Predatory lending: Loan sharks dot the country, but provinces cast nets
Punjab, K-P have laws prohibiting private lending at high interest rates, but Sindh, Balochistan still debating bills.
ISLAMABAD:
In May 2011, in a village near Rahimyar Khan, Muhammad Asghar thanked his stars.
Asghar had borrowed Rs80,000 from two private individuals in March 2010 on a year-long loan. The interest on the loan amounted to Rs96,000, or an astronomical 120% per annum.
Fortunately for him, a local lawyer told him about the Punjab Prohibition of Private Money Lending Act (PPPMLA) which bars lending of money by any person or body that is not registered with the federal or provincial government as a bank, financial corporation or a cooperative society.
The new law led to the repeal of the Punjab Money Lending Ordinance (PMLO) 1960, under which the practice of person-to-person lending with interest (up to 5% per annum) was legal after obtaining a licence from the Revenue Department.
The PPPMLA was repealed despite stiff opposition by the Punjab Revenue Department which, according to sources in the bureaucracy, were “minting money by giving out licences often, to friends, family and political movers and shakers.”
Repealing predatory lending
So how was the new act brought into law? Not easily, says Humaira Awais Shahid of the Pakistan Muslim League-Quaid.
Shahid had presented the act as a private bill in 2003, when she was a provincial lawmaker on the treasury benches in Punjab.
Surprisingly, even then, it gathered dust in a committee for four years before finally being passed.
The bill faced a lot of opposition from all sides, including her party, said Shahid.
“At the time the bill was up for debate, a senior member of the revenue board would not even come to the meetings,” she said.
“Once, he went as far as saying this bill cannot be passed, whether we like it or not,” she added.
“At that point I decided I can still take it to vote,” Shahid said. And she did just that – managing to get support across party lines in what she termed was “an achievement for the assembly.”
From paper to implementation
The task was far from complete, though.
After the bill was passed into law, and Shahid left the provincial assembly for a few years for higher education, she was informed that no one took ownership of the bill in her absence.
She was told that she had to be physically present to see it being implemented, despite the fact it was already a provincial law, Shahid said.
After she took oath for the second time in October 2010, Shahid pushed for the act, now gathering dust, to be implemented.
This time around, the police and parliamentarians were very proactive, and “when we picked up cases, it turned out that the people behind such lending [in Lahore] were mostly known gangsters like Pappu Lamba and Arshad Teddy, and that a number of women forced into prostitution had been victims of such lending.”
They used to threaten her, now they fear for their ‘businesses’.
“Over 35 FIRs have been registered, and even Lamba is scared, because a lot of illegal business comes down to this,” she said.
Federal law
Predatory lending happens throughout the country but only Punjab and Khyber-Pakhtunkhwa have laws against it; Sindh and Balochistan still debating their bills. Shouldn’t there be a federal law against such practices?
“Monetary matters are federal issues ... usury and debt go together, so it is ideally a federal issue,” Shahid said.
She added that when she started working on the bill, then-president Musharraf assured her he would get the federal government on board to get a similar bill passed at national level.
By the time her bill was actually passed, the former president was on his way out.
Although this is an issue of Riba, and could have easily been resolved during the Islamisation era under Zia, but “in the Zia era, there was no action against Riba ... everything about Islamisation seemed to be regarding women,” Shahid added.
New law
Enhanced punishment
Under the now-defunct PMLO, the punishment for charging high rates of interest – defined as charging compound interest, or simple interest at a rate higher than 7.5% per annum on a secured loan, 12.5% on an unsecured loan, or 2% above the bank rate – was imprisonment for up to six months and/or a fine. The punishment was rarely, if ever, applied.
Under the new law, PPPMLA, punishment has been enhanced with imprisonment for a term which may extend to ten years or a fine which may extend to Rs500,000 or both.
A similar law has also been passed by the Khyber-Pakhtunkhwa Assembly.
Published in The Express Tribune, October 26th, 2012.
In May 2011, in a village near Rahimyar Khan, Muhammad Asghar thanked his stars.
Asghar had borrowed Rs80,000 from two private individuals in March 2010 on a year-long loan. The interest on the loan amounted to Rs96,000, or an astronomical 120% per annum.
Fortunately for him, a local lawyer told him about the Punjab Prohibition of Private Money Lending Act (PPPMLA) which bars lending of money by any person or body that is not registered with the federal or provincial government as a bank, financial corporation or a cooperative society.
The new law led to the repeal of the Punjab Money Lending Ordinance (PMLO) 1960, under which the practice of person-to-person lending with interest (up to 5% per annum) was legal after obtaining a licence from the Revenue Department.
The PPPMLA was repealed despite stiff opposition by the Punjab Revenue Department which, according to sources in the bureaucracy, were “minting money by giving out licences often, to friends, family and political movers and shakers.”
Repealing predatory lending
So how was the new act brought into law? Not easily, says Humaira Awais Shahid of the Pakistan Muslim League-Quaid.
Shahid had presented the act as a private bill in 2003, when she was a provincial lawmaker on the treasury benches in Punjab.
Surprisingly, even then, it gathered dust in a committee for four years before finally being passed.
The bill faced a lot of opposition from all sides, including her party, said Shahid.
“At the time the bill was up for debate, a senior member of the revenue board would not even come to the meetings,” she said.
“Once, he went as far as saying this bill cannot be passed, whether we like it or not,” she added.
“At that point I decided I can still take it to vote,” Shahid said. And she did just that – managing to get support across party lines in what she termed was “an achievement for the assembly.”
From paper to implementation
The task was far from complete, though.
After the bill was passed into law, and Shahid left the provincial assembly for a few years for higher education, she was informed that no one took ownership of the bill in her absence.
She was told that she had to be physically present to see it being implemented, despite the fact it was already a provincial law, Shahid said.
After she took oath for the second time in October 2010, Shahid pushed for the act, now gathering dust, to be implemented.
This time around, the police and parliamentarians were very proactive, and “when we picked up cases, it turned out that the people behind such lending [in Lahore] were mostly known gangsters like Pappu Lamba and Arshad Teddy, and that a number of women forced into prostitution had been victims of such lending.”
They used to threaten her, now they fear for their ‘businesses’.
“Over 35 FIRs have been registered, and even Lamba is scared, because a lot of illegal business comes down to this,” she said.
Federal law
Predatory lending happens throughout the country but only Punjab and Khyber-Pakhtunkhwa have laws against it; Sindh and Balochistan still debating their bills. Shouldn’t there be a federal law against such practices?
“Monetary matters are federal issues ... usury and debt go together, so it is ideally a federal issue,” Shahid said.
She added that when she started working on the bill, then-president Musharraf assured her he would get the federal government on board to get a similar bill passed at national level.
By the time her bill was actually passed, the former president was on his way out.
Although this is an issue of Riba, and could have easily been resolved during the Islamisation era under Zia, but “in the Zia era, there was no action against Riba ... everything about Islamisation seemed to be regarding women,” Shahid added.
New law
Enhanced punishment
Under the now-defunct PMLO, the punishment for charging high rates of interest – defined as charging compound interest, or simple interest at a rate higher than 7.5% per annum on a secured loan, 12.5% on an unsecured loan, or 2% above the bank rate – was imprisonment for up to six months and/or a fine. The punishment was rarely, if ever, applied.
Under the new law, PPPMLA, punishment has been enhanced with imprisonment for a term which may extend to ten years or a fine which may extend to Rs500,000 or both.
A similar law has also been passed by the Khyber-Pakhtunkhwa Assembly.
Published in The Express Tribune, October 26th, 2012.