Manoharan Asari believed in cats, and the riches they supposedly brought. A carpenter back from the Gulf, Ansari took in every cat that strayed into his house at Kallayam, near Thiruvananthapuram. His elder son Biju, a graduate who once worked with a brokering firm, believed in bulls. He borrowed from moneylenders and invested in stocks. Asari’s cats grew to 26; Biju’s bull run crashed.
On May 10, Asari, his wife Maheswari, Biju and and his wife Krishnendu, and Asari’s younger son Saju committed suicide, with Biju heavily in debt and allegedly threatened by moneylenders. Police found that Biju had incurred a debt of Rs 96 lakh since 2010. Their three-room house on 5,000 sq ft of land had been mortgaged to a moneylender, who was asking the family to vacate it as Biju had failed to repay his Rs 40 lakh. He owed Rs 9 lakh to another lender, besides losing Rs 38 lakh in the share market in three years, police say, citing his accounts with a brokering firm. Pushed to a stage where they struggled to make ends meet, the family consumed poison, leaving a note naming the lenders who were allegedly threatening them.
The suicides provided the trigger for a Kerala police crackdown on moneylenders, known as the ‘blade mafia’ in local parlance because of the exceedingly high interest rates that they charge. Until Wednesday, the police had registered 1,767 cases, arrested 892 people and conducted 11,202 raids. Blank cheques surrendered by borrowers, registration certificates of vehicles, and stamp papers have been seized from the moneylenders. While the ‘blade’ business has been around in Kerala for long, this is the first such sustained crackdown.
Apart from the professional loan sharks, those arrested include teachers, retired policemen, and local politicians. These are people who don’t lend money themselves, but park their money with the big lenders. This is what happened in Biju’s case. “A few people had deposited their money with professional moneylenders, who in turn lent it to Biju who promised them a high interest (25 per cent) on investment in the share markets,” says investigating officer S Suresh.
Prof Jose Sebastian of the Gulati Institute of Finance and Taxation explains how non-professionals get involved: “Retired people get several lakhs but don’t want to deposit the money in banks since that would involve paying income tax. Since Kerala is a services sector-based economy, there are no business ventures and people can’t invest in anything worthwhile. Hence, they give part of their earnings out for informal lending.”
The professional moneylenders finally lend this money out to people who need it desperately. Often, money is lent out against a blank cheque issued by the borrower or documents of property or vehicles. There have been several instances of the ‘blade mafia’ taking possession of mortgaged property. Lenders usually target people who have some assets to mortgage, says A Hemachandran, ADGP (Intelligence). The big lenders often hire musclemen to threaten defaulting borrowers and take possession of their property. Some of the arrested lenders had the backing of criminal gangs.
There are professional moneylenders who collect Rs 100 a day as interest on a loan of Rs 1,000. The usual interest rate ranges from 5 to 10 per cent a month. Anil Kumar of Kozhikode, a public-sector employee who committed suicide two weeks ago, had borrowed Rs 70,000 in 2008 from lender Muraleedharan. Quoting Kumar’s family, police said he had repaid Rs 2.1 lakh, but the lender was demanding another Rs 30,000 for returning documents pledged with him.
Such a business flourishing would appear paradoxical in Kerala, which has the country’s highest banking penetration and easiest availability of formal financial systems. An RBI study on 23 states in 2009 had identified Kerala as the one with the highest index for financial inclusion. Besides, RBI-recognised non-banking financial corporations across the state give easy loans against gold. According to an analysis of the NBFC sector, Kerala has 40,000 licensed moneylenders who annually lend out Rs 75,000 crore. Their gold loans total Rs 25,000 a year.
So why do people go to moneylenders? “Legitimate borrowing of money from banks has limitations,” says ADGP Hemachandran. “Although land has a very high market value in Kerala, banks give much less than the actual value of the pledged land,” he says.
Prof Sebastian says the trend is the result of high household consumption. “Keralites do not save enough and tend to spend whatever they have. Even a worker who gets Rs 1,000 a day tends to spend at least Rs 300 on liquor,” he says.
V P Nandakumar, managing director of Manappuram General Finance and Leasing, suggests the solution lies is strengthening NBFCs and micro-financing firms. “Access to legitimate source of money is important. Police action will not solve the problem,” said Nandakumar.