The twisted bond between urban poor and local moneylenders

Md Kalam worked as a guard in an apartment building for a Tk10,000 monthly salary. When he died of kidney failure, he left his wife and only son with a Tk50,000 loan and no savings.  

Sharmin Nipa had to start working as a housemaid in the capital's Khilgaon area after her husband's death. Nipa became her family's sole breadwinner. With growing expenses, Nipa struggled to cope with the house rent, food expenses and not to forget, the loan her husband left behind. 

"It was not a loan from a bank or organisation. Jalal bhai and Khurshida apa lend money in exchange for a Tk100 per thousand interest rate. And we have to pay the interest per month," Nipa said.

Nipa has to pay Tk 5,000 as interest every month, until she repays the principal in full at once. Now Nipa is trying to borrow money from her relatives. She even took a loan from one of the homes where she works — as she tries to repay the loan in full. 

"Every month I have to carry this burden. Half of my month's salary goes there [loan interest rate]. I have to stop this at any cost," Nipa lamented.  

In the slum where Nipa and her son live, people like Khurshida and Jalal have connections. Whenever someone needs money, s/he can ask for their numbers, and the money lenders send the money through their people. Then, every month, these people visit the borrowers and collect the monthly interest. 

What if someone refuses to pay the interest? "These people have the worst language ever. They shout and utter the ugliest slang in front of all the other people in the slum. Out of this fear, everyone pays the interest on time," Nipa replied. 

Not just in Khilgaon, these money lenders are omnipresent from the Gulshan-Banani's Korail slum to those in Agargaon and Mohammadpur. The urban poor community depend on them.

Moneylenders provide financial aid in terms of loans to small urban poor and lower-income groups, who find it difficult to access financial institutions. It involves advancing small amounts of money at a high rate of interest. 

According to the 1940 Money-lenders Act, no money-lender can carry on the business of money-lending unless he holds a valid license. This means, technically, these local money lenders' work is illegal. 

This brings us to how this informal money-lending model runs in different forms and names. "As the microcredit system is not as popular in the urban community, various informal money lending models run here. Banks, microcredit organisations or other financial institutions need certain documentation, and there are other regulations that one needs to follow," explained Sayema Haque Bidisha, professor of Economics at the University of Dhaka.  

She continued, "For someone belonging to the urban poor community, it is easier to go to someone who has a money lending system." 

In the absence of proper licenses or authorisation from regulatory bodies, these moneylenders can exploit the poor through high interest rates, which eventually traps the borrowers into a vicious cycle of interest-loan repayment.  

Who are these moneylenders?

Md Jalal Miah (not his real name) owns a local bakery in Khilgaon, the kind of bakery that makes cheap cakes, breads and biscuits for tea stalls. While his younger brother Md Osman Goni handles the bakery business, Jalal looks after the money lending business. 

From rickshaw pullers to lower middle-income groups, people in Khilgaon come to Jalal to borrow money. Generally, the reasons for these loans vary between a daughter's marriage, medical treatment or buying things. Jalal is likely popular because he is capable of lending a bigger amount compared to other money lenders.  

Why are informal money lenders in such high demand? "Many of these people never even stepped inside a bank. They are not aware of the banking system. Also if you want to take a loan from any bank, there is multiple paperwork, and you have to fulfill certain conditions. And these people do not have a formal job or regular income," explained Md Jalal.

While there are microfinance options available, they also come with certain conditions. 

Before lending money, Jalal checks certain factors. Whether the person is known by his neighbours and whether s/he has a job. If the amount exceeds Tk70,000, the borrower needs to have a guarantor who Jalal knows. 

"Although most of them do not have anything precious [valuable], sometimes they want to mortgage a piece or two of gold or silver for money. But I do not accept that because this business works on interest," Jalal said. 

Khurshida Begum (not her real name), a housemaid, runs a similar business in Sipahibag and Banasree area but she has lower stakes. She cannot lend more than Tk10-15,000. 

"During Eid and Puja, I get bonuses from the houses where I work. Instead of spending the money, I run it in Shuder Karbar [a money lending business]," Khurshida said. 

While she works all day, her niece Pakhi walks into nearby slum homes to collect the monthly interest. Currently, she gets interest from three borrowers. 

"I invested Tk30,000 — 10, 15 and 5 thousand to each [client] three months ago. So for the past three months, I have been getting tk3,000 as interest," Khurshida said. 

Khurshida is planning to buy a couple of goats in her village in Patuakhali, where her father resides, with the money. He will raise those and sell them during the coming Eid ul Adha.  

"Shuder karbar [interest or Riba in Shariah law] is haram in Islam, but the banks work in this model. I am helping poor people by lending them money in the same process. And how else can I change my economic situation? I am just a maid," Khurshida told TBS. 

The plight of borrowers 

Many of the borrowers have paid three to five times what they borrowed initially. In the end, some have to sell something valuable to repay the principal. 

Asma and her family have been living in the Korail slum for the last 26 years.  After a fire incident in 2016, Ajmol Mia, Asma's father, took loans from a lender in Korail and rebuilt the two-storey residence. This has 17 rooms that have been rented out, and three rooms they kept to themselves. 

Besides being rented out, some of these rooms are also sold — although legal ownership is non-existent, as the slum stands on government land. 

With the Tk25,000 from rent that Ajmol gets, he has to pay off the interest on the loans he took from a money lender. Currently, the family is struggling to repay the loans at an interest rate of 4%. 

"She [the lender] has connections with local politicians and leaders. If anything goes wrong, she can take it a long way," said Asma. In some cases, shalish or community courts are set up to solve the matters if the borrower cannot repay the money.