WEB DESK: Charging excessive interest from the borrowers by private lenders has finally been banned in Khyber Pakhtunkhwa (KP) province through a Bill “KP Prohibition on Interest on Private Loans” passed in the provincial assembly on 19th September, 2016.
After the enactment of the Act, no lender would lend money to any person for the purpose of receiving interest and whoever contravenes the provisions of the Act would be punished with imprisonment ranging from 3 to 10 years and a fine not exceeding one million rupees. Besides, whoever abets, engages, assists or aids the money lender in lending money on interest or its recovery would be liable to the same punishment. Furthermore, whoever molests any borrower with the intention to force such debtor to pay back loan would be punishable with imprisonment not exceeding five years and a fine up to five hundred thousand rupees.
The local police would be bound to register cases under this Act within three days of the receipt of any application/complaint and on commencement of the Act, every obligation of borrower to pay interest would stand extinguished. Also, an offense under the Act would be cognisable, non-compoundable and non-bailable. In case the penalty imposed on money lender under the Act is not paid, the court may order to recover the amount payable by selling assets belonging to such person. Where any lender refuses to accept the money or other property due in respect of his loan, the debtor could deposit the said money into the court having a jurisdiction to entertain a suit for recovery of such loan.
The reasons for the ban on interest-based private money lending by the KP Assembly are obvious. The injunctions of Islam as laid down in the Holy Quran and Sunnah have explicitly and unequivocally prohibited charging of interest on loans and declared war against those who do not abandon interest.
The Constitution of Islamic Republic of Pakistan also obliges the state to take steps towards enabling the Muslims of Pakistan, individually and collectively, to order their lives in accordance with the fundamental principles and basic concepts of Islam and to provide facilities whereby they may be enabled to understand the meaning of life according to the Holy Quran and Sunnah. Although it may be difficult to defend the present traditional banking system based on fixed interest under the above religious commands and the constitutional requirements, this system is still in vogue in the country due to its conformity with international standards, reasonable interest rates, and its pivotal role in facilitating economic development.
While the matter of continuation of the traditional banking system is still under consideration mainly due to the interpretation of usury and some other reasons, there is no disagreement that private money lending based on usurious rates is highly exploitative and utterly unacceptable. There are numerous examples in society where a needy person got a loan from a private money lender at very high interest rate and was never able to repay the principal amount throughout his life, forcing his future generations to slavery and unending misery. We feel that the KP government has done the right thing by enacting the new law in a comprehensive manner and it is hoped that other provinces would also do likewise in order to stop the menace from their jurisdiction.
However, since usury has been in existence for a very long time, particularly in the KP, it would be hard to eliminate the practice altogether and in one go, especially if the borrowers continue to be eager to get loans even at higher rates for a variety of purposes and the lenders are prepared to part away their money to earn abnormal returns. One way to overcome this problem could be the rapid expansion of banks’ branches in remote areas of the province and urge upon the needy people to access this network for loaning requirements through a publicity campaign. Also, it is quite obvious that money lenders would try to find other ways to deploy their funds.
They could deposit the money in the banks, invest in NSS or find other avenues of investment like purchase of land and property and the implications of each avenue of investment will be different. The KP has dislocated an old established system and for the right reasons and it will be in the fitness of things if the provincial government also analyses the issue from all the angles, preferably with the assistance of country’s central bank.
Source: Business Recorder