The alleged loan sharks who had initially asked for as much as Rs7.62 billion, have settled for only R1.72 billion during negotiations facilitated by an inquiry commission formed to address loan sharking problems.

The significant reduction in settlement amounts suggests the lenders had inflated their claims and may have lent much less than the amounts indicated in the tamasuks, personal mortgaging contracts with borrowers.

“Would they agree to settle for such a low amount if they had actually lent the amounts claimed in the loan agreement papers?” said Gauri Bahadur Karki, chairman of the inquiry commission formed to resolve the nationwide loan-sharking problem.

Since its formation in April, the commission has collected complaints and made efforts to settle disputes through compromise decrees. It submitted its report to the government earlier this week.

After collecting the complaints, the commission had formed a task force in each district headed by an assistant chief district officer in an attempt to settle disputes through compromise decrees.

According to the commission, it settled as many as 5,188 complaints of a total of 27,582 through compromise deals. Most complaints originated in eight districts of the Madhesh, and the commission has settled most of these complaints through compromise.

It could settle as many as 3,689 complaints through compromise. As many as 643 complaints were settled in Bara alone, the highest in a district.

Most lenders not only agreed to settle for lower amounts than mentioned in the mortgage documents, but also to return the lands the victims claimed were unjustifiably seized by inflating the loan amounts.

According to the commission, the total loan amount mentioned in the personal mortgage documents in its possession is Rs5.57 billion. As a part of the settlement, the lenders also agreed to return to the borrowers over 218 bigha [147.6 hectares] of land which were allegedly seized by artificially inflating loan amounts.

But the commission had little time to settle all the complaints, given the significantly high number. And in many cases, lenders have refused to resolve disputes through compromise.

With the commission concluding its work by submitting a report to the government, it suggested the government authorise concerned chief district officers to continue settling disputes through compromise decrees.

The government, in early May, introduced an ordinance criminalising the practice of loan sharking, which greatly helped the commission settle disputes through compromise between the two sides.

When the ordinance was in force, the commission would warn the lenders that they could be prosecuted if they didn’t opt for a compromise.

“As a result, many loan sharks had agreed to settle disputes by withdrawing court cases and also promised to return the lands they had seized from borrowers,” Karki had earlier told the Post.

The government had formed the commission in April and introduced the ordinance after loan shark victims protested in Kathmandu for several days demanding justice. The Parliament in July passed a new bill criminalising loan sharking.

The law criminalises the practice of lending money for interest through unfair transactions. It terms forcible transfer of the debtor’s immovable property through the use of any kind of threat or violence or exploitation for the purpose of debt recovery as an unfair transaction. Charging exorbitant interest to the extent that the interest exceeds the principal amount is punishable, as per the new law. It has a provision that individuals who engage in transactions against the rules can be imprisoned for up to seven years and fined up to Rs70,000.

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

Karki said their report has also suggested further reforming the law. “We have suggested making provision in the law to allow the lender to deposit the loan in the bank account of the borrower and the loan deal document to be registered with the local government,” he said. “The yearly interest rate cannot be more than 10 percent.”

He said the commission has also suggested enforcing laws to curb extravagant spending in social and religious functions such as wedding ceremonies. “The poor often take out loans to honour the tradition and end up falling prey to loan-sharking,” he added.