Stringent provisions in private money lending rules and regulations proposed

The new provisions, RMA expects, will bring more clarity on the obligations of lenders, borrowers and middle persons

In a bid to curb illegal private money lending and put in stringent and stricter provisions, the Royal Monetary Authority (RMA) proposed amendment and insertion of new provisions on the private money lending rules and regulations.

The RMA proposed 16 amendments and new clauses in existing to the private money lending rules and regulations.

The draft proposal is uploaded on the RMA website for the public feedback since March 24.

According to a source from the RMA, currently they are collecting the feedbacks on the proposed draft amendment rules and the draft will be table to the board by the end of this month.

The source said that the proposed draft is done in consultation with the judiciary, and it was proposed because both the lenders and borrowers have been taking advantages due to non-restrictive rules.

“With the proposed amendment, we will see stringent and stricter provisions both for the lenders and the borrowers. It also gives responsibility to the borrowers,” said the source from RMA, adding that the new provisions will bring more clarity on the obligations of lenders, borrowers and middle persons.

According to a proposed amendment section, the court can now admit and register all the private money lending recovery suits if there is a prima facie case of lending, irrespective of agreements made either before or after 1st April 2017 by the registered lenders or unregistered lenders.

However, in the existing rules and regulations, the court does not admit the recovery cases of unregistered and illegal money lenders.

It states that the rationale for amending this clause is that courts have been dismissing monetary recovery suits if the private money lenders do not have registration certificates from the central bank to carry out the private money lending business.

This has put the money lenders at a disadvantage position and borrowers have been taking advantage of this lacuna in the rules and regulations.

However, the amendment section 3.2 states that unregistered private money lenders will not lend money above Nu 90,000 to a single borrower or an aggregate of Nu 90,000 to multiple borrowers without obtaining a registration certificate from the RMA.

The rationale for amendment is that lenders without the registration certificates are carrying out multiple lending of Nu 90,000 putting themselves into higher risks. This new measure will curtail lenders themselves and borrowers exposing to higher risks.

The source from RMA said the amount of Nu 90,000 is fixed because people lend money in difficult times like death rituals where the minimum amount required is Nu 90,000.

The source mentioned that the amount is calculated based on the minimum daily wage of Nu 125 for two years, which comes to Nu 90,000.

A proposal for new insertion is that Gups and Mangmis will have the jurisdiction to amicably settle the private money lending cases if the cases are not fraudulent in nature. If the cases cannot be settled amicably by gewogs, an aggrieved party may appeal to the court within 30 days from the date of breach by the other party.

The rationale for this new insertion is to bring justice closer to the consumers of laws and thereby to make easy access to justice. Thus, the people can solve their problems faster with minimum cost, without wastage of other resources which is the core objective of the judiciary.

The proposed amendment of section 6.3 states that if the court finds that a private money lender has charged more than 15% per annum or if higher rate of interest has been charged and clubbed with the principal amount, the court will set aside the interest calculation and forfeit 25% of the principal amount.

If the case is not registered in the court of law and then the RMA finds that a lender has charged interest beyond 15% per annum, the RMA will take appropriate actions in accordance with the provisions of rules and regulations.

The rationale is that there is no provision in the existing rules and regulations. That is why the private money lenders have been charging very high interest rate of 5% per month or even higher.

The proposal for new insertion also includes that the private money lending disputes between the parties shall be filed before the court of law by lenders within three years from the date of the breach of agreement.

The proposal for new insertion also includes that a registered or an unregistered lender is prohibited from making and signing any form of fraudulent agreement or lending the money beyond the ceiling prescribed by the RMA or ceiling prescribed herein the rules and regulations. A borrower is prohibited from making and signing any form of fraudulent agreement in contradiction to the rules and regulations and borrowers not accepting interest rate of 15% per annum.

It also includes that if a borrower seeks the help of a broker/middleperson to find a private money lender for borrowing money, the broker/middleperson shall not charge commission or brokerage fee more than 1% of the principal amount involved in the lending.

Meanwhile, the rules, initially framed in 2016 to regulate private money lending business, came into effect from April 1, 2017.

Currently, there are two authorized private money lenders registered with the central bank.

The source from the central bank said that there were four private money lenders initially, and they did not do any transaction in one year and did not come for renewing their licenses.

However, an authorized private money lender, Chimi Dorji said that the existing rules and regulations are not conducive and too cumbersome. “It is only meant for small scale businesses.”

He said although the business has been in operation for more than three years, they were able to lend money only to two to three clients, though they receive many applicants.

“Though I have the capital in my hand, I am not being able to invest it,” he said, adding that the ceiling amount and interest rate is deterring them from lending.

According to him, some people want to borrow money for only short duration, say for one to two months, and some want to borrow more than Nu 500,00o. For those people who want to borrow for short durations, they are not able to take risks for small amount of interest rate. The authorized private money lenders also claim that the central bank has not taken their considerations in the draft proposal by saying that there are no major changes in the draft proposal.

Dechen Dolkar from Thimphu