Where pawn-brokers score over banks

A Reserve Bank of India (RBI) survey carried out in some 300 districts is reported to have revealed that the rural poor continue to rely on neighbourhood moneylender. And RBI has drafted, what its deputy governor Usha Thorat calls, a concept plan to check this trend. At a Mumbai symposium she spoke of the need for banking penetration into remote areas, and to promote financial literacy and credit counselling.
Financial literacy and counselling are good things, if you know how to get villagers to listen. When in need they go to a pawnbroker rather than a bank, knowing very well they are exploited financially. Credit counselling ? Rural credit seekers care more for ready access to cash than for low interest rate; they want prompt service, not paper-work; village money-lender gives them cash for the asking, and do not ask them for colateral. The only surity on which a money-lender advances money is his belief in borrower’s capacity to pay, and his ablility to collect.
I had occasion, and this was a decade back, to observe credit habit of tea-estate workers at Valparai  in Coimbatore district of Tamilnadu. I was struck by the number of pawnbrokers in this taluk town. I counted at least six within a kilometer stretch on  the main street. There was a bank on the main street and it had problem attracting tea-workers, most of whom borrow on a regular basis from local pawnbrokers. In remote areas a village provision store, from where villagers buy household essentials, usually on credit, also advance money to favoured customers. 
Pawnbrokers advance credit on trust; charge interest rates, calculated on monthly basis. Repayment is due on pay-day, when money-lenders show up at the tea estates to collect their dues from workers. By the time a debt is cleared many tea-estate workers seek fresh loan, and this cycle continues. Pledging jewels, silverware, household valuables to meet expenses for family functions and special occasions is not uncommon.
Under the system adopted by pawnbrokers there is little scope for default by borrowers. Lenders know no such thing as a loan write-off; and pawnbrokers do not have on their books ‘non-performing assets’ like banks.
Pawnbrokers observe no holiday; they are open all days, till late in the evening. A worker seeking a bank loan stands to lose a day’s wages; for banks are open only on week days and loaning formalities take up time, and, at times, more than a day.
Relatively low interest rate charged by bank held no appeal to  workers because of a belief that getting loan sanctioned from banks involved cutback payment.


One Response

  1. I have seen pawnbrokers in operation on the pay day of each month in railway stations in 1960s when ever I visited to see my brother in-law who was a railway official in Erode and Tanjore. railway stations. These pawnbrokers were typically from North India, tall with their head gear and dress looking like pathans of NE frontier and carrying a strong cane. The poor railway workers from porters to clerks parted with their meagre monthly pay packets as soon as they collected them from the cashiers. I was told this happens even today and listening to the woes of these unfortunate people would be a gut-wrenching experience. The pawnbrokers’ stories were gruesome to hear as one of their sons was a student of mine in engineering in 1960s as his father wanted him to move away from the family business. He was a rare pawnbroker with conscience.

    There is so much poverty in India today even among those who work hard. There seems to be two different worlds- the world of penury which these poor workers inhabit and the comfortable world of IPL watchers and broadband Internet users who can’t do without reading and writing e-mails a single day!

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