Saturday, May 17, 2014

Moneylending in Kerala and the Unjustifiable Gimmicks of the State


The moneylending market in Kerala was a natural economic bubble. The bubble grew because the factors favoured it. Very few people can be blamed for it save the State for its inability to predict the case. Why? Because it was empowered with a strong legislation (Kerala Money Lender’s Act 1958) to prevent this growth and which seems was never used until now. There are several questions then on the rising money lending market in Kerala and the actions taken by the state government in the wake of a spate of suicides by borrowers. The state action, to prosecute illegal moneylenders, was widely accepted by the general public. Several people were arrested and prosecuted, and documents including blank cheques and promissory notes worth millions were seized from them. This article proposes to examine two questions in the context of the issue of money lending in Kerala.  

1.       Is the current ‘Operation Kubera’ carried out by the state justified?

2.       What are the possible impacts of this state action? And what should be done?

History: The Market for Moneylending

Before we explore these questions we need to understand the state of affairs in moneylending in Kerala. Moneylending in Kerala as for any other region across India was a thriving business at the time of the state formation. As for any other business this market too operated on the basic principles of demand and supply. Money was demanded by a lot of people who did not have it and it was supplied by people who had it in plenty. The ethical question as to how some people had more while some had very little, and the moral question of continuing exploitation led the State of Kerala to control this market. At the time of state formation this ought also to have been a popular policy too ensuring that dividends of universal adult franchise could be tapped for political power. And so the market for moneylending came under the control of the state. The earliest legislation for this control in Kerala was the Kerala Money Lender’s Act 1958. The main form of state control was introduced through a policy of licensing, which required that individual business which wanted to do moneylending should be licensed by the state. The Act also prescribed a series of measures including giving the state the right to fix the level of interest charged by the lender, strict rules and legal implications to prevent harassing of the borrowers, and fines, penalties and imprisonment for violating the provisions of the Act. This Act was revoked time and again, but this time on a grand scale to stop moneylending activities in Kerala. It came with a new nomenclature-‘Operation Kubera’. Several people were arrested and jailed but not until many others had lost their lives.

Is the Current Operation Justified?

The current occupation cannot be justified mainly because it was nothing more than a delayed intervention from the state of Kerala. The state allowed for the growth of this market over a period of time until it ruptured. This was followed by a dramatic intervention to wipe the debris from these fault-lines. It is also not justified because this state action is only a gimmick and nothing more; and the market would still thrive. I have some reasons for believing this. They are noted below:

1.       Huge Profits: An individual could earn double or four times the interest in the unregulated market if he lend his money while in the regulated markets it was much lesser that this. This created a situation where no one need to be a big capital holder. Even if you could spare Rupees 100 as investment in the non-regulated money lending market, it was guaranteed that on an hourly rate you could charge Rupees 10 as interest to this amount. Thus the regulated market for money lending created a potential moneylender in each person who had some token amount to spare. How will the state reverse this trend until it has a well-developed plan other than the use of force?

2.       Economic Conditions and the Possibility of Foreign Elements Controlling the Local Market: In a State where unemployment levels are very high this was all the more a reason to try some luck in this very old form of income generating activity. Given the potentially high interest rates in these transactions it can be assumed that the demand for money was very high and it would similarly have generated a shortage in money supply. Into this space entered new agents with money from the neighbouring states. Into this space might also have entered unaccounted money or more probably fake currency. It could also be assumed that the demand for money might have been filled through illegal activities indicated mostly by rising incidence of crime across the state. Until all this mayhem is cleared there will be questions on the current effort of the state.

3.       Logistically Impossible to Control the Unregulated Market: The inability to control the large possibilities under which these transactions could persist, say between friend, among relatives and family members, among businesses and so on made the states regulatory framework in moneylending a meek affair. It is logistically impossible for the state to restrict all these activities. So when logistically it is impossible the only alternative with the state would be to check the growth of this market through occasional ‘grand interventions’ in the form of organized attacks against moneylenders and seizing their property.

4.       Heterogeneous Base of Borrowers and Lenders:  The borrowers were mainly from all classes of the society: people wanting to do business, people in need for immediate transactions, to purchase gold, to conduct weddings, to pay fees and for that matter anything that money could be used for. The lenders were either possessors of the capital or agents who functioned for people who possessed capital. But as against the expectations none in these groups were homogenous categories and especially in the current situation most of the people picked up by the police include people from the middle or lower class of the society. So it is not a homogenous target for the state to deal with but a scattered crowd of people who entered the market for various reasons.

5.      Alternatives: A more important question concerns the freedom of individuals to adopt alternative and fair lending and borrowing practices. The more the number of restrictions the greater the trade-off between freedom and fairness. The more strangled you are, the greater would be your attempt to free yourself at all cost. When your freedom to access facilities including banking are restricted by a large number of requirements, you think less about the fairness of accessing it through alternative (legally forbidden) sources. So whom do we blame and put in jails, the alternate sources who filled the requirements or the state itself which were majorly responsible for restricting this freedom to borrow.

The Possible Impacts of Operation Kubera and Way Forward

Given the above conditions, the possible impact of ‘Operation Kubera’ would not be much until the ground realties are studied and the root cause explored and contained. The following are the suggestions in the way forward.

1.      Employment Opportunities: For one, the demand for money in a civilized society is met through labour; people extend their valuable labour time and skills and intellect in return to money. It is not only required that people have a venue to find employment but it is also required that these employment arise in return to the demand for it. So what is required is to ensure that skill gaps are filled and sources for employment is generated. A major requirement in this context would be to ease employment restrictions, and generate conducive atmosphere for conducting business in the state. This has been much debated, but at the forefront of such a measure lies the inevitable need to break free from the ideological logjams in which we are trapped.

2.       Addressing the Failure of Organized Banking Activities Led by the State: While the skill gap is being evaluated and addressed, the state can examine the points at which the major organized banking activities failed. Money demand was not met in many of the cases; which requires that stringent laws in extending money needs to be eased. This is however easier said than done in the context of mounting bad loans in these organizations. A more important reason is that the state action is likely to create a zone where officials get a chance to be corrupt.

3.       Encouraging Entrepreneurial Skills and Capacities: It is impossible to generate growth in the economy without encouraging serious entrepreneurial skill and capacities. People invest only when they feel that their returns match or exceed these investments. The moneylending market showed an easy way towards this.

4.       Empowering Micro Level Organizations: A way to monitor and curb moneylending would be to develop a mechanism of empowering micro level bodies like the residents association. Let these associations’ monitor activities and pool resources to meet crises situations of its members, and let them pool money to ensure the rise of small scale businesses across the state. Rather than such initiatives, providing more powers to the state would not help much. Any form of centralization could only increase possibilities of a rupture with reality. We want a better deal.


Let’s get this notion out of our minds that we have a free and fair state. Reportedly there were people with political ties, policemen and several government officials who had direct involvement in the business of money lending in Kerala. There is no answer to how this status quo could be changed. The reason is because this system has evolved and reached a stage where corrections would require changing the system in the first place. But there still are possibilities. As a start what might be required is a change in the attitude of those who occupy key positions in the state. This can be ensured through legal means, easy and accessible and understandable to the laymen. The story should begin at this point.




Monday, May 05, 2014

The Mature Market of Spiritualism and the Role of the State

The Mature Market of Spiritualism and the Role of the State

This piece of writing does not evaluate the merits of the ideology behind gurus and institutions run by them. In fact, people are free to choose the best that suits them under the available conditions. And the freedom of choice allows them to optimally allocate not only there material lives but also their spiritual well-being. Hence critical in this context is not the belief of people but what a matured system of such beliefs could develop into. I wish only to objectively understand this state of development (in the context of Kerala) in terms of employment and production. In this context, I have two questions in mind and I am thinking aloud here:

1.       When most of the spiritual institutions create informal and formal employment; when they provide houses, schools and hospitals; and crucially food; and when it continues to do so; does it reduce the state’s role in all these fronts?

2.       How do we ensure that a free and competitive market survives under the mature market for spiritualism?   

In Kerala as elsewhere there is a growing market for spiritualism. Atheists, agnostics, believers, the lefts, liberals and all are turning to explore the avenues of spiritualism. Out of our 33 million people Kerala has close to four million unemployed; more women than men falling into this category. The state has been witnessing growth at the rate of approximately 8 per cent per annum in 2013-14. However, this growth does not seem to have generated enough employment. In budget after budget the state government announces multitude of schemes. None of these schemes have blossomed into fruitful career options. In this context enter the Gurus and naturally the materially deprived fall back to this option of spiritual attainment. In fact it seems highly appreciable that the number of people who find some employment, formal or informal, during each visit of these gurus to their institutions is high. Some are gainfully employed throughout the year and get to travel around the world to spread messages of their venerated masters.

The question is how much can the economy afford to depend on such seasonal and informal employment generation? What is the kind of revenue generated by these institutions and how sustainable is this model. I call this a model as it sometimes is more competitive than the state led employment generation programmes. For instance, given that MGNREGS has been a pioneering initiative, it still lagged in creating a competitive job market. People are given employment options for which they never had a choice. On the other hand people who work for these respectable gurus compete in efficiently performing their chores to be closer to their masters. The difference thus is that while in the former it is more of a gamble to survive the day, the latter is characterized by a system of hope that makes people look forward to the next day. The quality of employment differs. The question then is on the production part of it. To make such a system sustainable it is required that some amount of production is accompanied by it. One of the major productive initiatives that such institutions undertake is in fact the building of institutions itself. So we have a large number of schools, colleges, professional education centres, hospitals and so on which have sizable presence sometimes even to crowd out the state sector. And contrast it with the state, these institutions of spirituality run on charity and not tax. That’s one part which blurs as we ponder deeper into it. For this charity to survive, there has to be production elsewhere. Assuming that much of this charity comes directly as contributions from the private sector, and very little from state initiatives, we should believe that such a system encourages production activities of private sector in the state. Now that is a positive but consider that it might be the same people contributing these charities who are actively against taxation by the state.   

So we have a group of private individuals ready to give charity and wholeheartedly support such institutions. They offer because they are free to offer and not constrained to pay in a particular month or particular time of the day when the Guru deems it right. I am not against taxation but imagine people who voluntarily part with money given the freedom to do so? Isn’t that a cue to be picked up by the state? They don’t part with the same amount to the state because of mistrust, history of fatalities in such transfers and assumption that the state is likely to misdirect this money to some unintended pockets.

So if we suppose that allowing such spiritual Gurus to continue their quest to improve their institutions would also encourage private initiatives in unbridled expansions as well as in contributions, is it necessarily the right path of development? But will the market be competitive at least in many of these sectors? For instance, the ease of entry of such giant institutions into otherwise difficult avenues like education and healthcare makes me wonder how it was made possible. On the one hand private individuals find it extremely difficult to knock and enter these avenues while at the spiritual incarnations neutralize the thin line between the private and the public. They are formless, omnipresent and translucent: even closed door hold no barrier.   

These activities of the spiritual institutions are sometimes categorized under philanthropy and volunteerism. Similar models are replicable but the question is who will take the lead. Many exemptions seems to favour the Gurus but the market is often seen as difficult to enter for the private individual. This creates suspicion of one of the major challenges we face in modern India: the problem of cronyism in the spiritual market. This also takes us to a crucial question. What do we want the state to be in such a situation? What roles should it continue to assume say twenty-five years from now?   
Rahul V Kumar