Chit Funds and Informal Credit in India
Moneylenders and Their Rates
Moneylenders lend quickly against personal trust or security, often charging high interest, and states regulate them through licensing laws.
Moneylending is regulated at the state level.
Types
Professional lenders, shopkeepers, pawnbrokers and neighbours all lend.
Rates
Rates vary from moderate to extremely high, and are often quoted per month rather than per year.
Regulation
Many states have Money Lenders Acts requiring licences and capping interest rates.
Harassment
Reports of coercive recovery show why enforcement matters.
Monthly versus annual
A monthly rate of 3 per cent sounds small but is 36 per cent a year, before compounding.
Ignoring how rates are quoted
Always convert to an annual rate.
Key takeaways
- Many kinds of moneylenders exist.
- Rates are often quoted monthly.
- States regulate through licences.
- Coercion is a risk.
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