. Sundar and Srikrishna L. in Madurai, P. Sudhakar in Tirunelveli, M. Soundariya Preetha and Wilson Thomas in Coimbatore, R. Rajaram in Tiruchi and R. Sivaraman in Chennai, collated by S. Annamalai)