The bill criminalising usurious lending endorsed by the House of Representatives on Sunday has sought to address the concerns of the lenders also. The last-minute tweak was made under pressure from the ruling Janata Samajbadi Party (JSP), which had been opposing the bill.

The bill, which replaced an ordinance, was earlier endorsed by the National Assembly on June 30.

The ordinance brought by the government three months ago lost its validity on July 5 creating a legal vacuum briefly. Loan sharks emboldened by the expiry of the ordinance had even started ignoring calls from a government commission for a compromise with victims.

The JSP had claimed that the new law would discourage genuine lending too, which is vital, particularly in Madhesh region where the poor have very limited access to institutional banking services. But on Sunday after some last-minute changes to the bill, the party too agreed to support the bill and it was unanimously endorsed by the lower house.

Lawmakers of the House of Representatives did not change the proposed maximum penalty against loan sharks, but made a slight amendment so that the loan sharks would be penalised based on the degree of their offence.

The original bill said anyone involved in loan sharking could be sentenced up to seven years in jail and fined up to Rs70,000. But following JSP’s opposition to stiff punishment, the provision has been changed stating that such punishment would be determined based on the degree of the offence.

Also, the original bill said the loan sharks would be made to pay an equivalent amount back to the victims if the lenders had taken cash or fixed properties to recover the loans.

In the amended provision, the alleged loan shark has been given certain leeway to get back the lent amount and the interest amount as determined by the law, from borrowers.

Only after ensuring recovery of actual loans and interest from the alleged victims will the creditor now have to return additional amounts taken from the victims either in the form of cash or fixed properties.

Likewise, the endorsed bill has given more leeway to register any loan sharking-related transactions between creditors and the borrowers at local government offices.

As per the initial provision, the two sides needed to get their transaction verified by the local government or its ward office within six months of the Act coming into effect.

Before verifying the transactions, the concerned local governor or its ward office could conduct a probe.

Following the amendment, there is a leeway not to have to verify the transactions within six months, in certain circumstances.

If one side in the transaction is outside the country, verification of the transaction should be conducted within six months after the party’s return from abroad.

Likewise, if one side in the transaction cannot be present at the local government office or ward office for verification of physical or mental disability, such a person’s nominee can verify the documents.

If any side in the transactions does not attend the local government office or its ward office deliberately for verification of documents, the local government office needs to verify the transactions after probing the reality.

After these amendments sought to address the issues of the creditors, Janata Samajbadi Party agreed to endorse the bill, whose authentication by the President will make it a law.

Pradeep Yadav, chief whip of the JSP parliamentary party, claimed that his party endorsed the bill after the amendments addressed 99 percent of the concerns that his party had raised in the original bill.

“Following the changes, the bill became more balanced and we voted in its favour,” said Yadav. Earlier, he had warned that his party would vote against the bill if it was tababled unchanged.

He pointed out how the original bill risked victimising even honest lenders.

“There was a possibility that even genuine transaction documents would be invalidated if the borrower, with the intent of not paying back the loan, did not get them verified by the local government offices within the deadline,” said Yadav. “The amended provisions allow the local government offices to verify the documents even if another side does not reach the local government office for verification if a probe shows that the transaction is genuine.”

Yadav said that the endorsed bill would also allow the lender to receive the actual loan and legally bound interest on the principal. “The only thing we could not secure in the amendment was preventing the law’s retrospective powers,” he added.

The amendment to the bill has criminalised the loan sharking practice. As per the bill’s definition, loan sharking activities include making victims sign a promissory note without any money being lent, mentioning higher amounts in the documents than what were actually lent, and preparing a promissory note by adding the interest to the principal before lending.

Other punishable offences are not providing receipts for the amounts paid by the borrowers, threatening and exploiting borrowers, and unlawfully seizing their properties.

Gauri Bahadur Karki, chairperson of the inquiry commission formed to resolve the problems created by usurious lending, said that even after the amendments to the original bill, it remains a strong piece of legislation.

“There have been certain cosmetic changes to appease the political forces that had opposed the original bill,” said Karki. “The biggest virtue of the endorsed bill is that it has criminalised the practice of loan sharking, which plunged the victim into a vicious cycle of indebtedness.”

Karki said that existing laws have preserved the rights of the lenders to recover their loans and their legal interest thereon. “We have ensured the recovery of actual loans and the legally-bound interest while bringing two sides together to settle their transaction dispute,” he added.

According to the commission, it could help settle transaction disputes related to 1,882 complaints through compromise by giving priority to out-of-court settlements.

As per the victims, the loan sharks had prepared loan documents by inflating loans by Rs 898 million in 1,882 cases. The alleged loan sharks had claimed as much as Rs1.71 billion, but they agreed to settle their disputes with the victims by receiving just Rs 567.44 million, according to the commission.

“The gap of Rs1.14 billion between the agreed settlement amount and the claimed amount suggests how alarming the problem of loan sharking is, particularly in Madhesh,” the commission said in a statement.