Money lending is one of the oldest professions. Its main feature is that usurious interest is charged on unsuspecting borrowers who seldom realize the trap into which they enter. Because of the unbelievably high rate of interest and the impact on the borrower’s health and business these institutions and individuals earn the pet name “blades” and when they are institutionalized their organizations come to be known as “blade companies”.
The blades become attractive due to their simple and fast procedural formalities unlike in the case of normal lending institutions. We have heard about Shylock in Shakespeare’s .play. Modern Shylocks flourish and often with very minimal investment but guts they have a roaring business. The growth of business is markedly seen in Asia. Let us see some interesting features of this killer enterprise.
This practice is also known as shark lending in some western countries. The Asian practice has the main feature of charging interest at rates as high as 3600% in some cases of day to day loans. Normally the interest varies from 30 to 60%.per annum. Often those urgently in need of funds and poor people form the targets for such lending. Security in the form of fixed assets or gold is taken against the loan. Generally the borrower finds it impossible to repay the principal and even the interest.
After some time he faces the alternative of falling into the trap of the money lender by parting with his pledged assets. Thus the blade company expands its assets base. As a token of appreciation as it were, the borower gets a marginal amount after clearing the loan in full and final settlement. Generally the lenders take care by collecting the interest at the time the loan is disbursed leaving only the balance with the borrower.
Banks and other financial institutions are trying to release the borrowers from the evils of blade companies but the procedural delays and complexity deter the borrowers from approach them. Many poor people are ignorant of the sources of cheaper finance. They don’t approach the banks.
While the bank rate is considerably low, these Shylocks take advantage of this situation by re-pledging the gold they have already taken as security, to the bank and raise funds which they re-lend at high interest. With the borrowers’ money thus raised they earn huge profits.
Governments have been trying to save the borrowers from the clutches of money lenders but still the menace exists. Some of them have risen high in the ladder and become “sword companies”. Sometimes the business faces sudden death within a period of two or three years.
Unfortunately the impression gathers around that banks also play the role of Shylocks when they operate credit cards. A variety of charges are levied and their logic and the rate are difficult to understand. The rate is very high and customers accept them as there is no other way.
They have one big consolation that they are not alone in the blade game. Some mobile phone companies also revel by creating confusion regarding tariffs, bonanzas, festival offers and interpreting talk time which includes ring time also .Just like inflicting silent death they kill the customer and cause his valet to bleed profusely.
The blade companies no doubt may be rendering a useful service. In rural areas they have a wide net work of clients. They provide funds with little formalities and with great speed. But they strike a blow on the borrower by paralysing his capacity to repay by indigestible high interest rates.
Simplified procedure for lending and creating public awareness can go a long way to mitigate the evils. It is in the interest of the public and the economy if the government and the banking system can simplify procedures and create public awareness of the benefits and availability of cheap finance as an alternative to blade finance.