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
- Whether they are capable of managing a firm that lends money.
- Whether the applicant’s location is suitable for operating their firm.
- 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.
Documents Required for a Money Lending License
The following documents are required to obtain a money lender license
- Application form ( Form A)
- Passport size photograph
- (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
- According to Section 39 of Maharastra’s Money Lending Act, anybody who undertakes money-lending activity without a valid license risks a punishment of –
- Imprisonment for a term that may be up to 5 years, or a fine of up to ₹ 50,000, or both.
- 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.
FAQ’s
Do money lenders need to be licensed?
Yes, money lenders need to be licensed to operate legally in India. The licensing process involves obtaining a money lending license from the appropriate authority, such as the RBI or the State Legislature.
Can I lend money without a license?
No, lending money without a license is illegal in India. Operating without a license can lead to severe legal consequences, including fines and imprisonment.
Is money lending illegal in India?
Money lending is not illegal in India, but it is regulated by the Money Lenders Act in different states. To lend money legally, individuals or organizations need to obtain a money lending license from the appropriate authority.
Can a private person lend money with interest?
Yes, a private person can lend money with interest However, the interest rates and lending practices must comply with the rules and regulations governing money lending in India.
How can I legally lend money in India?
To legally lend money in India, individuals or organizations need to obtain a money lending license from the appropriate authority. The licensing process involves meeting specific eligibility criteria and submitting the required documents.
What is the punishment for illegal money lending in India?
Operating as an illegal money lender in India can lead to severe legal consequences, including fines and imprisonment. It is essential to obtain a money lending license to lend money legally in India.
What is the legal document for lending money?
The legal document for lending money is a loan agreement, which outlines the terms and conditions of the loan, including the loan amount, interest rate, repayment schedule and other relevant details. It is essential to have a written loan agreement to protect the rights and interests of both the lender and the borrower.
