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.