Every money lender is required to hold a license called a money lender license. This article examines the process, eligibility, and documents required to obtain a money lender license in India.

Money Lender License

People who need money but do not have a bank account, those who have a poor credit history, and those who are unable to borrow money from friends or family turn to money lenders for credit facilities. Money lenders primarily serve a segment of borrowers that other financial institutions, including banks, cannot reach, they fill a previously unregulated niche in the market. Even though the country has a robust network of financial institutions, access to these institutions is usually inaccessible to those living in rural areas. Moreover, because banks have strict criteria for KYC and collateral, it is challenging for them to offer loans to small farmers. 

According to Entry 30 of List II (i.e., the State List) of the Seventh Schedule to the Indian Constitution, the State Legislature has the exclusive authority to establish legislation governing money-lending businesses .

For example, the Maharashtra Money-Lending (Regulation) Act, 2014 (‘Money Lending Act’) was adopted by the state legislature to govern money-lending transactions in the state of Maharastra. Other states, as well, have their own money-lending regulations. Similarly, the Tamil Nadu Government oversees the money lending process by the Money Lenders Act of 1957.

Scope and Need for a Money Lender License

To prevent unregulated indigenous lenders from charging borrowers high interest rates, money-lending legislation was developed by various state legislatures. These regulations normally demand that money lenders obtain licenses, have a cap on the amount of interest they may charge, and generally stipulate that a court of law will not hear a case brought on by an unlicensed money lender.

Conditions for Obtaining a Money Lending License

According to the Money Lending Act operational in Maharastra, no money lender may conduct money-lending activity except in the region for which he has been given a license. The word used here is ‘money-lending business.’ Money-lending here refers to the providing of loans in cash or kind, whether in combination with or in addition to any other business.

Who Is Eligible for a Money Lender License?

When determining whether an applicant is eligible for a money recovery for a lender license the following aspects are taken into consideration

1. Whether they are capable of managing a firm that lends money.
2. Whether the applicant’s location is suitable for operating their firm.
3. Whether granting the license would be contrary to the general welfare.

These aspects are taken into consideration when a license is issued, renewed, or endorsed. 

The following documents are required to obtain a money lender license 

1. Application form ( Form A)
2. Passport size photograph
3. (3) specimen signatures mentioning the money lender’s name as well as his nominee

How to Get a Money Lender License in India

To obtain a money lending license, the following steps must be followed.

• Step 1: The applicant must head to the appropriate Tahasildar office o
• Step 2: Following this, the applicant must obtain the application form from the Tahasildar, for which the applicant must pay a fee of ₹100.
• Step 3: The applicant must then fill out the application form with the necessary information.
• Step 4:  Once duly filled the form must be submitted to the Tahasildar’s office.

Validity of Money Lender License 

The Revenue Department typically issues a money lender license three to four months after the application is submitted. The application is valid for a year after it has been submitted. However, 

Penalty for Not Obtaining a Money Lender License

1. According to Section 39 of Maharastra’s Money Lending Act, anybody who undertakes money-lending activity without a valid license risks a punishment of –
2. Imprisonment for a term that may be up to 5 years, or a fine of up to ₹ 50,000, or both.
3. In our opinion, given the seriousness of the penalties for lending money without a legitimate license, lenders must determine if they are in the money-lending industry and whether they have a proper license to do so.

Conclusion

Obtaining a valid license under the Money Lending Act allows money lenders to operate legally and have legal expert remedies against defaulters, nevertheless one of the primary reasons for non-registration is the interest rate ceiling. Moreover, many lenders are not even aware that such a license is required. 

Though acquiring a money lender license appears to be a hassle, it is always a good idea to do so, especially if you are lending substantial sums of money. Furthermore, given the high likelihood of default in the money lending industry, it is preferable to obtain a license, since only registered money lenders may bring such matters to a court of law.

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