Decoding Karnataka debt trap: Rise of a new breed of private moneylenders

MANDYA: A new breed of moneylenders has pushed farmers of moneyed Mandya district in Karnataka into an endless debt trap, leading to mounting suicides, even as the institutionalised credit system has failed them. The system is so well entrenched that the borrowers themselves are taking steps to protect the moneylenders from a government crackdown on the practice.

Farmers — big, small and marginal — have taken loans from private moneylenders for various purposes — weddings, admission fees, school fees, child’s naming ceremony, death ceremony for a parent and also for seeds to sow, fertilisers and so on. This demand has created a new, private moneylender: the government servant living in the village, who earns a fixed salary and has a much better money flow than anyone else in the region. In village after village that ET went to, the moneylender was typically either the government school teacher or headmaster or an employee of a government department.
He — and in several cases, she — lives in a well-constructed brick-and-cement house that could rival those in the state capital Bengaluru. The moneylenders are sympathetic, friendly and accessible to all the villagers. They operate on the implicit knowledge that no one will betray them and everyone will repay them, an unspoken code of honour.